Dream Homes Rebuilding Blog – 1-5-14
Tell Me Again Why We’re Lifting Our House – Part 2 – Flood Insurance Comment & Update
Hello Sandsters and I hope your New Year is going well!
Before I get started, I am offering a sincere prayer for brevity. “Please God, I hope everyone reading this blog is healthy and that you allow me to be BRIEF today in my scribblings…Amen.” We’ll see how that works out Sandsters.
(My mother used to say I have diarrhea of the mouth (nice thought, right?) and my girlfriend tells me constantly that I talk too much. Unfortunately, I fear there may be a morsel of substance to these claims.)
Clarification from last week, from Scott Lepley, architect to the stars (and the Jersey Shore): “Reverse living” is actually living space on the second floor, as opposed to the first, and is designed to take advantage of the views. The way the term is commonly used by many people and the way I used it last week, is living space in the rear of the home facing the water. The correct definition is actually the former (which Scott pointed out to me), but I’ve found its most common understanding and usage at the shore is the latter definition. Use whichever definition you like.
Anyway, today I am focused like a laser beam on this item – details about insurance costs. I had a number of inquiries requesting insurance cost clarification so I will elaborate on that item today.
Quote from last week’s blog: “The second reason to lift your house is to keep your flood insurance affordable. If you are at base flood elevation now and stay there, your $1200 insurance policy will be $11,000 in 5 years and will increase by $2000 a year from now until then. Not a happy thought but a good one to keep in mind while going through rebuilding hell. It makes all this aggravation worthwhile.”
Here are the real numbers about flood insurance rates Sandsters. These are facts (not rhetoric or heresy) for your consideration.
Flood insurance costs are based on cost per hundred dollars of value, down to a minimum policy amount, which is generally about $800 per year.
(Please note that value for insurance purposes is a somewhat ephemeral, nebulous concept. You must insure for at least the amount of your mortgage, regardless of how much your property is worth. Additionally, you are not permitted to arbitrarily choose the amount of your insurance, regardless of how much you owe. So if you owe $150,000 on your mortgage and the property is worth $300,000, you cannot decide to insure for $150,000. If you owe $300,000 and the property is worth $225,000, you cannot insure for $225,000. It is an unfortunate condition that we all must live with.)
To elaborate further, if your insured value is $250,000 and your insurance rate is $.74 per hundred, your yearly premium is $1,850.
Here are the approximate rates for various elevations of your home, relative to your advisory base flood elevation. Keep in mind that each policy is adjusted slightly for specific conditions such as storage and garage as well as structural and mechanical elements below base flood, but these numbers are close enough for good comparative analysis.
BFE -1: $4.88 per hundred $ of value
BFE: $2.68 per hundred $ of value
BFE +1: $1.64 per hundred $ of value
BFE +2: $ .74 per hundred $ of value
BFE +3: $ .43 per hundred $ of value
BFE +4: $ .37 per hundred $ of value
Remember: take the total value of your house, divide by 100 and multiply by the above costs. Example: A $200,000 house elevated to BFE +3, will pay about $860 per year. The same house at BFE-1 will pay $9,760 per year.
That is truly a material difference in cost which you must be aware of when rebuilding.
You have heard me say and write that we advise clients to go to BFE+3, despite the fact that the state minimum is BFE+1. That is because the benefit drastically outweighs the costs – that same $200,000 house is $3,280 per year, vs. $860 per year. You pay back the additional elevation cost within several years, and then save money indefinitely.
Conversely, the benefit of going to BFE+4, does not necessarily outweigh the cost of elevating an additional foot. $740 per year at BFE+4 vs. $860 at BFE+3, is not a significant difference.
When comparing different heights, please consider that if you do nothing your total costs over a 5 year period will be a sobering wake up call. If you don’t raise your house high enough, it is possible that you will be stuck with an unsustainable flood insurance premium, or worse yet, not be able to sell based on the extra costs to maintain your home.
Even though increases are phased in at a maximum 20% of existing premium per year over 5 years (as per the Biggert Waters Act of 2012), at the end of that time, the rate jumps to the market rate. So it is $1,000, $1,200, $1,440, $1,800, $2,250, $8,000. That’s no fun. If you don’t lift, you probably can’t afford to stay in NJ, at least not in your current home.
Hope this helps. As always, call or write with any questions.
Stay well Sandsters.
Dream Homes Ltd.
Atlantic Northeast Construction LLC
Licensed NJ New Home Builder License# 045894
Licensed NJ Home Improvement Contractor License# 13VH07489000
PO Box 627
Forked River, NJ 08731
Office: 609 693 8881 F: 609 693 3802
Cell: 732 300 5619