Let’s talk about flooding. Lost in all the news of 2020 is the unprecedented hurricane season that’s unfolded. As this is written we’re dealing with the remnants of Hurricane Beta. Storm names have only required the use of the Greek alphabet one other time, and that began in late October. With the busiest storm month of the year ahead, we’re now well into the new alphabet.
Many equate flooding with the nearby river cresting its banks, however these days that is rarely the problem to worry about. Most flooding that we’ve experienced has come for poor drainage. These issues sneak up over time largely due to development, clogged drains, etc. For insurance purposes, the cause rarely matters. If your home suffers 10’s of thousands of dollars in damage due to half an inch of rising neighborhood stormwater, it’s unlikely your basic homeowners will help in any way. Furthermore, a common tactic these days that’s very difficult to fight is for insurance companies to even attribute most damage from major rain penetration to flooding, rather than wind and hail. There’s a documentary on Netflix regarding this issue after Hurricane Sandy devastated the Northeast.
For this reason, all investors must seriously consider flood insurance if your home is near ground level (patio homes), or in an area prone to flood at all. It gets worse with time almost without fail. If you run an aggressive financial situation where you’re unable to handle a 10k+ cost, plus several months of vacancy, you are taking a massive risk by ignoring flood insurance on a moderate to high-risk property.
If you aren’t in a flood zone, the insurance is usually relatively cheap.
Another strong recommendation is for you to immediately contact your insurance agent, and make sure that your policy includes “loss of rent” coverage. So if we have to move your tenant out due to storm/tree damage, you will have your costs and lost income covered to some extent. This coverage is very affordable, and a must-have for any investment.
Right now is a great time to get with your insurance agent and assess where you stand on coverage relative to your financial situation and risk tolerance.
Don’t miss the critical lessons of 2020, especially as the most historical storm season in history is nearly drowned out by somehow more substantial problems. Over the long term, ignoring risk has a serious cost for most who do so. Make your decisions and allocate resources for the long term, and that usually means leaving a little on the table and settling on the safest bets.