{"id":4821,"date":"2022-11-15T17:26:00","date_gmt":"2022-11-15T21:26:00","guid":{"rendered":"https:\/\/propertyonion.com\/education\/?p=4821"},"modified":"2022-11-29T17:27:36","modified_gmt":"2022-11-29T21:27:36","slug":"fema-ruling-gives-fl-investors-a-chance-to-purchase-distressed-hurricane-properties","status":"publish","type":"post","link":"https:\/\/propertyonion.com\/education\/fema-ruling-gives-fl-investors-a-chance-to-purchase-distressed-hurricane-properties\/","title":{"rendered":"FEMA Ruling Gives FL Investors a Chance to Purchase Distressed Hurricane Properties"},"content":{"rendered":"\n

Hurricane Ian was possibly the costliest storm in Florida history<\/a> and the second costliest nationally when adjusted for inflation. <\/p>\n\n\n\n

Risk management company RMS<\/a> puts the total insured losses caused by the hurricane at $67 billion and estimates another $10 billion in losses due to storm surge and inland flooding for the National Flood Insurance Program<\/a> (NFIP).<\/p>\n\n\n\n

As devastating as Hurricane Ian was, it also created opportunities for investors to snag distressed<\/a> properties from motivated sellers. What\u2019s more, a little-known NFIP regulation, called the FEMA 50% rule, may open the door to even more property deals than usual.<\/p>\n\n\n\n

\u201cIf the cost of improvements or the cost to repair the damage exceeds 50 percent of the market value of the building, it must be brought up to current floodplain management standards.\u201d<\/em><\/p><\/blockquote>\n\n\n\n

In this article, we\u2019ll go over what the FEMA 50% rule is and what makes Florida\u2019s Gulf Coast an attractive real estate market to invest in right now (as well as some of the challenges of investing in Florida beachside properties).<\/p>\n\n\n\n

Let\u2019s get started!<\/p>\n\n\n\n

What Is the FEMA 50% Rule?<\/strong><\/p>\n\n\n\n

The FEMA 50% rule<\/a>\u2014aka the Substantial Damages and Substantial Improvements rule\u2014refers to an NFIP regulation that says: <\/p>\n\n\n\n

\u201cIf the cost of improvements or the cost to repair the damage exceeds 50 percent of the market value of the building, it must be brought up to current floodplain management standards.\u201d<\/em><\/p>\n\n\n\n

This rule applies to residential and commercial properties that were built before December 31, 1974 (or prior to the date when the community had to participate in NFIP) and that are located in an officially designated Special Flood Hazard Area<\/a> (areas with a 1% annual chance of experiencing a flood). In other words, many of the areas impacted by Hurricane Ian.<\/p>\n\n\n\n

If a property that is subject to the FEMA 50% rule isn\u2019t brought up to code, it can\u2019t be insured. <\/p>\n\n\n\n

Most of the time, properties subject to the FEMA 50% rule need to be lifted above flood level to be brought up to code. However, this takes a lot of money.<\/p><\/blockquote>\n\n\n\n

To determine if a property is subject to the 50% rule, you must divide the cost of the project (including all materials, labor, built-in appliances, overhead, and profit) by the market value of the building (the structural elements minus the land, plans, surveys, building permits, and non-permanent parts of the structure, like driveways, pools, and seawalls, etc.). <\/p>\n\n\n\n

To find a property\u2019s market value, homeowners can either get a new property appraisal done or go to their county appraiser\u2019s office, which maintains the assessed value<\/a> of the property for tax purposes.<\/p>\n\n\n\n

For example, if the improvement\/repair project costs $60,000, and the market value of the property is $100,000, then the formula would look like this:  $60,000 \/ $100,000 = 0.6 (60%)<\/em><\/p>\n\n\n\n

In this case, the project is equal to 60% (over 50%) of the property\u2019s market value, so it would be subject to the FEMA 50% rule. From there, homeowners need to (if they haven\u2019t already) verify if the property is in a flood zone<\/a>, whether the Authority Having Jurisdiction (AHJ) has adopted NFIP rules, and whether the interior floor level is below the base flood elevation. Here\u2019s a helpful flowchart published by the consulting firm J.S. Held that illustrates this process:<\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

Source: https:\/\/jsheld.com\/insights\/articles\/femas-commonly-misinterpreted-50-rule<\/a><\/p>\n\n\n\n

Most of the time, properties subject to the FEMA 50% rule need to be lifted above flood level to be brought up to code. However, this takes a lot of money. According to HomeGuide.com<\/a>, it costs $10,000 to $40,000 to raise a house and $20,000 to $100,000 to lift a house and replace its foundation.<\/p>\n\n\n\n

As a result, many homeowners are forced to sell their houses, and they\u2019ll often be desperate to sell fast, so they can put the sale money toward another house to live in. This creates an opportunity for investors to sweep in and buy the distressed property at a bargain price. As an investor, you should be on the lookout.<\/p>\n\n\n\n

If the state were a country, it would be the 15th largest economy in the world<\/a>. The high labor force growth and low unemployment rate (2.5%<\/a>) create a healthy job market that attracts hundreds of thousands of new move-ins every year. <\/p><\/blockquote>\n\n\n\n

Other Reasons to Invest in the Florida Real Estate Market Right Now<\/strong><\/p>\n\n\n\n

On top of the distressed properties<\/a> and motivated sellers brought on by Hurricane Ian, there are many other reasons to invest in the FL real estate market right now. Here are a few to consider:<\/p>\n\n\n\n