Partial Government shutdown begins to impact flood insurance and home buying
According to Fox News, over 800,000 Americans are living without a paycheck. That number includes the people who work at FEMA, which recently posted this on their website.
If you already have flood insurance and have a claim, don’t worry because this will not affect you (yet?)
However, this is very troubling news for those who are currently buying a home.
Getting new flood insurance during the government shutdown is not going to happen as long as FEMA is out of work.
After such a hard hitting hurricane season, the effects of the government shutdown could be a real blow to many families living in the Carolina's, Florida and Georgia.
And it’s not just affecting flood insurance,it's starting to hit the entire U.S. Economy.
There is no way to know exactly when the government shutdown will end. One thing is for certain, If you are in the market to buy a home in a flood zone, be prepared to wait.
When people contact us about getting home insurance near water often it's someone who owns a vacation rental home.
Being located in Chesapeake, Va gives us a wide variety of people who want to buy a vacation home in places like Virginia beach, Chesapeake, Norfolk and Hampton but we also get some requests from our customers that live in the Carolina's and Georgia as well.
Owning a vacation rental homes near water are one of the staples for our business but on occasion we end up having clients that go into these investments based on the advice they get from books or TV shows that don't really give them a full picture of the ups and downs of owning a vacation rental home near water.
In this article we want to help you come to a more full understanding of what you should consider when buying a vacation rental home.
Are Vacation Rental Homes Good Investments?
Owning a vacation rental is a great investment for the right person. It gives you a comfortable way to enjoy your vacation and gives you the benefits of owning a real estate investment when you are in your primary home. But, the key is to know if you are the right person.
The right person has to be focused on what a vacation rental home actually is, a real estate investment, before they ever focus on what they get out of the deal. The right person also has to consider the financial strength of the investment first because, unlike buying a primary residence, banks tend to approach vacation rental property differently than they do with a home you plan to live in.
Many people who shop for vacation rental homes think that all they need to do is be able to put a down payment together and get a loan simply because they can afford it. Banks are usually a little more pessimistic when looking at a second home or vacation rental.
Because they consider what would likely happen in an economic downturn or if the borrow lost their primary source of income.
Most people who are living on their savings and other secondary income sources will prioritize paying for their primary residence over paying the mortgage for a vacation home.
The secret to investing in vacation homes is knowing who you will most likely be renting to.
Most first time vacation home investors think about renting the property through services like Airbnb or Homeaway, which could give you a decent amount of business. However, the place that you will most likely make the majority of rentals is..
Think of all of the people who want to have a beach front wedding.
How many of those people will likely hold a reception at a beachfront vacation rental with a pool? How many of those people do you think will want to use the same location to start their honeymoon?
Some times people will decide to get a large group of friends together a rent a vacation home.
How many? Sometimes over 20 people!
Do you think these people are going to be playing a game of chess by the fire? or are they likely to have a wild party?
These are some of the risks that you take on that most people who want to own a Vacation home for free (or for profit) just don't consider until it's too late.
What happens next is that you end up with a damaged vacation rental that isn't bringing in income, or worse, someone gets hurt on the property.
Another thing that many first timers don't think about?
Will you have staff?
Have you considered how much work it will take to maintain this vacation rental property? Are you going to be close enough to do the maintenance yourself? Are you skilled enough or do you even have the desire to maintain it yourself?
If not, you are going to need to hire staff or at least have a few service professionals that you can have maintain it on an as needed basis.
If you haven't considered this before you own the property, what was once a great investment and vacation home can turn into a money pit and a source of tension in the family.
BiggerPockets, a community for real estate investors, has a post that lists the 5 things no one tells you about owning vacation home rentals. Here's a quick review of their list. Be sure to read the full article for more detail.
1. Annual Returns can go negative
2. You My Not Be Able To Visit As Often As You'd Like
3. Repairs Can Come Up
4. HOA Dues Always
5. Vacation Homes Don't Always Increase in Value
Vacation Rental Home Insurance
One of the major costs that people don't always consider is that their vacation home near the beach is most likely in a flood zone that will eventually get hit by a hurricane.
If you don't properly insure a vacation rental home it's very likely the bank won't lend to you but if they do they could call the loan in full! Still, that is not the worst thing that could happen.
The worst thing that could happen is a severe weather pattern hits your area and you and the bank don't know that your vacation rental isn't properly covered until after you file a claim.
Flood Insurance Myths
You Don't Need Flood Insurance If Your Vacation Rental Isn't In A Flood Zone.
Even if you don't live in a flood prone area, if you own a vacation rental property anywhere on the east coast you know that we could be hit with a hurricane or a tropical storm at any time, as well as having to content with the risks of melting snow on occasion.
Homeowners Insurance Covers Flooding Because Its Water Damage
No homeowners insurance does not cover flooding just because they typically cover water damage. Homeowners Insurance will likely cover a pipe bursting but usually won't help in terms of flood damages.
Flood Maps Don't Change
Flood maps change overtime so you have to stay in contact with your insurance agent to be sure that you continue to check to see if your vacation rental is in a flood zone when flood maps are updated.
Problems Getting The Right Insurance For Vacation Home Rentals
Many people think that getting a vacation home rental property is as easy as going to google and typing "Vacation rental properties for sale" but that is not the case unfortunately.
It's not unheard of to see Vacation rental properties insurance policies get cancelled, even after closing on the home.
If you want to be certain that your vacation home will be covered properly and stay covered you need to know a few key things.
Not all insurance companies will cover vacation homes near water.
Getting home insurance near water can be difficult because many of these companies just don't want to take on the risk of having to pay out large claims in the first few years of holding a policy.
If you want to ensure a smooth process it's important to work with an independent insurance agent that can get home insurance near water from companies that are known to do business in those areas.
If you have been thinking about buying a vacation rental or already own one, it's going to be important that you continue to stay up to date with your flood map to make sure that you have the right flood insurance coverage. You should also consider how you will be insuring your home based on who you will be renting the property to, how much time during the year it could be vacant and who will be doing the maintenance.
If you want to work with an insurance agency that can cover homes near the beach, a river or any other body of water give Ferguson Insurance Center a call