When I first looked at this property several years ago, it had just been put in a newly designated flood zone by the Federal Emergency Management Agency (FEMA). Because of FEMA’s new base flood elevation, the house required either flood insurance or an engineer’s certification that its finished floor elevation (or FFE) was higher than the base flood elevation.
At the time I looked at the house, it was in need of some remodeling. It was a cute house; 3 bedroom, 2 bath; 1200 sq. ft.; and was on a private lot. The owners wanted $69,000 for it, but because of the flood zone issue I hesitated on purchasing the home, and another guy bought it instead.
The guy who bought the house was okay with the flood zone issue, and he hired an engineer to come out and see if the house was above base flood elevation, which it was by 5 feet. Once the engineer issued a certificate for the house, the new owner had to apply to FEMA for a Letter of Map Amendment (LOMA) to verify that the home was no longer in a flood zone. The tricky thing about this process is that it takes a long time. The man tried to sell the house four or five times in the meantime, but every deal fell through because he never received the LOMA.
Eventually, the man who bought the house called my realtor and asked if I would be interested in buying the house from him. He was tired of keeping up with it and wanted out. By the time he offered it to me, he had put $15,000 worth of repairs in the house and was asking for $84,000, and I ended up buying it.
Two weeks after closing on the house, we got the notification that FEMA had approved the certification and would give us a LOMA. This was just pure luck. Today, the house is probably worth $140,000-145,000, and we rent it for $1,000 a month. Below is more of its financial breakdown at the time we bought it:
Purchase Price: $84,000
Down Payment: $16,800 (20% of purchase price)
Amount Borrowed: $67,200
Monthly Rent: $1,000
Monthly Payment: $372 (37% of the gross rent)
Monthly Free Cash Flow: $450
With a free cash flow of $450 a month, this property was (and continues to be) a cash cow for us, and we actually ended up paying off the property early.