How Can I Make Sure The Property I Buy Won’t Be Affected By Floods? (And bank lending limitations)

Jacob Field Published by Jacob Field on 11 April 2022

How can an investor sure that the property they buy..

..won’t be affected by floods and the bank will be fine to provide a loan considering some locations are flood zone areas in general?

Generally the rule is obviously we can’t control mother nature, we don’t know what’s going to be going on 100% in the future.

There could be, you know, the mother of all floods.

We don’t know that.

What we can control as investors is risk or minimising that risk and our returns and safeguarding those returns.

So for me when you take that approach of thinking, the only way floods can impact you as an investor is not by living in mould or being underwater or having wet feet.

It is.. “Is my rent or income going to be impacted?”

And how far is it going to be impacted too?

How are my returns or the value of that property that is going to be impacted and how can I protect against that risk?

So for me when I’m looking at a property..

..if the insurance premiums or if it is insurable and the insurance companies don’t determine that it is in a flood zone, then how will then assess it.

If I can get a policy against that property that will cover all damage to that property during floods or because of floods and the insurance premium is reasonable then the insurance companies don’t really think there is an issue… that is enough for me.

Are they wrong?

Is that likely to change in the future?

Well that’s you know crystal ball type stuff.

What it generally means, is insurance companies use their 100 year rule.

Has that property been impacted by a flood using what is likely to occur every 100 years?

You can go into local council websites and see the block (land lot) and see if it will be impacted.

That is the same data, the same overlays that are used by banks and by insurance companies to determine flood risk.

That’s good enough for me.

I want landlord insurance to recover loss of rent or impacts to tenants.

I want property insurance and I don’t want to buy a property with an insurance premium that is exorbitant because of the risk of floods, it’s just not worth it

Okay, this next part, this is personal opinion.

Ipswich is in a catchment which is a very high risk flood area, there are parts of Ipswich that have very high likelihood of flood impact.

Whereas Townsville, which is a beautiful regional city, you’ve got hilly areas, you’ve got areas down near the river,

you’ve got large, like 90% of the vast tracks that it’s just physically impossible for those areas to be really impacted by floods.

We have to pick properties in locations away from storm water overflows.

These types of high risk areas do come into our considerations, but then for the purpose of our risk and return, it does come down to insurance.

If I can get insurance for that property for $1,500 or less, I’m laughing if that insurance policy covers flood damage.

That’s that’s what we need.

And if the insurance companies are happy with that as an insurance policy amount, they obviously don’t think there’s much risk in places like Townsville.

You’ve got one property on one side of the street that has a $4000 insurance policy and on the other side of the street it’s $1500.

That’s coming down to the different risk profiles that the insurance company has for that property.

So for me and let’s think about this logically.

We don’t want to rule out a whole area, we have to be strategic and we have to acquire these properties, with full eyes open, we don’t want to be ruling out areas on mass.