Changing Flood Premiums Could Have an Impact on Rents in New Orleans

Flood insurance in New Orleans

New Orleans Flood Insurance

From CityBusiness:

The cost of flood insurance for many business properties under the National Flood Insurance Program is set to start increasing starting this year, a factor that could limit the availability of financing for individuals who own or acquire rental property in New Orleans and the surrounding parishes…..

Rates for these properties will increase by 25 percent per year until they come in line with market rates.

For the purposes of flood insurance, investment and rental properties are considered “business” properties because they are not owner occupied.

What is this going to do to rents and home values in New Orleans?

It remains to be seen, but there are several possibilities.

Landlords opting to not insure properties

If there is no mortgage on a property, landlords may decide it’s not worth the cost of coverage. That’s all fine and well until there is a disaster and FEMA or some other government agency (ie, your tax dollars) are needed to bail them out. How many times is that going to happen?

Increasing rents to cover the additional cost of insurance

This could result in some steep increases in New Orleans rents and would not be limited to areas that are more flood prone. If a landlord can get a higher rent in a flood zone, they are certainly going to increase rents on properties that are in preferred zones as well.

Reduction in prices investors are willing to pay for real estate

If the cost of owning a property increases substantially, investors are not going to be willing to spend as much, potentially driving down prices in neighborhoods that have a high percentage of tenants vs home owners and/or are located in a less than desirable flood zone.

Changes to the area flood zone maps may make this a non-issue for select landlords, but some parts of the city are going to take a hit on premiums with the recommendations. If you are an investor in New Orleans real estate, take the time to research your cost of insurance as part of your due diligence when purchasing properties.

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