BUILDING IN A FLORIDA FLOOD ZONE (PART 2 OF 3)
In Part 1 of a previous blog, SYLLA International, a modern design-oriented firm in Tampa, Florida, discussed the general challenges of building in a flood zone due to FEMA rules and regulations. In this blog we discuss specifically the challenges associated with renovating a house located in a flood zone area in Florida.
You must exercise significant caution before buying a waterfront property in a flood zone area in Florida, if you plan to make a major renovation of the house. If the house you are buying is a relatively newer house that was built above the base flood zone elevation set by FEMA, you have nothing to worry about, and you can make any renovation you want inside as long as you comply with building code requirements. You can also add to the house as long as the floor elevation of the addition is above the base flood elevation.
However, if the waterfront property has an older house that sits below the base flood elevation set by FEMA, you run the risk of not being able to do a major renovation or addition to the house after buying it. This major constraint, capable of throwing all your renovation plans out of the window, is due to the “50 percent rule” set by FEMA, which has been adopted by many municipalities in Florida and around the country. It is a rule not to be taken lightly, lest you encounter road blocks to your renovation plan after buying a house.
The rule says that the cost of renovating a house that sits below the base flood elevation cannot exceed 50 percent of the value of the house structure. This means that you have to back out the value of the land and site improvements (which are and will remain in the flood zone) and consider only the house structure itself. But here is the challenge: There are many Florida waterfront properties along the Gulf of Mexico and some lakes that were built in the 60s and 70s, whose real estate value lies in the waterfront land and not the house. Many of those houses are often considered tear-down, and 50 percent of the value of the structure will not allow you to do much renovation. Consider this, if you paid $400,000 for a waterfront property with a house sitting below the base flood elevation, and the value of the land amounts to $280,000, the value of the house itself is only $120,000. This means that the value of the renovation cannot exceed $60,000, or 50 percent of the value of the house structure. In addition, FEMA rules will not allow you to add a second floor either, because if the first floor that is not flood-resistant fails, so will the second, because supported by the first. If you want to make any addition at the ground level, it will have to be above the base flood elevation and still within the $60,000 limit. This potential conundrum can be a big nightmare, following a big check you have written for a waterfront house you planned to renovate and make it your dream home.
Many Florida municipalities and counties are very strict in their enforcement of the FEMA 50 percent rule. They will even ask you to submit a renovation cost estimate of the project before giving you a building permit. If during construction the building inspector realizes that the renovation cost exceeds 50 percent of the value of the house, the inspector may stop the project until you can prove to him/her that the renovation cost will not exceed 50 percent of the value of the house. Failing that, a nightmare will set in and can drag on for months and sometimes years. It is a stalemate with little room for you to move forward or backward without an adverse financial headache that will be very painful.
One approach some have tried is to phase the renovation cost so that it is spread over two or more years. It is possible, but before you even buy the waterfront property for renovation, check with your municipality or county building departments to see whether they will allow you to do that at all, and if so, how long you can stretch the renovation period and abide by the 50 percent rule. In our next blog, we will examine the new construction option.