Would really appreciate your input.
By now everybody has heard about the new Biggert - Waters flood insurance bill and how it will devastate the coastal area and crash the real estate market.
In short, flood insurance premiums will go up by 25% each year for homes in flood zones built before 1975 until they reach the "true risk rate" unless you sell your home then the new buyer will have to pay "true risk rate" immediately.
We are trying to sell a home right now for $256,000 in South Pasadena NOT on the water. The current flood premium is $1600 the buyer just got his new quote of $12,900. Needless to say, the buyer wants to back out of the contract.
In order to save the deal I just got very creative.
Instead of a straight forward purchase we could do a Lease Purchase ( not to be confused with a lease option). In a lease purchase the buyer and seller agree on a sales price and a sales date in the future. Buyer pays a non refundable down payment and till sales date makes monthly payments that go towards the sales price.
Till the sales date the seller still holds the deed and therefore the flood insurance policy. So it would be a 25% increase on his old premium and NOT full risk premium right away.
In our case it could be structured like this
Sales price $256,000
Non refundable down payment $256,000
Closing in 3 years
Buyer pays all cost for the house including taxes repairs etc
Seller pays flood insurance. That yearly amount gets divided by 12 and this is the monthly payment the buyer makes to the seller.
I have talked to tons of people in the real estate business and to government officials and insurance agents about this new flood insurance bill.
We all agree that this bill CAN'T be implemented and that our government will wake up in the next year or two and realize how big of a mistake they made. Unfortunately by then they will have destroyed the coastal areas and it is going to be too late.
Maybe my idea is a way around this new flood insurance bill until we get our government to understand what they are doing.
It is ridiculous that I even have to think around corners like that but this is the only solution I can see.
PLEASE give me your input.
What do you think?
Could this work?
Any other ideas?