FEMA Rule Gives Investors A Chance Into Florida Real Estate

The devastation wrought by Hurricane Ian could be an opportunity for real estate investors, thanks to a federal disaster rule that victims are starting to learn about.

Homeowners along Florida’s Gulf Coast whose homes were damaged and destroyed by the storm are subject to the Federal Emergency Management Agency’s (FEMA) Substantial Damages and Substantial Improvements rule, also known as the FEMA 50% rule. The rule also applies to commercial property.

According to the FEMA 50% rule, if any repairs or renovations to the home are estimated to cost more than 50% of its value, the owner is required to bring the structure into compliance with flood damage prevention regulations. The house cannot be insured if this is not done.

“Bringing homes up to FEMA flood code requires a significant financial investment in the home,” said Zahra Antaramian, director of field operations at real estate management company ADG4 in Naples, Florida. Most of these people don’t have the money to do that. They are forced to sell the house. In that case, the investors are really the only option because the house is a total loss – it’s a breakdown.”

Hurricane Ian destroyed or severely damaged at least 11,000 homes in Florida — a number expected to rise as residential assessments continue, according to the American Red Cross.

Many of the homes in Fort Myers Beach Florida and Sanibel Island built during the 1970s and 1980s in low-lying areas were severely damaged or completely destroyed.

Favorable Tax Laws

While FEMA’s 50% rule is one reason investors may be interested in Florida now, the Sunshine State has always been attractive because of the favorable tax environment, Antaramian said.

People who work in Florida don’t pay state income tax, which creates a huge demand for housing as people come from other states to avoid paying a percentage of their earnings to the government.

Florida also does not tax income generated from investments, including real estate and rental income, although the first six months of rental income is taxed at Florida’s 6% sales tax rate.

In addition to FEMA’s 50% rule, homeowners looking to rebuild must adhere to Florida’s strict building codes, which were put in place after Hurricane Andrew destroyed thousands of homes near Miami in 1992.

“Building to Florida’s new building code is very expensive,” Antaramian said. “Commercial owners want out too. Multifamily buildings don’t want to have to deal with it.

“FEMA’s 50% rule will provide many opportunities for investors. It’s an opportunity for investors to change the landscape of an area that has been going strong for 50 years.”

If you want to invest in real estate, but aren’t ready to buy and renovate damaged Florida homes, Benzinga has other options for you. You can even invest in rental property with as little as $100 and we’ll show you how.

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