Hurricane season is always a good reminder of the importance of keeping mindful attention on the existence of flood plain when buying a self-storage property. Even in non-coastal areas, a severe weather event can lead to high levels of rain, and this can result in danger if you are in the flood plain. Sowhat do you need to know about self-storage facilities and flooding?
Are you in flood danger or not?
The first question with any storage facility is if flooding is even on the menu. Here’s a link you can use to see if your have any flooding concerns based on the work of the Army Corps of Engineers, who handles the flood analysis for the U.S. government. INSERT LINK HERE. Another way to tell if there might be flood risk is if you are on the banks of any lake, river, creek or tributary. These are the first signs of a potential flooding event down the road. Another key gauge is simply past performance: has the property or surrounding areas ever flooded historically?
What portion of the storage property is in the floodplain?
Once you have determine the flood risk “foot print” the next question is “what portion of the property can potentially flood?” In many cases, the person who built the storage facility may have already taken into account the potential for water issues and deliberately left that portion of the property as vacant land. Just because the physical tract may flood does not mean that the income-producing portion will. That being said, you would still want to understand the ramifications if it came over the road into the property and severed access for some period of time.
Do you have adequate insurance?
Much of the pitfalls of flooding can be accommodated with proper insurance. You will need to get with your carrier to make sure you have obtained all the needed types of insurance and in the correct valuations. You would never want to have flood exposure without the offset of sufficient coverage. Make sure that you’ve fully considered all the types of coverage needed: property, liability and any other item to make sure that you can sleep soundly at night.
Do your customers have adequate insurance for their items?
And make sure that your customers are covered, as well. Understand state laws on notifying customers of the existence of flood risk and helping them to obtain the needed insurance policy, too. The last thing you need in today’s social media world is an unhappy customer alerting all potential new ones that you did any less than a superlative job of protecting their interests.
Understand the macro issues on liquidity
Having floodplain exposure can have an impact even if the property never floods. And what’s at issue is the negative effect it can have on financing and future buyers. Since you hope one day to sell the storage property at a huge profit, it’s important to understand that the next buyer and their bank may not be as accepting of flood risk as you are. To follow Sam Zell’s advice on risk/reward, if the risk is greater due to the flood potential then the reward must be greater too.
Conclusion
Flood plain and self-storage facilities is never the preferred mix, however it can be a survivable trait of your deal if it is properly analyzed and mitigated. As long as there is rain, there will be flooding, and knowledge is a key component to making sensible decisions regarding it.