The FEMA rule gives investors the opportunity to participate in real estate in Florida

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The devastation wrought by Hurricane Ian could be an opportunity for real estate investors as a federal disaster regulation is only just beginning to become apparent to victims.

Homeowners along the Florida 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 regulation also applies to commercial real estate.

Under FEMA’s 50% Rule, if repairs or renovations to the home are expected to cost more than 50% of its value, the homeowner is required to bring the building into compliance with flood damage prevention regulations. The house cannot be insured if this is not done.

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

Hurricane Ian destroyed or caused major damage to at least 11,000 homes in Florida — a number that the American Red Cross says is expected to rise as home assessments continue.

Many of the homes in Fort Myers Beach and Sanibel Island, Florida that were built in low-lying areas during the 1970s and 1980s suffered extensive damage or were completely destroyed.

Favorable tax laws

While FEMA’s 50 percent rule is one reason investors are now interested in Florida, Antaramian said the Sunshine State has always been attractive because of its benign tax environment.

People who work in Florida pay no state income taxes, creating a high demand for housing as people from out of state flock to avoid paying a percentage of their income to the government.

Florida also does not tax investment income, 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 percent rule, homeowners who want to rebuild must comply with Florida’s strict building codes, which were put in place after Hurricane Andrew destroyed tens of thousands of homes near Miami in 1992.

“Building under the new Florida zoning code is very expensive,” Antaramian said. “Businesses also want to get out. Apartment buildings do not want to have to deal with this.

“The FEMA 50 percent rule will offer many opportunities for investors. It is an opportunity for investors to change the landscape of an area that has been strong for 50 years.”

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

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© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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