28 Jul 2015
We have all heard about the need to have a bug out location. I actually prefer to call it a second home as I don’t intend to use it only when I need to bug out. After all, this is an investment, why not use it on a regular basis. Regardless, there are four important things you should consider before buying your second or bug out home.
Is it in a flood zone?
The last thing you want to do is get a bug out location that is in a flood zone. If you have to leave your primary residence due to weather, maybe even rising water, the last thing you want to do is have your second home with the same water concerns.
Flood insurance, this is something I recommend, even if you are not in a flood zone. The issue though is, if you are in a flood zone the insurance is very expensive. For example, I have neighbors that for years there home was not considered to be in a flood area. Their annual flood insurance was around $350 a year. Last year we had a lot of rain, and nature took back the area behind there home that had been wooded and dry for 30 years. Due to area build home the water just naturally flowed back to the area it was met to be. There home was then reclassified as being in a flood zone and their flood insurance last year went up to nearly $10,000 annually. They now don’t have flood insurance and are having a difficult time selling there home because of it.
Can you get financing?
First of all I recommend that any purchase should be done with cash, own it free and clear. With that said, I do realize that not everyone can do that so it is important to check firs to see if you can get financing, I don’t mean because of your credit, although without good credit you won’t get financing or even financing with a good interest rate.
Is the property able to be financed? Banks are very picky about lending money. For example, it is difficult to get a loan on a property that has a geodesic home on it. This is because many banks are unable to get past their own policies and procedures to think outside the box. Banks base a loan on the selling price similar homes in the area, this is call comps or comparisons. Few banks are able to find comparison pricing for geodesic type homes and therefore seldom loan on such a home.
Can you get insurance?
In keeping with the topic of a geodesic home as the example, but this could be for any time of home. You have to make sure you can get insurance.
Just as banks, insurance companies are very particular about what type of property they insure and it could be because of something you didn’t realize. For example, when purchasing my second home, the main insurance carrier wouldn’t insure the home due to the type of piping in the home. Something I never considered that showed up on the inspection report. I had to shop around to find a company that would insure the home, but the insurance was costly and I really didn’t feel comfortable with the insurance company being able to pay in case of a large area wide disaster such as a tornado or hurricane. I end up having the house re-plumped and then had the house insured with my primary carrier, one who had good financials and ended up paying less for the insurance.
This is just one example of why you may not be able to get insurance. Back to the geodesic home, insurance companies base their risk on the “normal” four wall home, many companies don’t have the ability to assess their risk on a non-standard home. Keep this in mind and do your research about insurance before you buy, not after when it may be too late.
Ability to sell
You know the saying in real estate, location, location, location. This is just as true with your first home as it is your second or your bug out location. There may be a time when you need to sell your bug out location, either due to your own relocation for a job or family or maybe through death. If you don’t want to sell, those who inherit may want to.
Back to the geodesic home, I have some friends who had to move across the country due to a job opportunity. They had to sell their property, which just happened to have a geodesic home on it. It was classified as being in a low level wet area, yep a flood zone. Due to it being an unusual home, buyers couldn’t get financing or insurance and this property was on the market for over two years. They continued to reduce the price every quarter it was on the market until they finally found a buyer who could pay cash and self insure, however, my friends ended up selling the property for $150k less than their asking price just so they could unload it.
Final thought about a bug out location
Granted if it were me, I most likely would have held onto the property, but they wanted to sell, so even though you think you will never sell, still consider the possibility of reselling before you buy.
Buying a second home, property or bug out location is just as big a decision if not bigger as buying your primary property. It is a huge investment and all the same considerations and inspections and surveying should be done before signing on the dotted line.