Flood - hunting cabin with detached garage

Seeking some expert opinion on this one:

Loan to a business to purchase land with a hunting cabin and detached garage. Both structures are in a flood zone. Intention is to rent this out. The appraisal makes it clear this is a dwelling/house that is used like a hunting cabin, but it's capable of full time occupancy - "highest and best use of this property is considered to be for recreation, and residence."

Been reading the final rule, particularly the discussion about the definition "residential property" as well as rental. Would flood insurance be required on the detached garage? Can you consider the cabin intended to be actually occupied by a resident, or no since although it's a dwelling, it will be rented out more as recreation (I'm thinking like a business) vs as someone's home?

You have to determine what the garage is used for:

(i) "A structure that is a part of a residential property" is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;

I was thinking we first needed to determine if the cabin is in fact considered a residential property since it's rented out they way it is (not rented to be lived in, but to be vacationed in). The garage is to store cars and recreational vehicles according to the appraisal and the pictures.

The use of the structure (cabin) doesn't really impact what it is. It will be insured under the flood insurance regulations as a 1-4 family structure. So who's cars and recreational vehicles? Are they used by the temporary tenants and are part of the business operation or do the people that come there just park their "personal" vehicles there while using the property?

I agree with Randy, but wonder if you're contemplating whether to get a dwelling policy or a general property policy.

Dwelling Policy may pay replacement cost value but only if:
A.) Primary dwelling (80% of previous year)
B.) “Fully insured” (80% insurance to value)
C.) Single unit dwelling

Otherwise it only pays ACV. General Property always pay Actual Cash Value. Refer to the Flood Insurance Manual [page POL 38] for more details.

So technically, the use of the structure does matter, but not in the 2 ways you've described it. Either way it's used, you shouldn't purchase a dwelling policy as it's not a primary dwelling and it will never pay RCV in case of a loss.

(Maybe that's not what you were after. I'm trying to guess)

So David, you are saying not to buy a dwelling policy? I have a similar situation in a couple is buying an investment property where it will NOT be their primary residence, but their son will live there for a while. There is also a shed that we will count towards the house as lawn mowers etc are stored in it and it will not house anyone. In this case I will be asking the borrowers to get flood insurance. We don't usually differentiate in the types of policies they get. Should we? A little more explanation would be great and maybe best practice on investment type property. THanks!

The only type of policy you can purchase on a 1-4 family residence is a dwelling policy.

Randy's right and I'm sorry for the confusion. I still want you to understand that the dwelling policy won't pay RCV because it doesn't meet the 3 requirements. You'll go with ACV as the insurable value.