Well, here we are, six months after the storm. How are the flooded properties fairing? I have had the opportunity to visit with 104 property-flood victims, and I’ve learned that the status of their recovery is as unique as each victim. I can’t cover each situation, but here are a few.
Some people just left. Faced with severe damage and costly repairs, some property owners simply picked up and moved on. Financially, these folks could not sell to an investor or obtain an SBA loan because they owed too much on the property. They had no flood insurance. These properties will be foreclosures later in the year. Since many mortgage companies offered a 4-6 month forbearance on payments, we are about to see the first wave of missed payments on many abandoned properties. Future payments will never be made, which will result in foreclosure in 3-5 months.
Some people had flood insurance. The majority of these people are entering the final stages of renovation. From my estimates, about 25% will be selling or have sold and 75% will continue to live in their property. Many of these people are living in the property while the construction is ongoing.
Some people had enough savings to renovate. About 90% of these people are selling. They have already taken advantage of special mortgage programs and purchased another property, or the flooded property was an investment property. In the case of investment properties, many of the owners no longer wish to hold on to the property after dealing with the Harvey disaster.
Another situation is that some people are living in the property and renovating as they can. The essentials are going in first, the walls and the flooring are going in last. A difficult way to live.
Some people purchased another property and are renovating to lease the flooded property.
Investors purchased properties and are renovating to flip them. This could cause values to fall over the next 2 years, or until these properties sell off, in the affected areas. These properties will come on the market over the next 2-12 months and will bring more inventory to an already high inventory market. These properties could eventually be bargain-priced.
This is a small sample of the situations I have encountered during my consultations over the last few months. Many of the neighborhoods are still not very appealing, and buyers are likely to shy away from these areas for quite some time -- possibly years. We call a property that has experienced a traumatic event stigmatized. Stigmatized properties usually sell for less than non-stigmatized comparable properties.
My plan is buy at least one of these renovated properties. (I do not expect another flood like Harvey in my lifetime, but who knows?)
If you also choose to buy one of these renovated properties, bear this in mind: some of these properties will be supremely upgraded and some will be renovated with lesser-quality components. I have visited some renovated properties and in some the quality of construction is wonderful. In others, it is not. You usually get what you pay for when you choose a contractor.
By the way, flood insurance, on a property not located in the 100-year flood plain, costs about $450 per year. Multiplied by 20 years, that works out to $9,000. The damage from a flood on 2,000 square feet of living area property often exceeds $100,000. You may or may not know that many properties in the Houston area are located in the 500-year flood plain. Consider flood insurance and you could potentially save yourself years of grief and thousands of dollars.
Until next month, Dale Ross.