How Do You Ethically Invest in a Disaster Zone?

[Mindy Jensen]

Harvey damaged 203,000 homes in Houston - at least that's the number I read this morning. I'm sure it's going to go up. I read 90% of homes destroyed did not have flood insurance.

Irma looks to be headed to Florida. She's the biggest hurricane in recorded history.

Katrina hit New Orleans in 2005 and did billions of dollars of damage.

There's an opportunity to solve someone's problem, but there's also an opportunity to take advantage of someone when they're at their lowest point. 

How do you invest - truly help people out in these areas - without appearing to take advantage of them? With water infiltration, you need to act fast, so you don't really have a lot of time to negotiate. Mold waits for no one...

There is a  trending discussion from an investor in Houston who incurred major damage from the hurricane, but had no insurance. How does he repair his home?

On a related note, how do you shield yourself from these problems in the future, outside of not investing near water?

[Michael Hayworth]

I think generally, if you operate your business in an ethical manner, you'll invest ethically after Harvey (and Irma if that hits).

I think the free enterprise system is the best, most ethical option worldwide among all competing systems. Each individual makes decisions as to what's in their best interest, and "decision pairs" come together to determine whether it makes sense for homeowner A to sell a house to Investor B.

I don't have the power or money to undo all the damage that has been done. No one does. At this point, we're in "making the best of a bad situation" territory. I donate pretty heavily to charity, but my business is not a charity. As I run it properly, though, I create opportunities for other people to have jobs, for joint investors to gain wealth, and so on. And if homeowner A is strapped for cash, and I buy his house with a quick close and put cash in his hand, I hope I've helped him make the best of a bad situation.

What I wont do, after a disaster or not, is be one of these damn "wholesalers" - and I know there are plenty of them on this site - who go around making big promises with no cash to back it up, then terminate a contract when they can't find a buyer. Good wholesalers are honest, understand real ARV and real renovation costs, and have the cash to add the house to their own portfolio if they can't find a buyer at the price they want. Those guys are a very valuable part of the market. But they're a distinct minority. Bad wholesalers don't have that experience or understanding, don't have any cash, and are often just raising homeowners' and newbie investors' hopes with inflated ARVs and understated reno costs. I see them every day on Facebook in my local investor groups, pitching ridiculous deals on a house they've locked up, giving the homeowner hope for 2-3 weeks, then canceling when no one bites. And to do that to a disaster victim is about as low as it gets in this industry.