Earthquake damage + uninsurable = profit?

[James Scholz]

Not sure if this is the right forum - these aren't exactly foreclosure properties, but are basically handled the same way, just by private sellers.

The back story: A few years ago there was a massive earthquake (or two) in Christchurch, New Zealand and thousands of homes were damaged. Insurers are only now starting to pay out, and a lot of homeowners weren't insured for enough to repair/rebuild their houses. So are walking away.

There are a lot of homes selling 'As is, where is', basically for slightly more than the cost of the land itself, and come with various issues from minor cosmetic issues to major structural ones.

The reason these caught my eye is because they're selling for 40-50 cents on the dollar compared to 'sound' properties in the area, but are being tenanted at the same rate. So the cashflow on them is really good. And the city is rebuilding, and demand is quite high for rentals, and probably will be for a good few years yet.

The issues are: You cant get insurance on the house itself, and the bank want any lending secured on another property.

So my question is: What are everyones thoughts on these sorts of places? Its a fairly high risk purchase, but as it goes - high risk, high return.

Thanks for your help!

[Jeremy Tillotson]

@James Scholz Welcome to BP,is it insurable once fixed? Could you get a builders risk policy during the rehab time? I would long term never do anything without insurance, but I would think there would be ways to put short term (expensive) insurance on property till was certified as ok by someone. 

[James Scholz]

@Jeremy Tillotson: Yea you'll be able to insure once repairs are done. I'd imagine if the owners are walking away then the repairs cost more than what the house is currently worth. i.e. $100k for foundations, roof etc ($300k property). I think you can insure them temporarily, but the insurance premium is more than the total rent. Basically if you're willing to risk losing the house, and can do the repairs for a reasonable price (i.e. are a builder or know someone) then it could be worth looking at. Captial gains might be an issue though. As there will be a lot of other properties with similar damage in the same suburbs.

Hmm...

[Account Closed]

Hi im wondering if you are still active & if you have done anything here in chch REI, im looking at these now & wud luv any tips if u went ahead?

thanks for ur time

[James Scholz]

Hi @Account Closed,

Yes still active but not in the chch area. I'm based in Auckland so thought it would be too difficult analysing properties that needed that much repair without being able to visit them.

I'm focussing more on Hamilton and outer Auckland suburbs at the moment.

There are a few real estate agents that seem to deal a lot in the 'as-is-where-is' market down there. So your best bet is probably to talk to agents and find out who they are.

They'll have a good idea of the market and hopefully any tips

[Account Closed]

Oh great ur in the right place good on you! All the best with that, I heard Hamilton is a good place to invest, it is a growing market. I will def invest there in the future at the right time for sure.

Thanks for the tip, I will talk to some agents, and am meeting a mortgage broker about another subject Tue but will bring that up.

I know a lot of builders are going for it, I guess they use their skills in the trade to turn these into great deals, it's been 4 yrs since EQ's and people even including myself are just getting paid out from EQC and insurance companies now so I'm seeing more and more opportunity!

I'm thinking I wud really like to use the opportunities to get into an "as is where is" property even to live in to rellocate to a better area and a bigger property & rent our house out once we have spruced it up a bit.

I guess knowledge gets u further, will keep digging and see what I can come up with.

Anyway thanks for listening even thou had no choice in the matter lol

And all the best for ur endeavours in Auckland & Hamilton :)