Flooded properties - Good or bad?

Question

From a buyers perspective, what are the thoughts and concerns on properties with a flood history? Say flooded one or two times from a tropical storm or hurricane. I’ve got three potential Flood deals in Houston and would like to hear some insight from

True investors.

Erica Castro · Answer

"Did it Flood?" I got that regularly after Harvey. Most buyers had different concerns:

How many times has it flooded?

Did it flood only after the release of the reservoirs?

Is it safe?

Will it flood again?

What type of flood plain is it in?

How much is flood insurance?

And so on.

Knowing what the buyers concerns are than digging into why that is a concern, you are able to overcome those objections by providing solutions.  Hope that helped.

Zachary Walter · Answer

@Kevin Wood @Garrett Ellison @Austin Smither Langley @Hunter Byler @Erica Castro  Thank you everyone for your input and advice! Actually got some really good answers out of this

Garrett Ellison · Answer

@Kevin Wood - I know some great contractors. Sorry if my point was unclear. I meant that, in the case of a big flooding event, there is a massive demand for contractors, and its harder to get quality work in those times. We experienced that in the BR flood of 2016. 1,000 year flood.

Alex J. · Answer

i am personally not a fan of flood properties although ive seen people have success with them.  there are so many factors to consider, location , amount of water that go tin, amount of times flooded over last 4 years... how long did it sit with mold... I mean just so much into that question.

Kevin Wood · Answer

@Garrett Ellison you are correct there. I misunderstood what you meant.

Hunter Byler · Answer

@Austin Smither LangleyGood job of that home owner keeping taxes that low! wow. but yes that is an issue with new regulations not allowing a rehab budget more than 50% of value of home. Others that ran into this issue, went out and got a private appraisal of their property which would raise the value of the appraisal thus keeping rehab budget under 50%.

That could have been something that you could have done for this property. However, of course this would draw out the whole process and does take time...

@Garrett Ellison, you are correct that for the next year after the flood contractors are very busy and can be tough to come by for people who do not already have a relationship with contractors. However, at this point the demand is not as crazy as it was right after the flood and there should not be any issues with finding guys to get the work done.

Austin Smither Langley · Answer

@Zachary Walter and @Hunter Byler, from what I understand, in order to pull a permit to rehab in Harris County floodplains, the rehab cost needs to be <50% of the homes assessed value.

A perfect example of how this can be a problem...

My team came across a property in a floodplain that has never flooded (per seller).  The owners had occupied the property for decades and somehow managed to keep taxes low with an assessed value of the home around $20K.  $10k would not be nearly enough to rehab the property up to a solid ARV.  That said, an experienced buyer would know that this needs to be torn down and built new because the regulation prevents a flipper from pulling a permit to spend more than $10k on rehab.

Just something to keep in mind when looking at properties in the floodplain.

Kevin Wood · Answer

@Zachary Walter depends on the area of town. If you are in the Braeswood area there are a lot of buyers that won't buy in that area. The city is requiring that area to be raised as well for repairs requiring 50% more of the land value. In other areas like Bear Creek people are still buying there for the right price.  It's just about getting it under contract at the right price and finding a buyer. As your price lowers you'll have more folks interested.

@Garrett Ellison I own a contracting company. At least in Houston most contractors should be able to give you a quote and a timeline for when it will be done. Typically flooding is most likely between Jul and Sep. If you started a project now on a SFH you should be done before there is another chance of flood in the Houston market.

Garrett Ellison · Answer

If you mean for a flip, the effect is that it will pare down your interested audience. Some will be apprehensive about buying a home that has flooded recently. This may lead to a lower ARV and a longer sit on the market.

For a buy-and-hold, personally, I’d stay away. The longer you hold the property, the higher chance that you’ll experience a flooding event. You never know how long it could take to get your rental livable again, as in these cases, good contractors will be hard to come by. Not to mention the flood insurance dinging your bottom line.

Hunter Byler · Answer

@Zachary Walter don't be scared of the flooded properties, but just calculate in your numbers that they will sit on the market a little longer than properties that did not flood and in my experience they sold for about 10% less than a comparable home that did not flood. I have heard people say that we should expect 3 years for these homes to rebound to market price (based on history in Baton Rouge after Katrina).

That being said, if you calculate this all in your numbers, you can still make money.

To concur what what Erica said^ Buyers of course want to know if it was a first time flood vs a multiple flood. The first time floods do much better because Harvey  is considered a freak incident (54" of rain). However, some of the properties that we fixed up had been flooded in Harvey and previous tropical storms which was a big deterrent to some buyers.

Another common misconception is that people think that because it has flooded, they will not be able to get flood insurance. This is not true. You can always get flood insurance, and if they are getting a mortgage it is required if it is in a flood zone. The other thing is, the Houston Chronical had posted an article saying buyers to beware of the "30 day wait period" when getting flood insurance. Meaning, after you get flood insurance, there is a 30 day wait period before the policy is active. This is partially false. When getting a new mortgage, the wait period is waived. There is a wait period for someone who has an existing mortgage and you are wanting to get a new flood policy or change an existing policy. We had buyers who were confused about this.

They will also likely ask for a remediation report showing that the home was professionally re mediated of mold or properly dried out.  At this point, you would want to ask the current seller if they have one and if not, it would be worth it to have a mold report completed so you can show future buyers that there was no mold when you bought the home.

It also depends on what your strategy is, whether you would want to buy and hold as a rental or fix and flip. buy and hold can be a great strategy because we have experienced that renters are not as concerned about if it flooded or not and you can get market rents for a fixed up flood home. I have heard that in some areas of Houston where it was a first time flood and not bad, they were still getting full market price. We were fixing up homes in Heights/Timbergrove area which most had flooded multiple times ( Harvey & Alison) or memorial day / tax day floods.

The key for sure is to do a good job fixing them up and quality design so that people can overlook the flooded past because they fall in love with the house and design. Best of luck! PM me if you need any help or want to discuss more. cheers!

Flooded properties - Good or bad?

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