Strategies for Investing in Flooded Homes

[Vijaianand Thirunageswaram]

Many investors asked this question indirectly with me and other networking forums so I thought of posting here.

As we know there is no set rule when it come to real estate because it all depends on the local market. Whether it's Katy, Cypress, Conroe or Meyerland, it's going to vary. Also price wise, how much below you can buy also varies. 

If you decide to buy the flooded homes, 

1. Analyze the neighborhood whether all homes or most homes flooded or just few homes.

2. What's happening? Whether all owners are getting back in the house or many of them quitting and moving out.

3. Whether are too many investors in the market flipping the properties.

4. If too many flipping happening in areas like canyon gate etc., you better have option to hold the property for few years and get back in the market. You might not be able to flip it quickly. If it's just few properties and many owners are staying back in, then you have better chance to flip in the market.

5. Also make sure you do good job on covering yourself with adding additional protection by doing mold certifications and mold prevention measure while doing rehab. 
6. Take as many pictures possible and videos if needed to show to the prospective buyers whether now or later. 

Hope this quick list helps. BTW, I haven't done any flooded homes yet so it's just analysis and strategy which I was planning to suggest for my investors and similar things I heard from networking events. 

[Travis White]

Great post @Vijaianand Thirunageswaram!

I just wanted to weigh in a little bit - my home flooded in the 2016 Tax Day floods and during Harvey. 

To some of Vijai's points - 

1 and 2 - This is a huge point. My particular neighborhood floods often (obviuosly). After the Tax Day floods, people got right on top of their rebuilds and neighborhood came back quite nicely. People we're selling their homes for above pre-flood ARVs 8 months after the flood. People planted new grass, cleaned up their property etc etc etc.....after 8 months, you couldn't tell a flood had happened. 

This time, many many people are selling to investors, leaving their house altogether, or building back very slowly. The neighborhood looks awful and I would expect that, as a whole, it won't return to looking good for another 18 months. On top of that, I'm sure that there will still be some properties and haven't been re-mediated even by that time and they'll be a huge reminder that the neighborhood is a flood risk. Now, this is just one neighborhood, but I don't expect ARVs or rents  to be where they were preflood for another 2 or 3 years. 

Some other points - be sure have a careful contractor walkthrough. One of our neighbors had a number of projects with the house that would not have been obvious from a cursory walkthrough. AFAIK, they got about FMV on their home so I'm guessing the investor who bought it is in for some bad news when he discovers some of the projects that need to be done.

If anyone has any questions, please ask. I've seen this thing twice in 2 years in terms of working with insurance, working with residential contractors, finally deciding to put my house (as-is) on the market and dealing with investors/buyers. 

Again, great post Vijai!

Oh, a couple more things! Insurance!!! be very careful with insurance. Many of these neighborhoods have flooded multiple times and, in talking to our insurance company and some of the prospective buyers for our home, FEMA can substantially raise premiums (think 15k year) and substantially drop coverage (eg 10k coverage) for some of these areas that chronically flood. Numbers like that make a property virtually worthless. Due diligence!

Lastly, I would be very hesitant to figure buy-outs into any part of your strategy. Based on meetings I attended right after the flood with Congressman Ted Poe, Harris County Flood, FEMA, Army Corps etc, FEMA and Harris County Flood are not set up for mass buy-outs and do not have a plan or timetable in place to begin them. At the time (several months ago) any buy outs would have to occur on a one on one basis, something that could wreak havoc on ARVs. There could be other news on this, but this information is the last that I've heard.