Lender · Texas; Arizona · Member since 2019 · 276 posts · 282 votes
Should I lend on a flooded house in Houston?
Investor has a home that he is looking to purchase in Houston, zip code 77096. This home was flooded. The ARV is great for the amount he is purchasing and rehab estimate. There are 3 good comps in the neighborhood that support the ARV, but all three state on their listing "Never been flooded".
I am having a difficult time finding comps that have sold that I know were flooded and remodeled.
Are buyers in Houston staying away from flooded houses, even after they have been remodeled?
That area is Braeswood / Westbury. High-end, old money, sort of constantly gentrifying. Lots of property in that area gets bought, torn down and rebuilt because the location is great and the land value is high.
If other houses in the area say they didn't food, then this one is likely a first-time flood. It'll sell but likely at a small discount. I'd make sure your borrower gets a mold certificate - that'll help come resale time.
There are plenty of rehabbed flood home comps and I think what you may find at this point is that the prices for homes with proof they didn’t flood in Harvey show a recognizable premium compared to homes that were seriously flooded and rehabbed. This is due to stigma.
That said, stigma does fade with time. So the impact on value to a previously flooded property should decrease proportionately up to the time of the next major flooding event. At that time it’ll reappear and reduce value.
Houston had four major floods since 2001. Three were in the past four years, the last one was the most severe. Mitigate and account for future risk as you think best. I’d require flood insurance and a 1% deductible on full coverage insurance with any financing.
Specific to that zip, I’d look at the underlying lot value compared to the value of a rehabbed home. If lot value is the majority of the total value now, the highest and best use is to build new, above any flood elevation, not to extend life of the current improvements. The latter is simply an interim use until you find a lot buyer.