I am looking at a 11 unit property that was recently flooded after hurricane Harvey and was renovated after the flooding completely down to the studs. New Roof, new floor, new walls, everything, Would you suggest going ahead with the deal? Or should I leave it due to it being flooded before? It is still not under a flood zone per FEMA so flood insurance will not be required.
Any help is greatly appreciated.
Harvey was a 1000-year flood, so the likelihood of this property flooding again is low if it was previously in the 500-year flood zone. That said your insurance will still probably be really high. Try to get the full financials from the 12 months prior to the floor. But being such a small property I'm not sure how well documented it was so you might have just have to come up with your own proforma numbers. If the property is vacant and you will have to lease it up make sure you get compensated for it at least and are not paying for a fully occupied property.
@Michael Le Thanks for the feedback. Yes, will definitely make sure to see the trailing 12 month. Property is occupied 81% or 9 out of 11 units and will factor that in my decision.
I would not let the flooding scare you off, after all, this is Houston. I know plenty of investors who are seeking out flooded properties. If the property had flooded multiple times, I would recommend raising the existing building or tearing it down and replace it with new construction.
However, since the property only flooded during Harvey (a 1000 yr flood) and has already been renovated after the flooding, that means the city permitted the renovations. Like Michael Le said, insurance will be a factor in your decision and you should review the financials for the last year prior to making up your mind.
Since you don't have to make any renovations, you might want to look into ways to deal with future flooding. For example you could add a detention pond to the property or rainwater catchment.
Hope that helps!
Thanks @Jean Ambuehl ! I will go ahead with the property once I review the financials and numbers still give me a good cap rate and cash on cash return.
I'd also check out the comps in the area to determine market rents. Is there any future upside or are the current rents higher? Additionally, try to find out how many other nearby comps were affected by flooding and when they are coming online. This could affect your proforma numbers.
Thank You! @Michael Dang
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