Texas & Florida post-Hurricane, Now What?

Question

Due to recent hurricanes...

I got to pondering looking back when New Orleans was hit by Hurricane Katrina there were short-term disruptions to gas prices especially since Houston is a major think tank for the metro industry. I expect Federal money which might have been focused on (helicopter money) be spent on infrastructure spending or tax cuts NOW be redirected to damage recovery... Which will manifest as tax breaks, loan subsidies, or other incentives offered to entice investment capital to flow into affected markets?

Definitely an opportunity in the short term to go in there and develop to take advantage of the fiscally earmarked casually funds.

As a long-term buy hold investor what I am keying in on is what the big institutional players (like insurance companies) will do. I suspect they will actually have to pony up and pay claims in Houston and Florida which will divert funding away from their Plan A: financing new class A multi-family apartments in other markets. This results in less new developments coming online which is great for Class B and C MFH investors who have been struggling with the recent cap rate compression.

Any thoughts?

Guy Gimenez · Answer

1. Low / no equity homeowners will walk from their properties and focus on rebuilding their lives as renters for the next 2 years. These foreclosures will certainly impact values in numerous communities throughout Houston.

2. Many insurance companies will re-think the coastal markets and their policy premiums for same.  This, along with the inevitable increase in flood insurance premiums will also impact buying power for future homeowners.

3. Landlords will be in demanding higher rents as there will be a shortage of housing for the next year or while properties are rebuilt.

4. Long-term impact can only be speculated on since this was an epic storm that caused billions in damage to homes, autos and businesses but those purchasing SFR's better buy very, very low or they could be the next distressed sellers.

Brian Foster · Answer

An investor recently told me he was willing to take the risk for a 25% discount.

So an ARV pre-Harvey is now 75% of that post Harvey.

$200k house pre-Harvey is now a $150K house (for purposes of negotiation)

$20/ft2 to $25/ft2 rehab cost (est) = $40k to $50k rehab on a 2,000 ft2 house

Back out your rehab costs & profit margin from that number and now you have your new maximum allowable offer.

Investor was willing to either purchase flood ins or self insure against next storm if they got the 25% discount

So if you find a 2,000 ft2 property in the 500 year flood zone (or out of it) that was worth $200k before the storm and it flooded...... You should be OK buying that property in the $100k to $110K ballpark (just back your own profit margin out of that number. So if you want to make $20K, now your MAO is $80-$90K.

These are not exact, just rules of thumb

Also note, these are only for properties in the 500 yr flood zone or outside of it that flooded, do not recommend 100 yr flood zone at all. And this is for Houston, not Florida. No experience with Florida at all.

Rachel H. · Answer

@Lane Kawaoka There will be deals for sure. Though, you have to have very deep pockets to wait it out. Plus have the risk of another one which they're used to in that area. Should be interesting to see how things develop.

Thomas S. · Answer

Keep an eye out for foreclosures. Many home owners will walk.

Best option would be to buy these, fix, rent and sell at a profit. Long term hold will be expensive due to higher insurance costs and value will be placed on immediate demand. Prices will likely rise, drop then level off.

What you do not want to do is hang on till the next major hurricane in X years down the road.

Jade S. · Answer

@Brian Foster...and that's a very, very sad LSU Houston fan group this morning after the whoppin' Miss State put on them last night.  ;-)

But, I digress......

Brian Foster · Answer

I think to compare what happened in NOLA to almost anywhere else is a mistake (NOLA is very unique). What is Helicopter money?

When NOLA flooded we had 250,000 of that city's "finest" citizens move to Houston and take up residence. FEMA provided them benefits for years while they stayed in Houston. The HPD ranks grew by about several hundred officers to try and meet the increase in crime our new friends brought with them. Most never went back to NOLA.

On the positive side, the ranks of LSU football fans grew dramatically and  anecdotally, i think the caliber of "Cajun Food" available in the greater Houston area rose as well.

David Thompson · Answer

I talked to my business partner who had two large apartment communities in Houston and fortunately he came out unscathed.  The upside, he's pre-leased at 100% for one of them already.  Imagine the rebuilding process and out of area workers coming in to support and housing them will create a pent up demand for apartments especially if you have a B/C property.

Texas & Florida post-Hurricane, Now What?

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