How will flooding from Harvey affect your investing strategy now?

Question

Even houses in 500 year flood plain areas (0.2% chance of flood per year) flooded!  Just by terrible luck, these areas flooded even though flood maps showed the risk was minuscule. Maybe these maps were wrong.  Maybe this is a once in a lifetime event.

Two questions:

Now that we have all seen the devastation of Harvey how will this affect your investing strategy in Houston?

Will you still buy and hold confidently in 500 year flood plains thinking that these floods are statistically rare?

Kevin Wood · Answer

@Kevin Nguyen Out of our 44 units we manage we had 1 house flood so consider ourselves lucky. Ironically, the one apartment with FEMA mandatory flood insurance did not flood.

If you research what happens when floods hit a city our research shows that rents go up 16-24%. Housing prices don't move that much at least in Houston. This will make a lot of areas cash flowing. I would be smart about what areas I invest in and as @Jesse Mao and not invest in areas near reservoirs or running along major bayous. While the city was devastated there will be 100s of homes in low risk areas. You could also wait and see what area FEMA identifies as flood plains requiring mandatory insurance.

We are doing contracting work now for impacted homeowners. There is already a flux of out of state guys in the marketplace charging 3 and 4x what we are. We just got a job from someone who got a quote for demo above our demo and rehab quote. So working with the right contractors is key.

Victor Rios · Answer

@Charles Fletcher

I also own 2 rent houses in Humble. I got lucky as well.  One home  did have some water damage  due to the roof being old , but insurance will take of that.  I also live next to the lake and I was dry. Down the street 2 miles away in Kingwood was a different story.

I wonder what the market will turn to now...

Jesse Mao · Answer

I agree with @Jason Vo on staying as far as you can from reservoirs, river, and bayous. @Charles Fletcher, I don't think this is once in a life time event. Are we really so special that we have witnessed those so called once in 200 years, once in 500 years, etc. flooding all within 10 years? Reality is these type of flooding is normal nowadays. I don't care about the reason, but the reality itself is evidence enough.

Before signing a contract to buy, check the absolute elevation, and relative elevation. If the absolute elevation is over 130 inch, it has much better chance. Also are next door and back door houses have a high ground than yours? Then how about the landscape grading? I drove for $ yesterday afternoon and noticed on one street in Katy, houses in the middle section were all flooded by rain on Sunday but those on both ends were not. These houses are all on the same elevation, roughly 120 to 125 inches. So why the difference? No one knows.

Account Closed · Answer

@Kevin Nguyen  Life is short.  I do not want to worry if Harvey, or Irma or another storm is going to cause this much damage.  I would certainly make sure I had appropriate insurance if I was going to invest in Houston.

Kevin Nguyen · Answer

@Jesse Mao The criteria you mentioned sound very wise.  I am interested in how you found those numbers.  How did you conclude that an absolute elevation of 130 inches will lower your risk of flooding?  And how did you find out that the houses you drove by had an elevation of 120-125 inches?  I will probably add something like this to my purchase decision.

Kevin Nguyen · Answer

@Jason Vo If I were to buy in those areas near bodies of water or levee districts, I would not hold on to them for too long. Those houses would probably be a BRRRR property for me.  Rake in the profits when you can and the property is still dry.

Jason Vo · Answer

@Victor Rios

I think the market will more than likely turn to places that did not get affected during this flood.

Jason Vo · Answer

@Charles Fletcher

Glad to hear that none of your rental house got flooded but I have to say that Harvey hit us hard, there's thousand of properties that are high elevation and never been flooded before got flooded. You just never know.

My best advice would be stay as far as you can from the reservoirs, rivers, creeks, and flood zone. But that is still one of the risks that investors should take in consideration when purchasing investment homes.

How will flooding from Harvey affect your investing strategy now?

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