Investors are reportedly lining up for real estate deals in the aftermath of Hurricane Michael. The category 4 hurricane wiped out whole neighborhoods along the Florida Panhandle, and caused billions of dollars in damages. While the devastation may be overwhelming for those facing losses, the real estate market will likely bounce back, like it has in Houston.
The storm slammed into Florida’s Panhandle on October 10th with 155 mile-per-hour winds. Those wind speeds fall within the definition of a Category 4 hurricane, but it was just 2 miles per hour less than a powerful Category 5 storm. The storm also tore through Georgia, the Carolinas, and Virginia, and killed a total of 39 people.
Losses are still being estimated with a range of $6 billion to about $10 billion dollars in insured losses. There will be multiple billions of dollars in uninsured losses as well. One disaster expert told the Claims Journal that total losses could hit $25 billion dollars, with more than half that amount in uninsured losses. Many of those properties are probably the ones that will end up in the hands of investors.
As the Miami Herald reports, “Residents throughout the hard-hit Forgotten Coast are struggling with the same decision: Should they muddle through the messy, interminable recovery, or leave a home that might never be the same?” (1)
How many homes are we talking about? An estimated 4,000 homes were destroyed and another 26,000 homes were damaged by Michael.
One broker, Kaye Haddock, told the Miami Herald that she got her first call from an investor just two days after the hurricane blew through the region. She said she was standing in the midst of debris when he called as said, “You’re my girl. Find me the deals.” She expects it will take about five years for the region to recover economically. In the meantime, she believes that investors will “eat this area up.”
Another broker, Matt Peevy feels that one year will be enough. He’s so optimistic that he told the Miami Herald that the local economy could get back on its feet in six months if they can put enough photos of undamaged areas on the internet to get the tourist industry moving again. And it certainly hasn’t taken five years for Houston to recover from Hurricane Harvey.
Hurricane Harvey Recovery
It’s been a little more than a year since “Space City” was devastated by Harvey. That was also a Category 4 storm. It was considered a very wet storm with 130 mile-per-hour winds. The National Hurricane Center says it caused $125 billion in damage, which makes it one of the costliest hurricanes ever. Katrina gets top billing for damage, at $161 billion.
Harvey caused massive amounts of damage, because of all the rain and the fact that it made landfall three times in six days. In just the first 24 hours, it dumped two feet of rain on the region, and a total of about 60 inches overall. More than 200,000 homes were damaged. (2)
The real estate market was thrown into turmoil immediately after the storm. As the Houston Chronicle reports, “Closings, showings, and mortgage lending in this area effectively came to a halt as buyers and home shoppers put their plans on hold.”
But one year later, home sales were on fire. The Houston Association of Realtors says they were up 9.1% in July compared to the previous July, right before the storm hit. The median price of a home was also up 6% this last July, to $243,500.
HAR Chair Kenya Burrell-VanWormer said in a press release in July, “If there were concerns about rising home prices in the Houston market, you wouldn’t know it from all the home-buying that took place in June.” (3) In the association’s latest press release, she said the market was a bit cooler in September, but that’s after a “sizzling summer of home sales and rentals.” She blames the dip on tight inventory, higher interest rates, and families that are focused on getting their kids back to school — not Hurricane Harvey.
Future Risks in Areas Hit by Disaster
Of course, disaster can strike again in any location. A property doesn’t become immune to hurricanes because it’s experienced a big one, so it’s wise to consider any future risks in vulnerable markets, and find properties that are not overly exposed to that risk.
What does that mean? In terms of coastal properties that might experience stronger storms and a higher storm surges, an investor might want to get a flood risk report. Knowing the flood risk is the first step toward protecting yourself. Find out the exact elevation of the home and compare that to historical flood levels. Buy flood insurance. There are plenty of ways to protect your property against floods, but you may have a budget for those kinds of upgrades, especially if it’s an investment property.
The high winds of a hurricane might be another issue entirely. Once the roof is blown off a building, the whole structure is compromised and at risk of collapse. But your standard home-owners insurance usually covers wind damage. It may also include a “hurricane deductible” that is higher than your standard deductible as well.
This is not a comprehensive due diligence checklist. It provides a few examples of what an investor might need to do. Good deals often come with problems, but a good investor will find ways to fix them. As Brian Spitz wrote in a Think Realty article, “Those who really understand investments in single family real estate know that investors profit by solving problems.” (5)
(3) HAR Website