Investors a Mixed Blessing for Residential Note Buyers in Harvey’s Wake

Tara Mastroeni
Published: November 15, 2017 | Updated: December 10, 2021

residential note buyer

When Hurricane Harvey slammed into Houston, the devastation it left behind affected every part of life in the Texas city.

The flooding and wind speeds from Harvey caused $1.8 Billion in damage. And thanks to out of date flood plane maps, many of the homes damaged didn’t have federal flood insurance. Homeowners are now left with mounting water damage costs and no money to pay.

Those that did hold flood insurance are still waiting on payouts, and won’t know for many weeks just how much they will actually be getting.

All this panic and insecurity has proven to be the perfect landscape for residential note buyers looking for a deal.

Investors Stand to Gain From Homeowners Losses

residential note buyerInvestors are now scouring the streets of Houston, looking for the perfect deal.

The damaged homes in Houston have lost as much as 60% of their value, plummeting in worth literally overnight. Investors can swoop in and make a low-ball offer, in hopes that homeowners will weigh the cash against the cost of repair and take the deal.

Investors can then repair the house, rent it out for a few years, and then resell at a profit.

It’s par for the course after natural disasters or financial crises. Homes plummet in value, and investors pick up the pieces, setting themselves up to reap a tidy profit in the years to come.

The victims in this scenario become the homeowners. While there is no shortage of buyers for their properties, many feel forced out, left with no option but to sell. Their properties have lost most of their value, and long-time buyers are forced to give up accrued equity if they sell to investors.

But when the alternative is federal relief that doesn’t come close to the cost of damage and a crumbling home that quickly becomes unsafe and unsanitary, homeowners may feel like they have no choice.

An interesting aspect is that some investors may be willing to rent their newly purchased properties back to the original homeowners. Repairs are taken cared of, and original owners get to “keep” the property, but only if they can afford the rent, and with the knowledge that the investor may sell the property at any time.

That said, there is also the possibility of investors renting back to homeowners and then engaging in seller financed sales back to the owners, only to turn and sell the note once the sale is finalized, looking to make money on the note, rather than on the sale of the property itself. It’s something investors who specialize in note buying should keep an eye on, especially in the years to come.

Investors as Champions of Rebuilding

residential note buyer

Investors don’t necessarily see themselves as cruel, however. Instead, they are the heroes of this story, riding in with bags of capital, ready to save Houston from economic ruin. Investors take over the payments on a flood damaged home and repair it. They give homeowners now drowning in potential repair costs a way out.

And then there is the economic assistance. Once an investor has a property, they have to repair it. This mean paying for contractors, builders, plumbers, electricians. All money now being pumped back into the Houston economy and assisting it in coming back after Harvey’s disastrous visit.

They ensure that damaged housing doesn’t stay damaged, but instead is repaired and rendered safe for human habitation before anyone takes up new residence. For those rendered homeless by the storm, newly repaired rentals may be a godsend.

And while it would be disingenuous to pretend these investors are in Houston for altruistic reasons, it can certainly be said that a Houston repaired and rebuilt is better than one still wading through the floodwaters.

Investors Weighing Risk Against Profit

While these natural disasters do provide investors with unique opportunities for profit, the enterprise is not without its own set of risks. Flood insurance is getting more expensive, labor costs are rising, and city statutes may limit what rebuilding can effectively be done.

The biggest risk factor, though, is nature itself.

Rising temperatures mean more storms of this magnitude, and more flooding in the coming years. Investors know this. It’s possible to pour money into a property only to have it destroyed by another flood or storm in a year.

These risks don’t appear to be slowing down investors, however. In fact, many are looking at flooded cities as the next big opportunity in investments. As more cities see floods, more homes may plummet in value, and while that isn’t good news for the real estate market at large, it’s a goldmine for potential investors.

Harvey took an undeniable toll on Houston and its real estate market, and investors are capitalizing on that. Whether it is a harbinger of more problems as folks are displaced with nowhere to go or it provides a way to rebuild the city and return it to its original glory remains to be seen.

Get in touch if you are selling real estate notes.