With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

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stimulacra
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With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by stimulacra » Thu Oct 12, 2017 9:26 am

Read this on Bloomberg today.
https://bloom.bg/2wPCcnF

For house poor homeowners without flood insurance, many are facing grim choices. Not sure if they would benefit by waiting or cutting their losses now. Selling your primary asset at a 60% discount is a huge setback for any family.

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Pajamas
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Pajamas » Thu Oct 12, 2017 9:36 am

A flooded house might only be worth 40% of what it was worth before, maybe even less. Could be that only the land itself is worth anything and even the land might be worth significantly less than it was worth before the flood, if it hadn't flooded previously.
Last edited by Pajamas on Thu Oct 12, 2017 9:52 am, edited 1 time in total.

clutchied
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by clutchied » Thu Oct 12, 2017 9:36 am

that's not good, but it's certainly an opportunity.

I'm not sure how I feel about people losing their homes. In some ways it makes the market more efficient but it also facilitates moving people into rental homes and entrenching the housing market.

I lived in CA through the downturn and I knew lots of people who were tossed out and now they are renters and will be for the foreseeable future.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by stimulacra » Thu Oct 12, 2017 9:50 am

I live in Houston and currently rent. Was previously a homeowner.

I no longer view home ownership as a means to financial independence or even as a life milestone. I've seen too many people lose a lot of home equity making panic moves.

There's a lot of mixed feelings on this debate, some people want the government to pay full face value for their homes to buy them out of flooded neighborhoods, others want to leave homeowners to their fate for choosing to live in a flood plain. I have a lot of sympathy for flooded homeowners but also realize investors seeking to buy distressed properties are providing a service, they're taking on risk and trying to find a price bottom.

Would love to hear how Bogleheads would approach the situation, from whichever perspective.

runner540
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by runner540 » Thu Oct 12, 2017 9:55 am

I feel for them. I'm reminded of KlangFool's oft-heard advice to buy only when the home will be a minority of ones net worth.

I don't think that homeowners should be insulated from losses by the taxpayers. The taxpayers didn't get any of the implied rent benefit or the equity gains on the non flooded homes.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Grt2bOutdoors » Thu Oct 12, 2017 10:01 am

Don't know the condition of the homes, but unless they have received a "notice of condemnation" from local building authority imo it would be a mistake to sell to the "vultures".
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by dbr » Thu Oct 12, 2017 10:05 am

stimulacra wrote:
Thu Oct 12, 2017 9:50 am
I live in Houston and currently rent. Was previously a homeowner.

I no longer view home ownership as a means to financial independence or even as a life milestone. I've seen too many people lose a lot of home equity making panic moves.

There's a lot of mixed feelings on this debate, some people want the government to pay full face value for their homes to buy them out of flooded neighborhoods, others want to leave homeowners to their fate for choosing to live in a flood plain. I have a lot of sympathy for flooded homeowners but also realize investors seeking to buy distressed properties are providing a service, they're taking on risk and trying to find a price bottom.

Would love to hear how Bogleheads would approach the situation, from whichever perspective.
Approach what situation? If you mean finding yourself owing $200,000 on a mortgage you can't pay off and owning a property worth $80,000, I guess the Boglehead approach would have been not to have had an uninsured hazard of that magnitude. But life is complicated and not everyone is in the ideal situation. Financial advice for someone in such a situation might be appropriate for the forum. If your question is a discussion of public policy regarding flood relief then Boglehead's officially do not have a position as discussions of public policy are off-topic on the forum. If your question is would/should a Boglehead consider buying distressed properties as an investment, I would say the question could be discussed on the forum, but Bogleheads is mainly about investing in stock and bond mutual funds as inspired by Jack Bogle, so there wouldn't be a Boglehead position on this.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by buckstar » Thu Oct 12, 2017 10:11 am

It's a very sad situation overall. Many of these homes have been flooded three years in a row. The solution is to raise them onto piers above the base flood elevation level, but that is expensive and many of the homeowner's don't have the resources to do so. When most of these homes were built, they were not in a flood plain. The flood plain has expanded and changed dramatically due to urban sprawl and lack of planning on a city-wide, county-wide and regional basis.

stimulacra
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by stimulacra » Thu Oct 12, 2017 10:41 am

dbr wrote:
Thu Oct 12, 2017 10:05 am
stimulacra wrote:
Thu Oct 12, 2017 9:50 am
I live in Houston and currently rent. Was previously a homeowner.

I no longer view home ownership as a means to financial independence or even as a life milestone. I've seen too many people lose a lot of home equity making panic moves.

There's a lot of mixed feelings on this debate, some people want the government to pay full face value for their homes to buy them out of flooded neighborhoods, others want to leave homeowners to their fate for choosing to live in a flood plain. I have a lot of sympathy for flooded homeowners but also realize investors seeking to buy distressed properties are providing a service, they're taking on risk and trying to find a price bottom.

Would love to hear how Bogleheads would approach the situation, from whichever perspective.
Approach what situation? If you mean finding yourself owing $200,000 on a mortgage you can't pay off and owning a property worth $80,000, I guess the Boglehead approach would have been not to have had an uninsured hazard of that magnitude. But life is complicated and not everyone is in the ideal situation. Financial advice for someone in such a situation might be appropriate for the forum. If your question is a discussion of public policy regarding flood relief then Boglehead's officially do not have a position as discussions of public policy are off-topic on the forum. If your question is would/should a Boglehead consider buying distressed properties as an investment, I would say the question could be discussed on the forum, but Bogleheads is mainly about investing in stock and bond mutual funds as inspired by Jack Bogle, so there wouldn't be a Boglehead position on this.
From home-owner perspective and possibly people who dabble in acquiring rental properties.

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Watty
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Watty » Thu Oct 12, 2017 10:47 am

One major problem after a big disaster like that is that it can be nearely impossible to find any contractor to do the repair, much less a good one that will charge a reasonable price.

I know someone that has relatives where hurricane Andrew hit. They had significant roof damage but they could still live in the house with blue tarps on their roof that leaked and caused more damage. They had insurance that would cover the roof damage but they could not get any roofers to return their calls an most of them would not even take a message. Finally after three years a roofing company was working down the street and they were able to get them to replace the roof by basically pleading with them do do their roof next.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Always passive » Thu Oct 12, 2017 10:53 am

dbr wrote:
Thu Oct 12, 2017 10:05 am
stimulacra wrote:
Thu Oct 12, 2017 9:50 am
I live in Houston and currently rent. Was previously a homeowner.

I no longer view home ownership as a means to financial independence or even as a life milestone. I've seen too many people lose a lot of home equity making panic moves.

There's a lot of mixed feelings on this debate, some people want the government to pay full face value for their homes to buy them out of flooded neighborhoods, others want to leave homeowners to their fate for choosing to live in a flood plain. I have a lot of sympathy for flooded homeowners but also realize investors seeking to buy distressed properties are providing a service, they're taking on risk and trying to find a price bottom.

Would love to hear how Bogleheads would approach the situation, from whichever perspective.
Approach what situation? If you mean finding yourself owing $200,000 on a mortgage you can't pay off and owning a property worth $80,000, I guess the Boglehead approach would have been not to have had an uninsured hazard of that magnitude. But life is complicated and not everyone is in the ideal situation. Financial advice for someone in such a situation might be appropriate for the forum. If your question is a discussion of public policy regarding flood relief then Boglehead's officially do not have a position as discussions of public policy are off-topic on the forum. If your question is would/should a Boglehead consider buying distressed properties as an investment, I would say the question could be discussed on the forum, but Bogleheads is mainly about investing in stock and bond mutual funds as inspired by Jack Bogle, so there wouldn't be a Boglehead position on this.
I cannot agree more! That is the reason insurance exists. Remember that the Government would be subsidizing this mistake with your taxes and mine.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by btenny » Thu Oct 12, 2017 11:15 am

I am not sure that the sales are any different than homes in a big fire. I know when we had a big fire here in Tahoe in 2007 many peo0le were not insured. They lost everything. Plus the gov'the charged them to clean off the debris after the fire and the banks wanted full payment of the mortgage. It was a mess for some people. Some had to sell at low prices. And they did not get a dime of federal money.......

finite_difference
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by finite_difference » Thu Oct 12, 2017 11:34 am

btenny wrote:
Thu Oct 12, 2017 11:15 am
I am not sure that the sales are any different than homes in a big fire. I know when we had a big fire here in Tahoe in 2007 many peo0le were not insured. They lost everything. Plus the gov'the charged them to clean off the debris after the fire and the banks wanted full payment of the mortgage. It was a mess for some people. Some had to sell at low prices. And they did not get a dime of federal money.......
I would think that it’s different because homeowners insurance usually covers fire, but not flood.

However, if you have a mortgage and you are in a flood zone, then you should also be required to carry flood insurance.

In this case, it must be houses that had mortgages but were not in a flood zone and so did not have flood insurance, but flooded anyway. Probably partly because the flood maps were outdated/incorrect.

In that case it’s partly the homeowner’s fault for not being paranoid but also the local government’s fault for not providing proper flood maps. And maybe Harvey was a 1 in 500 year flood, but based on what I’ve been reading about old flood maps, new weather patterns, and the design of Houston it doesn’t sound like it.
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Ethelred
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Ethelred » Thu Oct 12, 2017 11:44 am

stimulacra wrote:
Thu Oct 12, 2017 9:26 am
Read this on Bloomberg today.
https://bloom.bg/2wPCcnF

For house poor homeowners without flood insurance, many are facing grim choices. Not sure if they would benefit by waiting or cutting their losses now. Selling your primary asset at a 60% discount is a huge setback for any family.
The yard signs mentioned in the first paragraph of the article have been visible at intersections across Houston and the surrounding metro for years, only the relationship with flooding is new. You didn't see them much before 2015, but since then, the low oil price, and its knock-on effects for other local businesses, has generated a steady stream of opportunities for those with the money to take advantage. Harvey has multiplied the number of distressed houses by a factor or ten, or even a hundred, but the business model is the same.

What is new to me from the article is that many of the investors themselves are reliant on high-interest private financing, and they are subjected to as much hard sell for that financing as the homeowners themselves.

Oh, and I recognize the heavily flooded intersection shown at the start of the article. I drove through it a month ago on my way to help a friend empty the first floor of their house.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Ethelred » Thu Oct 12, 2017 12:01 pm

buckstar wrote:
Thu Oct 12, 2017 10:11 am
It's a very sad situation overall. Many of these homes have been flooded three years in a row. The solution is to raise them onto piers above the base flood elevation level, but that is expensive and many of the homeowner's don't have the resources to do so. When most of these homes were built, they were not in a flood plain. The flood plain has expanded and changed dramatically due to urban sprawl and lack of planning on a city-wide, county-wide and regional basis.
All of these things are true, but not necessarily together. A few homes have flooded three years in a row, definitely not many as a proportion.
finite_difference wrote:
Thu Oct 12, 2017 11:34 am
I would think that it’s different because homeowners insurance usually covers fire, but not flood.

However, if you have a mortgage and you are in a flood zone, then you should also be required to carry flood insurance.

In this case, it must be houses that had mortgages but were not in a flood zone and so did not have flood insurance, but flooded anyway. Probably partly because the flood maps were outdated/incorrect.

In that case it’s partly the homeowner’s fault for not being paranoid but also the local government’s fault for not providing proper flood maps. And maybe Harvey was a 1 in 500 year flood, but based on what I’ve been reading about old flood maps, new weather patterns, and the design of Houston it doesn’t sound like it.
Honestly, my understanding is that Harvey set a new record for rainfall, just, for a tropical storm in Texas, possibly in the continental US. If that does represent an event that's to be expected more often than 1 in 100 years, it's the rainfall prediction that's making it wrong, not the flood maps. And when you look at the pre-Harvey flood maps and compare them to maps of where the houses actually flooded, they mostly correspond well, but they extend far beyond the 100-year line in several places. The flood maps are probably significantly wrong in some places, but they're not as far off as you might think from the media coverage.

Something to consider, though - we were following the forecast for our area, and at one late stage, Weather Underground's prediction for our neighborhood was another 15" (5" for three days). The storm then started moving off to the north more quickly, and only one more inch fell. If that forecast had been correct, many more houses would have flooded.

finite_difference
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by finite_difference » Thu Oct 12, 2017 3:14 pm

Ethelred wrote:
Thu Oct 12, 2017 12:01 pm
finite_difference wrote: I would think that it’s different because homeowners insurance usually covers fire, but not flood.

However, if you have a mortgage and you are in a flood zone, then you should also be required to carry flood insurance.

In this case, it must be houses that had mortgages but were not in a flood zone and so did not have flood insurance, but flooded anyway. Probably partly because the flood maps were outdated/incorrect.

In that case it’s partly the homeowner’s fault for not being paranoid but also the local government’s fault for not providing proper flood maps. And maybe Harvey was a 1 in 500 year flood, but based on what I’ve been reading about old flood maps, new weather patterns, and the design of Houston it doesn’t sound like it.
Honestly, my understanding is that Harvey set a new record for rainfall, just, for a tropical storm in Texas, possibly in the continental US. If that does represent an event that's to be expected more often than 1 in 100 years, it's the rainfall prediction that's making it wrong, not the flood maps. And when you look at the pre-Harvey flood maps and compare them to maps of where the houses actually flooded, they mostly correspond well, but they extend far beyond the 100-year line in several places. The flood maps are probably significantly wrong in some places, but they're not as far off as you might think from the media coverage.

Something to consider, though - we were following the forecast for our area, and at one late stage, Weather Underground's prediction for our neighborhood was another 15" (5" for three days). The storm then started moving off to the north more quickly, and only one more inch fell. If that forecast had been correct, many more houses would have flooded.
Here is an article describing a study that the Houston 100-Year flood maps missed 75% of the floods occurring over over a 10 year period. And there were 5 major floods over 10 years.

https://www.forbes.com/sites/trevornace ... y-houston/

I don’t necessarily see your point about distinguishing between rainfall predictions and flood maps. The flood maps should cover all flooding including excessive/record rain from hurricanes. If Harvey was a 1-in-500 storm then it should flood through Zone X500. If it’s worse than 1-500 I guess nowhere is safe. Then they need to fix Houston’s infrastructure to make it more safe, or pray a hurricane like that doesn’t happen more than every 500 years.

Definitely a good idea to buy flood insurance if in doubt, especially if you are not in Zone X. Even Zone X isn’t safe since the maps can be so outdated (even the latest maps are not very good.)
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by livesoft » Thu Oct 12, 2017 3:16 pm

This news is pretty old, probably from the last century.
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Ethelred
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Ethelred » Thu Oct 12, 2017 3:37 pm

finite_difference wrote:
Thu Oct 12, 2017 3:14 pm
Here is an article describing a study that the Houston 100-Year flood maps missed 75% of the floods occurring over over a 10 year period. And there were 5 major floods over 10 years.

https://www.forbes.com/sites/trevornace ... y-houston/

I don’t necessarily see your point about distinguishing between rainfall predictions and flood maps. The flood maps should cover all flooding including excessive/record rain from hurricanes. If Harvey was a 1-in-500 storm then it should flood through Zone X500. If it’s worse than 1-500 I guess nowhere is safe. Then they need to fix Houston’s infrastructure to make it more safe, or pray a hurricane like that doesn’t happen more than every 500 years.

Definitely a good idea to buy flood insurance if in doubt, especially if you are not in Zone X. Even Zone X isn’t safe since the maps can be so outdated (even the latest maps are not very good.)
That's an interesting article, thanks, though the original study made it clear that it only looked at one of the flattest parts of the metro area, where uncertainty will be greatest, and the article generalizes it to all of the city, without comment.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by garlandwhizzer » Thu Oct 12, 2017 7:47 pm

Disasters devastate people's lives but, ironically, at the same time they can create investment opportunities for those who have liquid cash and good judgement. The problem during disasters is that few in the devastated areas are sitting on piles of cash. Disasters destroy wealth, flood disasters especially so since most don't carry flood insurance. Many have nothing left. Those with cash and insight can take advantage of natural disaster investment opportunities which seem to occur more and more commonly these days. Not only Houston. A lot of prime vineyard land and vineyards in Sonoma and Napa Counties as well as Santa Rosa and surrounding towns and cities in that beautiful and previously wealthy area are now laid waste by fire.

These terrible events remind us of how powerful and unpredictable fate is. There is a lesson here for investors IMO regarding keeping some assets in risk-free, instantly liquid assets like cash, bank accounts, MM funds, and ST high quality bonds. If the disaster, be in financial or mother nature, happens to you, these types of assets can provide something to keep you going until you get back on your feet. If it happens to others, investment opportunities are created that can be attractive to those with cash on hand. I lost my condo and everything I owned in the Oakland Fire of 1991. That experience taught me this lesson very effectively.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by TomCat96 » Thu Oct 12, 2017 8:23 pm

stimulacra wrote:
Thu Oct 12, 2017 9:50 am
I live in Houston and currently rent. Was previously a homeowner.

I no longer view home ownership as a means to financial independence or even as a life milestone. I've seen too many people lose a lot of home equity making panic moves.

There's a lot of mixed feelings on this debate, some people want the government to pay full face value for their homes to buy them out of flooded neighborhoods, others want to leave homeowners to their fate for choosing to live in a flood plain. I have a lot of sympathy for flooded homeowners but also realize investors seeking to buy distressed properties are providing a service, they're taking on risk and trying to find a price bottom.

Would love to hear how Bogleheads would approach the situation, from whichever perspective.


I've definitely started to feel the same way. Whether you buy or home or rent a home, from my perspective you're still renting. The only difference is you're changing landlords.

Fail to pay your property taxes and see what happens to your house. Sure you have more rights in some respects, but you are also subject to other risks to the property or neighborhood itself. All these are numbers when it comes down to it. They can be accounted for in other respects.

Take for example, the extra equity you gain from buying a home. The equity is yours to keep if you own the house. But that equity is just a number. If you earn the same amount from diversified stock investments, it's all the same. In fact regarding 100k equity vs 100k in stocks, you have considerably more liquidity with the latter.

True ownership is a bit of an illusion. If my home can be dispossessed if i fail to pay property taxes in the same way I can be evicted if i fail to pay rent, then for me the proper consideration is compare whether the additional rights i get from homeownership are worth the additional risks. And I'm not willing to conclude decisively that it is, even for an entire lifetime.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by JBTX » Thu Oct 12, 2017 9:03 pm

I can’t say that 40 cents on the dollar is a steal. You are buying property with potential severe structural and mold damage in an area that could easily flood again and will likely have depressed market value for years.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by stan1 » Thu Oct 12, 2017 9:32 pm

There are more than 14,000 houses inside the two large flood retention reservoirs, but here's the battle with developers:
But she resisted the idea that development inside the reservoirs needs to stop or slow down.

“We’re going to cover every inch of the land that we can cover,” she said. “I think we need to get more ingenious, but I don’t think we need to stop.”
And then there's always a realtor with a positive spin:
“Unfortunately this stunning home did flood and is being refurbished to the highest spec!” “Fabulous chance to choose your finishes!”
https://projects.propublica.org/graphic ... reservoirs

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Slacker » Thu Oct 12, 2017 10:31 pm

TomCat96 wrote:
Thu Oct 12, 2017 8:23 pm
True ownership is a bit of an illusion. If my home can be dispossessed if i fail to pay property taxes in the same way I can be evicted if i fail to pay rent, then for me the proper consideration is compare whether the additional rights i get from homeownership are worth the additional risks. And I'm not willing to conclude decisively that it is, even for an entire lifetime.
Many more reasons you can be evicted as a renter. We have an upcoming eviction due to the landlord's actions and our state does not provide any protections now that the federal protecting tenants in foreclosure law expired in 2015.

Our landlord stopped making mortgage payments and now we have just about 2 months before the foreclosure auction at which time we'll have to try to find a new place to rent at about the worst time of year to find a new rental. Since the owner is a small owner (1 property) we are 99% likely to lose our security deposit and be unable to recover moving costs or additional rents if the new place is more expensive - even if the law states we can sue for all of this, the landlord (who could file for bankruptcy protection as I found several liens on the property) can make it difficult or impossible for us to get paid back. Not sure I want to go through the courts to get $25 / month for the next 10 years.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by roflwaffle » Fri Oct 13, 2017 10:55 am

TomCat96 wrote:
Thu Oct 12, 2017 8:23 pm
True ownership is a bit of an illusion. If my home can be dispossessed if i fail to pay property taxes in the same way I can be evicted if i fail to pay rent, then for me the proper consideration is compare whether the additional rights i get from homeownership are worth the additional risks. And I'm not willing to conclude decisively that it is, even for an entire lifetime.
I can certainly understand this, but if you have any tax liability, doesn't it apply to any asset you have?

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Earl Lemongrab » Fri Oct 13, 2017 12:08 pm

TomCat96 wrote:
Thu Oct 12, 2017 8:23 pm
I've definitely started to feel the same way. Whether you buy or home or rent a home, from my perspective you're still renting. The only difference is you're changing landlords.

Fail to pay your property taxes and see what happens to your house. Sure you have more rights in some respects, but you are also subject to other risks to the property or neighborhood itself. All these are numbers when it comes down to it. They can be accounted for in other respects.
Bah. You have identified one extreme case where there is some similarity. Some level of government can take your house for road-building or similar projects. That doesn't make ownership like renting. With renting you can get a letter that says, "We have elected not to renew your lease. Please be out within 60 days." Nothing you did caused it, nothing you can do will stop it.
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by greg24 » Fri Oct 13, 2017 12:58 pm

Natural disasters are unfortunate.

These guys offering 40 cents on the dollar introduce liquidity into the market, which is a good thing. Lots of these homes are severely damaged, so they may only be worth 40 cents on the dollars. If they're worth more, then the owners should refuse to sell. If they are in a sticky situation and feel they NEED to sell, then they should be happy that someone is willing to buy their flood-damaged house.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Earl Lemongrab » Fri Oct 13, 2017 3:35 pm

There are going to be some people in the category of, "Major damage, house condemned so can't live in it until repaired, no insurance, no money for repairs." Of course if they have a mortgage, then selling for 40% might not be an option either. Then you toss the keys to bank and wish them luck.
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by TropikThunder » Sat Oct 14, 2017 5:55 pm

dbr wrote:
Thu Oct 12, 2017 10:05 am
If you mean finding yourself owing $200,000 on a mortgage you can't pay off and owning a property worth $80,000, I guess the Boglehead approach would have been not to have had an uninsured hazard of that magnitude.
btenny wrote:
Thu Oct 12, 2017 11:15 am
I am not sure that the sales are any different than homes in a big fire. I know when we had a big fire here in Tahoe in 2007 many peo0le were not insured. They lost everything. Plus the gov'the charged them to clean off the debris after the fire and the banks wanted full payment of the mortgage. It was a mess for some people. Some had to sell at low prices. And they did not get a dime of federal money.......
Didn't we have a thread recently about whether one should drop their homeowners insurance after the mortgage is paid off? I recall more than one poster smugly saying they didn't need insurance on their $X00,000 home since they had enough in investment accounts to rebuild if it burned down.

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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Helo80 » Sat Oct 14, 2017 6:42 pm

TropikThunder wrote:
Sat Oct 14, 2017 5:55 pm
Didn't we have a thread recently about whether one should drop their homeowners insurance after the mortgage is paid off? I recall more than one poster smugly saying they didn't need insurance on their $X00,000 home since they had enough in investment accounts to rebuild if it burned down.

I could see the argument working for whether to carry life insurance --- But, Murphy is still roaming around and do you really want the market to experience a blip and then some random electrical accident to burn your primary (and possibly only) residence down? BH is an interesting community...

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ChowYunPhat
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by ChowYunPhat » Sat Oct 14, 2017 7:33 pm

My family and I just moved to Houston in June and decided to rent for the first year as we didn't know the market. Our rental home flooded over 3ft as a result of Harvey and we lost most of our personal property but are fortunate to not have to deal with the home. Many other families did not make out quite so well.

There are multiple policies used to cover hazards in Houston, with the typical HO policy covering typical losses to structure, plumbing, fire and minor weather related events. There is separate coverage for flooding provided by FEMA policies which can be purchased through retail insurers. This policy covers flooding and impacts of "named" storms. Most banks require the additional FEMA policy for mortgaged homes listed in a flood plain.

The problem with Hurricane Harvey is so many homes which never flooded before and were not considered to be on a flood plain actually flooded this time. The event is upending the Houston real estate market and it will be interesting to see how this plays out over the next couple of years. It is likely that the FEMA mandated coverage will broaden to cover a much larger set of homes as a result.

We are in the process of buying a home as rents have spiked, and the value of quality homes is likely to rise in the near future as well (our theory as many existing homeowners and able contractors are busy fixing damaged properties at this time). This decision is definitely a risk but housing options are temporarily limited. Interesting to hear the many perspectives, especially from impacted Houstonians.
A wise man and his money are friends forever...

TropikThunder
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by TropikThunder » Sat Oct 14, 2017 8:27 pm

Helo80 wrote:
Sat Oct 14, 2017 6:42 pm
TropikThunder wrote:
Sat Oct 14, 2017 5:55 pm
Didn't we have a thread recently about whether one should drop their homeowners insurance after the mortgage is paid off? I recall more than one poster smugly saying they didn't need insurance on their $X00,000 home since they had enough in investment accounts to rebuild if it burned down.

I could see the argument working for whether to carry life insurance --- But, Murphy is still roaming around and do you really want the market to experience a blip and then some random electrical accident to burn your primary (and possibly only) residence down? BH is an interesting community...
Yeah it struck me as extraordinarily penny wise-pound foolish.

texasdiver
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by texasdiver » Sun Oct 15, 2017 12:23 am

buckstar wrote:
Thu Oct 12, 2017 10:11 am
It's a very sad situation overall. Many of these homes have been flooded three years in a row. The solution is to raise them onto piers above the base flood elevation level, but that is expensive and many of the homeowner's don't have the resources to do so. When most of these homes were built, they were not in a flood plain. The flood plain has expanded and changed dramatically due to urban sprawl and lack of planning on a city-wide, county-wide and regional basis.
I think most newer houses in the Houston area are built on slab foundations. At least those in the suburbs that I’ve seen. There’s no raising them.

Perhaps smaller older houses in older neighborhoods are built on pier and beam foundations that can be raised. But the ordinary suburban home built in the last 40 years or so? I don’t think so.

Valuethinker
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Valuethinker » Sun Oct 15, 2017 7:19 am

texasdiver wrote:
Sun Oct 15, 2017 12:23 am
buckstar wrote:
Thu Oct 12, 2017 10:11 am
It's a very sad situation overall. Many of these homes have been flooded three years in a row. The solution is to raise them onto piers above the base flood elevation level, but that is expensive and many of the homeowner's don't have the resources to do so. When most of these homes were built, they were not in a flood plain. The flood plain has expanded and changed dramatically due to urban sprawl and lack of planning on a city-wide, county-wide and regional basis.
I think most newer houses in the Houston area are built on slab foundations. At least those in the suburbs that I’ve seen. There’s no raising them.

Perhaps smaller older houses in older neighborhoods are built on pier and beam foundations that can be raised. But the ordinary suburban home built in the last 40 years or so? I don’t think so.
This is it. There is not a simple solution if it was not built in at inception*. That would require changes to Building Codes, with all the attendant political obstacles. AFAIK largely those homes did not appear on flood maps.

There's 2 problems here, and an absence of understanding of them is something that I have seen them reflected in comments here:

1. A 1 in 100 year flood means it happens about every 33 years. People don't understand probability and no one in the house selling chain is likely to enlighten them (remember too we didn't have the internet in Grandpa's day, i.e. when I bought my first house in the 1980s).

2. The "one in one hundred" year assumes that our past experience predicts the future. That is very unlikely to be the case- -whether you think it is natural variation or man-made variation.

In addition, there's another problem:

- this is not static-- as land use has changed in Houston (say construction on a flood plain below you) it's changed your own risk exposure

And finally, re insurance:

- insurance works well for pricing uncorrelated risk with relatively high frequency (so probability can be reliably assessed) and stable probability distribution parameters (which are usually repriced annually). My chance of having a car accident is different from yours due to driving style, time of day, length of commute etc, even though both of us live in Atlanta.

Insurance (private market) works very badly where the risks are correlated and of rare events (tsunamis etc.) with high expected loss. Thus Emerging Market countries find it difficult to buy natural disaster insurance (impossible in fact, without some new aid schemes being developed). And similarly in developed countries for natural disasters (tsunamis, hurricanes etc.).

* inevitably it is the Dutch who seem to be furthest down that track. Moored homes, that will be raisable with each ratcheting up of water levels. When half your country is below (current) sea level, and that sea level is rising 3-4 mm pa, it focuses the mind.

Just something as simple as mandatory insulation that dries out, rather than having to be ripped out of the walls, though, would be a start.

whomever
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by whomever » Sun Oct 15, 2017 9:24 am

A 1 in 100 year flood means it happens about every 33 years. People don't understand probability
Can you explain the logic there?

The USGS definition seems to bet:

"... if we had 1,000 years of streamflow data, we would expect to see about 10 floods of equal or greater magnitude than the “100-year flood.” These floods would not occur at 100-year intervals. In one part of the 1,000-year record it could be 15 or fewer years between “100year floods,” whereas in other parts, it could be 150 or more years between “100-year floods.”

Maybe you're thinking of a related issue:

"The 1-percent AEP flood has a 1-percent chance of occurring in any given year; however, during the span of a 30-year mortgage, a home in the 1-percent AEP (100-year) floodplain has a 26-percent chance of being flooded at least once during those 30 years" ??

The point being that if the annual probability is 0.01, then it's true that 'the probability of happening in 30 years is 0.26', but it's incorrect to restate that as 'happens every 26 (or 33) years'.

Both quotes from https://pubs.usgs.gov/gip/106/pdf/100-y ... 210web.pdf

Other sources:
https://pubs.usgs.gov/fs/FS-229-96/
https://water.usgs.gov/edu/100yearflood.html

Valuethinker
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Re: With panicked homeowners selling their flooded homes for 40¢ on the dollar, investors are flocking to Houston

Post by Valuethinker » Mon Oct 16, 2017 9:32 am

whomever wrote:
Sun Oct 15, 2017 9:24 am
A 1 in 100 year flood means it happens about every 33 years. People don't understand probability
Maybe you're thinking of a related issue:

"The 1-percent AEP flood has a 1-percent chance of occurring in any given year; however, during the span of a 30-year mortgage, a home in the 1-percent AEP (100-year) floodplain has a 26-percent chance of being flooded at least once during those 30 years" ??

The point being that if the annual probability is 0.01, then it's true that 'the probability of happening in 30 years is 0.26', but it's incorrect to restate that as 'happens every 26 (or 33) years'.

Both quotes from https://pubs.usgs.gov/gip/106/pdf/100-y ... 210web.pdf

Other sources:
https://pubs.usgs.gov/fs/FS-229-96/
https://water.usgs.gov/edu/100yearflood.html
I am (thinking of the related issue) and someone here posted the math. It was my (incorrect?) recollection that that was the conclusion.

There's another source on another hard drive and I shall post it here if I can find it.

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