The enormous hits that many coastal communities have taken due to menacing hurricanes and possible climate change might be enough to deter home owners, renters and investors from buying property a stone’s throw from water’s edge—or a bit farther away but with a good view.
After Hurricane Irma struck a year ago, it was reported to have caused between $42.5 billion and $65 billion in wind and flood damage to residential and commercial property, according to CoreLogic. Inc., an Irvine, Calif.-based corporation providing financial, property and consumer information. The storm surge that Hurricane Sandy caused five years earlier in 2012 resulted in major flooding along the coast and $62 billion in damage.
Yet, home owners and investors seem to remain interested, maintaining their love for gorgeous blue water, big crashing surf, soft sandy beaches, and seagulls squawking overhead.
Mark Zilbert, a broker and executive vice president with Brown Harris Stevens, Miami, who has lived in the area for the last 19 years, says he has seen lots of buyers come to Miami and only now and then will anyone ask about the effects of water rising and potential problems of investing in this type of real estate. “Of course, those who are concerned may not come to inquire and have already made up their minds that they’re not interested,” he says.
In his area, he sees the number of transactions increasing and sales prices rising, after a substantial drop four years ago. That, he attributes not to water but to shrinking currencies in Europe and South America.
Since then, prices have climbed between 2 percent and 5 percent—or greater—across his market, with most buyers coming from South America, Europe, and the Northeast, and primarily for second homes, he says.
For those in the States, and especially from New York, some of the incentive, he says, also may be worry about the changes in federal tax reform law. These reforms limit state and local tax deductions for big earners while those living in Florida still face no state income tax. A second reason for purchases rising may be the difficulty of renting short-term in many Florida markets due to more cities and towns tightening rules about rentals for less than three months or so. And when people do rent short-term, at least in Miami, they’re often being charged—directly or indirectly—the city’s resort tax, he says. More millennials, too, are renting longer to test the waters. “I see this group take the attitude, ‘Let me rent there for now before I buy,’” Zilbert says.
Finally, he also attributes the water that flooded large sections of Brickell Avenue, a major North-South road, during Irma to an unusual storm surge coupled with clogged sewer infrastructure, the latter now repaired.
Florida and Nashville Homes
Rehabber, investor and flipper Paul Kazanofski, founder of Revision Homes in Nashville, who works primarily there and on the northern coast of Florida near Panama City, Destin and Santa Rosa Beach, also doesn’t find people shying from waterfront properties. “The market is still good, and prices are up,” he says. But he does notice that when a flood occurs—and he has lived through two since he’s been involved with real estate, people abandon their houses when things get bad.
But then opportunity knocks for investors like him. “They come in and buy the flood damaged homes that a lot can’t or won’t fix. After the major flood in Nashville in May 2010 when there was 8 feet of water, I got at least six great properties,” he says. “People were afraid to buy because of mold, asbestos, and other challenges. Many banks wouldn’t lend, but private money was available,” he says. He needed to hold onto the homes for at least three to five years until buyers were no longer concerned, and in the meantime rented them out for a bit below the traditional market rate. However, when he sold, he doubled or tripled his investment. “By then, buyers had forgotten,” he says.
Jersey Shore Homes
The same trend has occurred along the New Jersey shore. Real-estate saleswoman Cindy Napp, ABR, SRS, with Diane Turton, Realtors, in Spring Lake in Monmouth County, says buyers keep coming despite her town’s Boardwalk and pockets having been ravaged by Sandy. The incentives are the town’s charm both as a seaside resort and its proximity to New York City, an hour away. In addition, as the memory of the destruction from the hurricane fades, so do future concerns, she says.
Now waterfront house prices in her area have climbed as houses have been rebuilt, sometimes totally, and may range between $2 million and $8 million, she says. Many are purchased as second home investments, and weekly rental prices ran from $3,000 to $25,000 this past summer, Napp says. Further proof that interest remains high: Inventory is low.
Architect Richard Bubnowski, founder of Richard Bubnowski Design in Point Pleasant, N.J., part of Ocean County, which experienced greater overall damage than Monmouth County, has recently been hired by four new clients who purchased existing homes that needed renovation along the Jersey shore and by three clients wanting new waterfront homes. All cost upwards of $1 million and $1.5 million, he says. Some reflected a good buy, he says. “Money is being spent to fix up homes where some prior home owners walked away,” he says.
Make it able to better withstand water and wind
For any home owner or investor taking the plunge to buy a single-family house, condo or multifamily building to live in or as an investment, it’s key that the property be built or renovated according to FEMA (Federal Emergency Management Agency) and local township and city building codes, some of which have become stronger. A good way to do so is to hire only local builders, architects, rehabbers and structural engineers who are most familiar with area codes, says Napp. Bubnowski is one recipient, who is hearing from many clients, “Let’s do whatever we need to do,” he says.
To assess a damaged home initially, Kazanofski says the experts who need to be involved are those who can spot and remove mold and hazardous materials, including asbestos on the inside and outside of older homes.
When it comes to rebuilding, it’s critical to know if a property is in a flood zone, not just because of flooding but also storm surge, wave action, and tides that contribute to flooding and destruction, Bubnowski says. In addition, home owners should have soil tested by a geo-technical engineer for its soil-bearing capacity. This information will be needed by a structural engineer to design the footings, foundations and pilings properly. In certain flood zones, properties need to be built up above sea level and supported securely by pilings. Bubnowski often designs homes to standards higher than FEMA regulations when local building codes may require 2 feet to 3 feet of additional height above and beyond the FEMA requirements. And though some of the ground underneath the raised house can be used to park cars, place storage, and create desirable outdoor living space, it can’t be used for any habitable purpose, he says.
All parts of a house should also be constructed with careful attention: impact-resistant glazing in windows and doors, sturdy garage doors, reinforced roofs and breakaway walls (a wall that is not part of the structural support of the building so it can collapse without causing damage to the elevated portion of the building or supporting foundation system, according to FEMA).
And before settling in, any home owner or investor must buy the proper insurance depending on a home’s location in the FEMA Flood Map. Most home owner’s insurance doesn’t cover flooding, and it must be purchased separately to be fully protected.