Have you noticed that so-called one in 100-year floods have started happening more often? We had two such events in the space of 10 years along Australia’s east coast and climate scientists agree the probability of more rain more often is increasing.
You’ve probably seen the dramatic photos or videos of floodwaters inundating properties, sometimes lapping at the front door, sometimes lapping as high as the roof!
For my money, I’m thinking climate change is real. Extreme weather events are no longer a rare occurrence and we need to factor them into our decision making when it comes to buying and selling property.
As Developers we can do the work required to be better equipped and better prepared than the average homeowner when it comes to floods.
But if we’re going to buy a flood-affected property, we’ve got to get smart about juggling opportunity and risk.
I can sense your surprise from here – opportunity?
Absolutely! Flood-affected property falls into my Seven Ds of Discount Property. In the case of floods, that D spells Disaster. Natural disasters can make a complete mess of homes. (Read more about my Seven Ds of Discount Property here.
From floods and fires, to landslides and earthquakes, these events can have a profound impact on the value of property and unfortunately not all homeowners have the resources to restore or rebuild.
After a disaster, there will always be people who need to offload their properties.
- Maybe they weren’t insured and/or they simply don’t have access to the funds that will be required.
- Maybe they were close to downsizing and don’t want the headache of repairs or a new build.
- Maybe they feel they’re just too old to start over.
- Maybe they have a very young family or a baby on the way or they share a home with aged parents who wouldn’t cope with the disruption.
- Or maybe they simply can’t face the emotional challenge. It might be more appealing to walk away than to struggle through the overwhelming challenge of rebuilding both a home and a life.
When a homeowner lists a home hot on the heels of a natural disaster there’s a good chance it will fall into the category of being a “distressed sale”. This means the owner may be prepared to sell the property at less than market value in order to move on quickly.
This means there’s a good chance of buying at a discount when a flood-affected property comes to market.
But first you’ll need to understand the risks. If you do your homework, you can mitigate those risks and buy at the right price point.
Assess the damage
Sometimes flood damage is obvious, sometimes it takes an expert to see it.
If you suspect a property has suffered serious structural damage, or it looks unsafe, a licensed building inspector or structural engineer should be brought in to assess the damage.
During a flood, properties sometimes move or get swept off their foundations.
Sometimes a property will stay put, but the soil surrounding the foundations becomes unstable either because it has swelled in volume (clay soils) or been eroded (sandy soils). When this happens, it can affect the structural integrity of the property and make it unstable.
This may not become evident until after the building settles following a flood event. You might see cracks in the foundations or walls, gaps along door or window openings, rubbing or jamming of doors or windows, uneven floors or gaps in a porch that has become detached from the main building.
When floodwater invades a home it can compromise the materials used in the construction, particularly when it comes to materials like timber that absorb water. So you’ll need to figure out if the structural timbers are still sound or showing signs of decay.
Estimate the repair/rebuild bill
This step is critical to deciding whether or not to buy, and if buying is an option to work out how much you should pay.
If the property is not salvageable then you’ll be running figures on the cost to rebuild from scratch, with your planned flood mitigation strategy built into your feasibility.
If you think the property is a keeper, you’ll need to price the repair bills and any improvements to avoid catastrophe in a future flood.
Costs to consider might include:
- Engagement of a hydraulic engineer
- Underpinning of footings
- Raising the floor height
- Replacement of wall linings
- Renewal of termite management system
- Replacement of electrical fittings
- Improvements to the property drainage system
- Replacement of damaged timbers, floors, doors and windows
- Insurance if you intend to hold onto the property for the medium to long term
- Contingency for any unexpected expenses
Finalise your buy price
Tally all the costs and then add your profit to the top. See if this final value is achievable in today’s market. You’ll also want to ensure the sum you offer the homeowner is a fair price. You don’t want to be mercenary, we’re not looking to make money at someone else’s expense. What we are trying to do is solve someone’s problem.
Future value
While property prices usually bounce back after a flood, there’s now a greater level of fear around the frequency and severity of weather events. This means you’re probably going to get more buyers permanently removing flood-prone suburbs from their list of target areas.
Whenever the pool of potential buyers shrinks, the odds of getting top dollar are also impacted.
Fewer buyers = less competition = a potentially lower sale price.
So keep this in mind when you’re crunching numbers and don’t just rely on past sales data to determine future sale price.
Helpful documents
- You can access flood maps at most local councils and on some SES websites.
- The federal government has produced a document called ABCB Standard: Construction of buildings in flood hazard areas which provides a broad-brush outline of what’s required when building a new home in an area deemed a flood hazard area.
- For general flood risk information, head to this government-run portal.
You’ve probably seen the dramatic photos or videos of floodwaters inundating properties, sometimes lapping at the front door, sometimes lapping as high as the roof!
For my money, I’m thinking climate change is real. Extreme weather events are no longer a rare occurrence and we need to factor them into our decision making when it comes to buying and selling property.
As Developers we can do the work required to be better equipped and better prepared than the average homeowner when it comes to floods.
But if we’re going to buy a flood-affected property, we’ve got to get smart about juggling opportunity and risk.
I can sense your surprise from here – opportunity?
Absolutely! Flood-affected property falls into my Seven Ds of Discount Property. In the case of floods, that D spells Disaster. Natural disasters can make a complete mess of homes. (Read more about my Seven Ds of Discount Property here.
From floods and fires, to landslides and earthquakes, these events can have a profound impact on the value of property and unfortunately not all homeowners have the resources to restore or rebuild.
After a disaster, there will always be people who need to offload their properties.
- Maybe they weren’t insured and/or they simply don’t have access to the funds that will be required.
- Maybe they were close to downsizing and don’t want the headache of repairs or a new build.
- Maybe they feel they’re just too old to start over.
- Maybe they have a very young family or a baby on the way or they share a home with aged parents who wouldn’t cope with the disruption.
- Or maybe they simply can’t face the emotional challenge. It might be more appealing to walk away than to struggle through the overwhelming challenge of rebuilding both a home and a life.
When a homeowner lists a home hot on the heels of a natural disaster there’s a good chance it will fall into the category of being a “distressed sale”. This means the owner may be prepared to sell the property at less than market value in order to move on quickly.
This means there’s a good chance of buying at a discount when a flood-affected property comes to market.
But first you’ll need to understand the risks. If you do your homework, you can mitigate those risks and buy at the right price point.
Assess the damage
Sometimes flood damage is obvious, sometimes it takes an expert to see it.
If you suspect a property has suffered serious structural damage, or it looks unsafe, a licensed building inspector or structural engineer should be brought in to assess the damage.
During a flood, properties sometimes move or get swept off their foundations.
Sometimes a property will stay put, but the soil surrounding the foundations becomes unstable either because it has swelled in volume (clay soils) or been eroded (sandy soils). When this happens, it can affect the structural integrity of the property and make it unstable.
This may not become evident until after the building settles following a flood event. You might see cracks in the foundations or walls, gaps along door or window openings, rubbing or jamming of doors or windows, uneven floors or gaps in a porch that has become detached from the main building.
When floodwater invades a home it can compromise the materials used in the construction, particularly when it comes to materials like timber that absorb water. So you’ll need to figure out if the structural timbers are still sound or showing signs of decay.
Estimate the repair/rebuild bill
This step is critical to deciding whether or not to buy, and if buying is an option to work out how much you should pay.
If the property is not salvageable then you’ll be running figures on the cost to rebuild from scratch, with your planned flood mitigation strategy built into your feasibility.
If you think the property is a keeper, you’ll need to price the repair bills and any improvements to avoid catastrophe in a future flood.
Costs to consider might include:
- Engagement of a hydraulic engineer
- Underpinning of footings
- Raising the floor height
- Replacement of wall linings
- Renewal of termite management system
- Replacement of electrical fittings
- Improvements to the property drainage system
- Replacement of damaged timbers, floors, doors and windows
- Insurance if you intend to hold onto the property for the medium to long term
- Contingency for any unexpected expenses
Finalise your buy price
Tally all the costs and then add your profit to the top. See if this final value is achievable in today’s market. You’ll also want to ensure the sum you offer the homeowner is a fair price. You don’t want to be mercenary, we’re not looking to make money at someone else’s expense. What we are trying to do is solve someone’s problem.
Future value
While property prices usually bounce back after a flood, there’s now a greater level of fear around the frequency and severity of weather events. This means you’re probably going to get more buyers permanently removing flood-prone suburbs from their list of target areas.
Whenever the pool of potential buyers shrinks, the odds of getting top dollar are also impacted.
Fewer buyers = less competition = a potentially lower sale price.
So keep this in mind when you’re crunching numbers and don’t just rely on past sales data to determine future sale price.
Helpful documents
- You can access flood maps at most local councils and on some SES websites.
- The federal government has produced a document called ABCB Standard: Construction of buildings in flood hazard areas which provides a broad-brush outline of what’s required when building a new home in an area deemed a flood hazard area.
- For general flood risk information, head to this government-run portal.
