Houston Real Estate Market – 2017 Flooding
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Houston Real Estate Market – 2017 Flooding


Houston flooding 2017– how
to understand all of this if you’re a real
estate investor. That’s today’s show. Let’s dive in. Hey, everyone. I’m Clayton Morris, longtime
real estate investor. I’ve rehabbed and renovated
thousands of homes. And today on the Investing
in Real Estate show, we’re going to
talk about Houston. We have to, right? It’s the elephant in the room. It’s the question that I’ve been
getting all over the past week about all of the flooding
and the hurricane damage that has hit the Houston metro area. So as a real estate investor–
and I know many of you probably have invested in Houston, it
was a really popular investing area– I, personally, didn’t
own anything in Houston. Texas did not appeal to
me because of the property taxes were higher and a
little bit more pricey on properties there than
I’m comfortable paying for, but there’s a lot of people that
bought properties in Houston, and the Dallas area, and Austin. So people have certainly
invested in Houston, and it was a growing area. It was the sixth
largest metro area– 1.6 billion square feet
of leasable land space. So, tons and tons and
tons of commercial space, and growing and growing and
growing residential space. In fact, we’ve been hearing
over the past few years– I’m sure you’ve been hearing
it in the news reports– that, wow, everyone’s
moving to Texas, right? Everyone’s moving to Texas. It’s an economy that
had been growing because they have
no state income tax, so businesses found
it attractive. Yet property taxes were higher,
so as a real estate investor it was somewhat attractive. Also, it had some of
the friendliest landlord laws in the country. If you’ve watched my videos
on the Morris Invest YouTube channel, you know
that I’ve done videos on the most
landlord-friendly states, and Texas was number one. Indiana was number two. Florida is right there as well. So Texas, right up there
with some real nice reasons to be an investor. But again, I personally
was not an investor in the Houston area. But so many people were. So, what happened here? Now, let’s examine this. And we’ll talk about flood
zones and flood insurance, and we’ll kind of dive into
some of that on today’s show at a higher level. I’ve definitely done
videos and interviews where we’ve dived deeper into
all of the different flood zone designations, so if you want
to go check that stuff out, please do. It’s available right
here on our channel. If you’re a subscriber,
just click on it and watch it for free so you
can learn a little bit more about those flood zone
designations from FEMA. Now I will say, I, as a
reporter over the years, I’ve covered a lot
of these floods– and, specifically,
in West Virginia, and it is absolutely
devastating. And some of the things that
I’ve covered in West Virginia were those 100-year floods that
are supposed to only happen once every 100 years. That means that more
than 12 inches of rain falls in any given small,
short period of time. Well, guess what? When I was in West
Virginia, I saw two 100-year floods occur within
like a year of each other. So, rain rushing down
the mountainsides and destroying entire valleys
and homes, and mobile home parks and everything else– It was really tragic. And I would watch
these students who had their schools destroyed,
their classrooms destroyed. And so you had students
who were sixth graders, had to go to school
with third graders. And guess what? They, then, had to learn
at a third-grade level. Because you can’t
teach up, right? You can’t teach third graders
at a sixth-grade level. So these sixth
graders were forced to consolidate
into these schools and were being forced to
sort of re-learn stuff they learned in third grade. I mean, look, talk about some
wasted years of their youth because of these floods. I mean, that was the situation. And I’m telling you, that’s
exactly what we’re now experiencing in Houston. So, when we look at
Houston versus other areas, what is different about
Houston’s flooding? And should you be
concerned as a real estate investor if, for
instance, you’re investing in Indiana,
or Michigan, or Florida, or North Carolina, or other
places across the country? What is different? Well, I’ve interviewed
a lot of experts on this particular topic
over the past few weeks. In fact this morning, I spoke
to Lieutenant General Semonite. He is the head of the
Army Corps of Engineers. He is the General on the ground. He is responsible
for the reservoirs. He’s responsible for
building the levees. He’s responsible for putting
bills through Congress in order to get
funding– in order to put in new infrastructure
to protect these communities in these areas. So, I’ve talked to some
pretty high-level experts. I’ve also talked to some
pretty talented meteorologists and explaining how all of this
would unfold in these areas. And I specifically asked
them the question, “OK, if I’m a real
estate investor, how is me investing in Indiana
different than investing in Houston?” That is to say, “Would I ever
see a Hurricane Harvey-like rain situation in the
Midwest, versus what we saw in the Gulf of Mexico?” And these meteorologists
told me it is, “impossible.” It is impossible. It is, “meteorologically
impossible” for that much moisture to ever
hit that part of the country. Because the way in which
Hurricane Harvey moved in, it pulled all of
that warm moisture from the Gulf of Mexico,
hitting Houston, and then, stalling out and hanging
over the Gulf of Mexico. And continuing to pull all
of that moisture right out of the water, and dumping
it right on dry land. Also, what’s different
about Houston, versus other areas
of the country, and the reason Houston has been
hit so hard over the past few years– they’ve had a series
of floods over the past few years– There’s nowhere for
the water to go. The soil in the
Houston area is a clay. It’s like a thick clay. What does that mean? That means that
when water hits it, it just kind of
sits on top of it. It doesn’t absorb it. Now, if you’ve ever
been to Florida. And if you ever been to
Orlando or anything like that. And you’ve been to Disney World,
and you’ve watched one of those 3:00 PM rainstorms that
always happen in Florida– they happen, like, right around
3:00 PM for like 25 minutes– And it’ll be like a flood. And you’re like, holy
smokes all that water. It will come, and it disappears. Why? Because it’s sandy soil. So it absorbs right
through the ground. That is totally different than
what we saw in the Houston area, where it’s a thick clay. And there’s nowhere for it
to go, so it sits on top. And Houston can only
handle one inch of rain. That’s all they can handle. Any more than one inch of
rain in the Houston area, is almost considered flooding. So, imagine, they’ve
got 50 inches– they had a 1,000-year
storm event– most catastrophic event in
US history by all accounts. And when all of
this is tallied up, the billions and
billions– we’re talking about right now as of
this tally– about $170 billion in damage in the Houston area. And according to the New
York Post this morning, a quarter, one quarter, 25% of
all of Houston’s real estate got hit by Harvey. What does that mean? That means that even
if one inch of water came into one of
these properties, that is flood damage. And the whole house is
going to have to be gutted. Because any bit of this water
that was filled with all kinds of toxic chemicals– we’re
talking gasoline, petroleum, arsenic, lead– you name it, it
was in this water. And one drop of it, a little
bit of it, one inch of it, hitting any particular
property– that means that that property
now has to be gutted. All the drywall has
to be yanked out of there down to the studs
because of mold forming. All of those toxic
chemicals need to be removed from the house. So, piles and piles and
piles of dry drywall sitting on the sides
of roadways now. When I spoke to the
General, he told me that that’s their main
concern right now. They’re going to have
billions of tons of debris that they’re going to
have to now move out of the Houston area. So one-quarter of all
Houston’s real estate hit by this– an
absolute devastation. OK, what else is different– Houston compared to other areas
and why it’s really concerning? I mean, if you’re
in the Houston area, I just don’t know how you– I hate to say this– but I
don’t know how you rebuild. There are certain
areas that have now had multiple floods in the
past three to four years. On the Wall Street Journal,
I read a piece yesterday talking about how one family
literally just finished renovations from the last
flood a year ago in Houston, and now their house has been
totally destroyed a third time. I don’t know how you continue
to rebuild in that spot because they’re not
really even meant to have houses in certain areas. Now, I spoke to the
general and I asked him, what’s the difference between
Houston versus Florida? And why do we not see this
kind of low-level flooding in Florida that we
do see in Houston? And he also said that Houston
has 70-year-old infrastructure for trying to prevent storms. They don’t have the storm
doors that Florida does. So Florida has invested
billions of dollars into these storm
doors that regulate water coming into
these communities, and they’re able to keep it out. They’re able to keep it out
and keep low-lying areas from getting flooded. They’ve invested in
these storm doors. We’ve also invested
in that in New Jersey after Hurricane or
Superstorm Sandy– This same infrastructure was
now built into this area. So I said, “Well, is
Houston going to get this? Are we going to see this
and then build this?” And he said, “The
problem is we can’t.” The problem is
that more and more A class neighborhoods– you know
the rich neighborhoods– pushed up closer and closer
to the water areas, where under FEMA designation
we would build these walls. We would, otherwise, normally
build these giant storm doors that would basically
keep the water out of Houston. But because so many Homeowners’
wanted these really nice high-end homes, they built
in those areas where now it literally has affected
all of those other areas. So they can’t build
these big concrete doors. They can’t build all of
that infrastructure that would keep the water out
of Houston, unfortunately. So Houston is totally
different than some of the other areas that
experienced hurricanes on a regular basis. So you’re saying to yourself,
OK, what’s different here? Well, we have the
hurricanes that crisscross Florida on a regular
basis, where they come up the coast, they hit South
Carolina, North Carolina– What’s the difference? If you’ll notice in Florida,
you just don’t see the flooding. You don’t see that problem. You’ll have high wind, right? You’ll have roofs pulling off. You’ll have that kind
of stuff happening. But they’ve got
hurricane shutters, and all those things
are put in place. I lived in Orlando where we had
three hurricanes crisscross. And sure, we were without
power, but I didn’t see hardly any flooding at all. I saw little pockets in
an underground garage in the apartment
complex where I lived. There was a little bit
of water that came in, but I’m talking a massive
hurricane came through, and the flooding was
kind of nonexistent. I lived near a golf
course, and the rain just sort of dissipated and
went into the sandy soil and was channeled away. That’s totally different than
what we’re seeing in Houston, where this water
has no place to go. And now, it’s just sitting
there like a contaminated, toxic soup– really, really sad situation. So, let’s talk a
little bit about what’s going to happen now in Houston. The really troubling thing
is that there was already a contractor
shortage in Houston. People, they didn’t have the
hammers being swung around that they should have had. So there was already a shortage
of contractors in that area to just even do
new construction, and build new stuff,
or renovate properties. So now here’s the
major problem– that all of these apartments
have been destroyed. All of these rental properties
have been destroyed. There’s no place
for new contractors to come in from out of town. Where are they going to stay? Where are they going to sleep? So how is the federal
government– and I asked this question
of the general– how is this going to happen? How are you going to
even get contractors to come in from other cities in
order to help rebuild Houston? And the fact of the
matter is, they’re not. So a lot of these
homes are going to have to be
leveled, destroyed. The federal government may
have to come in and try to either lift them up,
and spend a lot of money to try to lift up these
properties, or just level them. Because you’re not
going to be able to find the contractors to come in
and do all of this work. So right now, there’s
been a shortage. We’re not going to be able to
get all of this stuff back up and running. Many people there didn’t
even have insurance. And this is the other big rub– that if a quarter of Houston’s
real estate got hit by Harvey, I think 90% or 85% of folks
did not have flood insurance. So that’s a huge problem. And they didn’t have insurance,
period, which is unbelievable. So what is flood insurance? And, again, I don’t want
to go into all the details about flood insurance. But why this is so tricky is
that flood insurance will cover some storm damage from rain. But if your home is
filled with water as a result of rising bodies of
lakes, or rivers, or streams, or oceans– it won’t cover you. So what good is it, right? Well, the most common
flood insurance is offered through the
federally regulated program known as the National
Flood Insurance Program. It was started during the 1960s. It coincided with us figuring
out different FEMA flood zones in this country. And if you are
buying a property, and you’re using a mortgage in
order to close on the property, you are required– if
you’re in a flood zone– to get this insurance. Now, I personally don’t buy
properties in flood zones. I think all of the
rental properties I have, they’re not in a flood zone. And you would know that
pretty much right away if you need to have that
property if you need it when you’re getting
your insurance policy. You may find out from
your insurance provider, yes, I’m going to have
to get a flood insurance. They’ll tell you. Flood zone, then they have
all the different designations and the different mapping
structure of the FEMA flood zones. So here’s the thing,
is storm surge covered by flood insurance? Now, we saw so much
of the storm surge inside of Hurricane Harvey. So now, hurricane coverage,
or named storm coverage, only covers like the high wind. Right? And the actual 160
mile an hour winds. But it won’t cover
all of the rain. Or it won’t cover the flooding,
which is so, you know, it’s a bunch of crap. Let’s be honest, right? So this is what we
saw with Katrina. People didn’t have
insurance there, and then suddenly
the levees broke. Well, it was related
to the hurricane. But because it was
from the levees, it didn’t count under
hurricane insurance. It didn’t count under
that kind of insurance, so all these people
were left holding the bag because they didn’t have
the right kind of insurance. Or the insurance
that they did have, simply, wouldn’t cover them. Right? Ridiculous. So Homeowners’ insurance does
not cover property damage from floods. So if you have just general
Homeowners’ insurance, it’s not going to
cover flooding. And private flood insurance
can also be really expensive. So if you’re going to
fork over private flood insurance for properties that
are in these flood zones, it can be expensive. I just don’t know
that it makes sense. We’re seeing more and
more of these hurricanes. We’re seeing more and more
of these named storms, and it can be a problem. So, it’s interesting. And it’s important for you to
understand hurricane insurance because it be a little tricky. So for instance, private
Homeowners’ insurance does not cover flood damage. But it should cover any damage
caused by Hurricane winds. Many Homeowners’
insurance policies have deductibles
for hurricane damage that are separate from
the general deductible for other damages. So for instance, our house
was hit in New Jersey from Superstorm Sandy. We had a bunch of shingles
ripped off the roof. We had some rain that came in. And we had to get
some things fixed. We had a tree that came down
and smashed our back deck. We were able under our
Homeowners’ insurance policy– we paid a little bit of
extra for that deductible that covered some of
that hurricane damage, that Superstorm Sandy damage. So, it is important for you to
understand these designations. Is it important for you
to then freak out about it and start piling all
kinds of extra insurance on top of what you
currently have? No. So when we look at
places like Indiana, where one of the reasons I love
investing in places like that is that there is almost no
flood zone at all in there. Because it’s one of
those rare cities that was sort of built
on top of an area that didn’t have any
navigable waterways. So, you need to look at
these different things. But again, when you’re
looking at places like Houston and you’re saying
to yourself, OK, I’ve seen now three
of the same storms in like four years down
there, I need to maybe rethink my investing strategy. That’s a really important
step for you to do. So there you go, that’s kind
of a high-level look at Houston and the flooding
that unfolded there. Our hearts and prayers go
out to all of those people. And we have definitely
donated a bunch of money. If you’re interested
in donating money to help those individuals,
check out Red Cross. They are the ones that are
right there on the ground. I know having been there–
looking at these floods– I’ve witnessed firsthand
what the Red Cross has done. They do an amazing job
being there on the ground. So go to redcross.org,
and donate some money to help these individuals out. They need food. Obviously, they
need fresh water, and to try to pick
up the pieces and see if we can actually help rebuild
these communities there. It’s a really tragic situation. So, that is today’s show. I wish we had better
news to talk about. But this is a fact of
life– trying to understand real estate investing. And trying to understand
this flood insurance, and how it all plays
out, specifically in the Houston area. I’d love to hear your thoughts
and comments about this. Please leave them in the
comments thread below. We’ll be back, here, with
another episode this week as well. And thank you so much for
subscribing and becoming a part of our investing
and real estate community. Now go out there,
take action, and don’t let storms get in the way of
you building passive income and creating legacy wealth
for you and your family. Much love to you all.

34 Comments

  • Acoustic Silk

    I don't think Houston will ever fully recover from this. New Orleans still hasn't even fully recovered from Katrina. Not to mention these hurricanes are going to become more and more frequent due to rising sea temperatures. Do you see any upside to investors investing in Houston?

  • Sergei Hakobian

    Good evening Clayton, thanks for your educational videos, I always enjoy watching your youtube videos. One quick question for you, what are the areas in Indiana you personally invest in?

  • Tamyra Campbell

    Wow…can your information get any better! Your just a wealth full of information, and a delight to listen to. Thanks for a current update on Houston relating to Real Estate, it has crossed my mind.

  • Ken Davis

    I feel very fortunate, as I have a son and a brother in Houston. Neither one was flooded, but it was in fact a mess nonetheless. Things are getting back to normal for both of them in terms of getting to and from work, getting grocery stores re-stocked, etc.

    As an aside, my current single family rental properties (just 2, but my wife and I just got started this year) are in the DFW area, both north of Ft Worth, and there was no Harvey damage up in this area at all. Maybe a couple of inches of rain total, but it has been a VERY wet summer here anyway.

    However, I'm really concerned that the contractors that I hire to rehab rental properties are going to get sent down to Houston. I'm slowing down for now on acquisition of single family, as I currently have delays on the second acquisition for very simple rehab, getting carpeting and some ceiling fans (and a few other things to bring the house into current electrical code. But it's only a $5K rehab, not a gut by any means.)

    Ironically, my wife and I moved out of Houston the DAY after Hurricane Alicia way back in 1984. We were young, and the move to DFW was already planned. Just the timing. Alicia was not a particularly strong storm, but it did manage to drive water through the brick facade of our apartment, soaking both furniture and the cardboard boxes we had already packed.

    One last hurricane note – I was a 10 year-old with a dad in the Air Force in 1969, living in Biloxi Mississippi when Camille hit. Schools were out for weeks, potable water was a major issue, we had a tree that had blown into our house (and it was a rent house, fwiw! Military life.) But it hit and literally was gone, blue skies and just dodge the downed power lines and trees the morning after. Harvey was less destructive in terms of lives, but holy crap! 50 inches of rain is just insane.

    Your comments as always are very informative, and thanks for the content.

  • shapeshfters

    Recently watched a Dave Ramsey video where a Houston couple last year asked if they should buy their house, and Dave gave them an answer based on their current financial situation. I hope they didn't go through with it.

  • It's A Mom Blog

    I would never buy property in Texas. Property taxes are too high and so are the natural disaster risks, hurricanes, tornadoes and floods. No thanks, I'll pass!

  • TractorTrailerWorld

    Windsor Ontario had 2 hundred year floods back to back in 2016 and 2017. The city is surrounded on 3 sides by water.

  • Gary65437

    So how was your sandy quick draining soil, in FL after Irma? And nice road trip up to Georgia with plenty of gas along the way?
    Any better than Houston with their millions of population growth?

  • Mr J-Charles

    One good thing if you don't rebuild is just get your FEMA loan and use it for something else. Not sure what the rules are on how you use the loan.

  • B Nelson

    Thanks for the insights. As for Texas, it's a place where the anti-regulatory to the max mindset has been promoted for decades. I say let the oil companies, whose products' byproducts is what's leading to the oceans warming in the first place, pay for repairs.
    Places that get snow, like Indiana or Michigan, generally have less catastrophic risks.

  • AustinAirCo

    Hurricane Harvey update 2018: I live here and own properties here. Flooding can be a problem and certainly you do not want a rental that floods regularly (unless you like losing money) Flood insurance for this area is not a cure all. We had tax day flood 2016 then topped it off with Harvey in 2017. Once you file a claim on flood insurance the cost can easily double or possible triple. I had a neighbor that had to cancel the flood insurance because the premiums had gone up so much. Many people are just now closely back to putting their lives back together after spending most of their time living in hotels while their homes were being put back together. Many have paid for repairs out of pocket. Some homes in well known flood areas are raising their homes upwards of 5 feet or more using a process of jacking up the whole home. This can cost 150K or more. Fortunately the properties I own did not flood. There was street flooding at one of my homes that made it half way up the drive way. The difference is the side of the freeway this house is located on. Had it been on the east side of the highway, it would have likely been a complete loss. The house I live in now was bought after the Tax day flood occurred, after a flood like this occurs it gives valuable information into which areas are more prone to flooding. This house took in a little water during Hurricane Harvey due to improper grading, of which has since been corrected I removed 6 to 8 inches of clay so the water runs away from the home as it should. My homes will never flood now. All of Houston would be under water if that were the case. If you're an out of state investor you're probably out of your league when it comes to the Houston area and flooding.

  • Debra Johnson

    Flood zones change. When I bought my home in Houston, it was not in the flood zone. But when Harvey came, it was because they had changed the map. Almost a year after the storm, housing costs in Houston are through the roof. :-/

  • Brandon Neilly

    As a native Houstonian, thank you for this information. I was having a debate with friends today about our need for more condos due to the lack of infrastructure, poor urban planning, climate change, and the normal flooding that we now see here. I love my city but we are the only major city that doesn't act like one. Poor zoning laws, poor public transportation, and lack of elevated living spaces in an area that floods regularly now. Places that never flooded typically now do.

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