Last October, Hurricane Ian swept through South Florida and other nearby areas, causing millions of dollars in damage and destroying or decimating the homes of thousands of Floridians. But as during all disasters, some people sense opportunity in the wake of this recent turmoil. Many investors are actually rushing to Florida in the wake of Hurricane Ian to take advantage of potential property scoops by purchasing hurricane-damaged homes for sale.
But what's the core of this trend, will it continue, and how might the current investor rush affect the 2023 South Florida housing market? Read on for the answer to these questions and more.
Hurricane Ian – The Total Damage
Hurricane Ian was a 2022 Category 4 Atlantic hurricane that struck Florida, South Carolina, and other nearby areas between the end of September and early October. Unfortunately, Hurricane Ian was devastating to many individuals.
It caused at least 157 fatalities and catastrophic damage; total losses are currently estimated to be in excess of $50 billion. The majority of this damage was caused by flooding, which impacted not just commercial real estate and retail offices but also individual homes.
Certain data and analytics providers indicate that total flood and wind losses are between $8 billion and $18 billion for residential and commercial properties alone. Many homes were severely damaged because of high winds or heavy flooding, which knocked down walls, destroyed roofs, and devastated properties by flooding them from the ground up.
Just a few years before, Hurricane Irma hit Key West at a Category 4 and went on to cause upwards of $65 billion in damage. It decimated older and new homes in Big Pine Key, the epicenter.
After that and in the wake of Hurricane Ian, many Americans were forced to leave their homes and relocate, oftentimes permanently. However, other Americans decided to stay put, remaining in their homes despite the extent of the damage.
Real Estate Trends in the Wake of Ian
In every disaster lies opportunity, especially for real estate investors. As Hurricane Ian subsided, many homeowners whose properties were damaged or destroyed received calls from real estate investors looking to pick up their properties for cash offers, oftentimes at or above current market values.
For example, Rick Lema – an individual who owns a home in a mobile home park in Englewood – began looking for distressed commercial and residential properties as soon as Hurricane Ian let up. His goal? To find properties with owners who would be more than willing to unload their distressed single-family homes or other property types in exchange for a fast cash offer.
This trend was repeated all across South Florida in many areas, such as Miami, Key Largo, Naples, Monroe County, Fort Myers Beach, and elsewhere in Southwest Florida.
Additionally, properties in the Florida Keys at places like Islamorada and Cape Coral saw investors swarm the area as soon as Hurricane Ian faded away. Their goals were the same: find distressed or destroyed properties whose owners would be willing to sell ASAP.
Potentially Lower Prices
Note that many of these real estate offers were made in cash and for fair market value. However, some investors decided to offer homeowners or property owners less than what they would originally ask for.
In the wake of any natural disaster, many people are more than eager to leave the affected area as quickly as they can. They want to unload their distressed properties so they can move in with family and stop worrying about the property, repair, appraisal, selling it, and so on.
Thus, many investors were looking to purchase hurricane-damaged homes for sale in Florida and South Carolina. In theory, they'll be able to scoop up these homes for relatively low prices, repair them, and sell them for major profits… provided that recent South Florida real estate trends continue and home prices remain steady through 2023.
Why the Sudden Rush To Buy Homes?
It’s all because hurricanes and similar natural disasters cause people to abandon their homes. For example, if a homeowner has invested most of their wealth into their property, and a hurricane like Hurricane Ian destroys it, they may not be able to recover the full value of that property via insurance.
Even if they have flood insurance, it’s unlikely that the insurance company will be able to cover the full cost of repairing or rebuilding the home. Many insurance companies were deemed insolvent in the wake of Hurricane Ian because too many people made claims at the same time.
Therefore, homeowners' only recourse is to find a willing buyer, which can be in short supply. Average Americans — that is, normal working adults with or without families — aren't usually keen to move to hurricane-prone areas right after a hurricane strikes.
That’s not true when it comes to real estate investors, however. Most investors see the opportunity in such a market; they’ll offer cash for distressed homes, then take them off the original owners’ hands. In exchange, they get to fix and flip the properties for massive potential profits once interest in the South Florida market returns.
And make no mistake, interest always returns. Although South Florida is and will remain a hurricane-prone area, people will always want to move back to this market because of the sunny weather, the job opportunities, the oceanfront views, and the developing economy, particularly in the tech sector.
Typical Investment Strategies Post-Hurricanes
The broad investment strategy for purchasing hurricane-damaged homes is the same across investment firms, realtors/real estate agents, and individual investors: drive around, locate distressed properties that would be a lot of work to fix, review the property information, and then locate their owners. Upon locating a property's owner, make a cash offer that is competitive but that is nonetheless lower than what the same property might be worth pre-hurricane.
This can involve a lot of legwork and market research, especially in the short term. Furthermore, distressed property sales are rising very quickly as more and more investors pick up on this potential opportunity and swarm the area.
Therefore, if you’re looking to bolster your portfolio with distressed properties, you need to move quickly to find the best properties with the cheapest likely repair costs. After all, if you purchase a distressed property, you’ll need to fix it up and make it attractive once again – and that will initially cost money out of your pocket.
Will the Homebuying Trend Continue?
While many Florida homeowners are willing to sell their properties quickly for cash offers, not all of them are willing to part with their properties, even if a lot of work remains in terms of repairing or rebuilding those homes.
Indeed, many homeowners aren’t willing to sever their personal or professional ties to the area, especially in the wake of a natural disaster. As a result, investors can find themselves in a scramble to find willing sellers of distressed properties, competing against other investors and property scoopers all the while.
Furthermore, some homeowners may find that the market is too expensive or the rates are too high to buy a new home, and will likely opt to stay put and rebuild.
This could be a sign that the Florida housing market in general is starting to slow. If 2023 evolves as we predict, house prices might decrease across the state and across the country, turning the housing market into a more balanced market or a buyer’s market instead of the current seller’s market we are seeing today.
Thus, real estate investors must be careful when purchasing distressed, hurricane-damaged homes in Florida and beyond. What looks like a potentially profitable purchase now could turn into a cash drain in 2023.
How Will the Investor Rush Affect the 2023 Housing Market?
So far for areas impacted by Hurricane Ian, we've seen some sellers take their home off the market to address repairs, while other homeowners with older homes faced with significant increases to their insurance premiums. This may temporarily impact new inventory from coming onto markets affected most by Hurricane Ian.
It's also suspected that rates will remain high for the better half of 2023 as the Feds work to bring down inflation, which will result in a continued slow down of real estate sales activity. This is especially true for homes under $1 million, as buyers in that price range tend to be the most rate sensitive.
However, the luxury home market in South Florida is expected to remain very hot due to the increased migration of high net-worth individuals and corporate relocations to South Florida.
As you can see, there is a lot affecting the investor scramble to buy hurricane-damaged homes for sale in Florida. That said, this trend is a temporary boom at best, and many investors may try to jump into the potential opportunity without consulting with experts such as contractors, inspectors, and real estate professionals to fully understand the risks and potential benefits involved.
It's best to work with knowledgeable loan officers and real estate experts like Vaster if you plan to invest in South Florida real estate. Vaster can help you secure financing to pounce on a great property deal before competing bidders. Contact us today to see how we can assist with your property purchasing goals.