Hi,
I will attempt to answer your questions. Feel free to ask other questions which may come to mind as you read my answers. Your right real estate has a huge position in a strong economy and keeping stability in local markets.
During a disaster insurance plays a key role in providing capital to rebuild, depending on the policy the insurance may cover total replacement or may cover a fixed amount requiring the owner to kick in some percentage. A home is typically built for 80 to 85% of FMV inclusive of carrying costs, hard and soft costs and all labor and materials. The developer will make between 12 and 15% in profits on a well planned and executed project. In this case homeowner get’s the built in equity when the home is finished.
- If a single home is lost in say a fire, rebuilding will recover value in relation to comparable home values around it, if a whole neighborhood is lost to a flood or fire for instance as it’s rebuilt it will carry the new “As Built” value of the first home rebuilt. If a single builder steps in and rebuilds a whole neighborhood like a tract home development homes will start recovering value at one cost basis and grow in value by way of premiums and upgrades.
The first home in a development may sell for $200k and as the last homes sell 2 or 3 years later value has increase by market demand, pricing premiums and upgrades to a level which may be 10% per year. Home values will increase or decrease surrounding homes depending on size and price.
- The government allows a free market as was evidenced by our 2007 recession. Pricing is developed by the builder of a single family (Single Home) by reading comparable values of homes around the target property, building the new house with appropriate square footage to match it’s surroundings.
When a tract home is built typically the builder will create 3 model homes, there is a reason to do this other than showing prospective buyers what the builder offers in quality, design and material options. Typically the builder will sell the models some weeks prior to delivering the first finished homes, the models are sold to a separate holding entity or investors at new market pricing. These are leased back as models.
These new model homes become the first three neighborhood comps for conventional financing and set the market for homes to follow, typically a new tract home development will sell initially for about 10% above surrounding homes fair market values. This is a new home premium.
- The hardest part aside from the initial emotional attachment and loss is the steps required to comply with city, county and state compliance. Gutting and removing wet materials, treating for mold and ridding structures of unwanted pests are the first steps, then drying the structure and getting back to a position where damage can be surveyed by square footage or linear footage.
Typically all wiring must be inspected before electricity is restored which may mean replacing plugs and switches filled with silt and corroded and may involve removing and replacing circuit breakers or ground fault (Arc Fault) breakers or GFCI. All plumbing and HVAC / Mechanical must be inspected, drains must drain, water pipes must hold pressure and hot water heaters may need replacement.
The same thing with HVAC / Mechanical systems which must clear duct work, pull and replace damage and potentially replace HVAC systems, condensers or air handling equipment. Typically in a disaster the wait for inspections could be weeks or months, when you have so many steps to take and need inspections at each step, the wait can be a significant delay. This is caused by demand on the building department and inspectors.
Health codes, public standards and occupancy permits may be delayed because of waiting lists for inspections.
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The city, state or federal government does not dictate value, there are appraisal guidelines set by Fanny and Freddie and homes must meet HUD livability standards.
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The idea of rehabbing homes in low income or urban blight area’s is great when values exceed costs of rehab, but a lot of America will not have enough value to make rehab cost effective.
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Air BNB is a rental income alternative which will work in strong rental / hotel rate markets but fail when matched against low cost housing or cheap motels in a soft market. Renting nightly rentals requires insurance, pest control, house keeping, replacement reserves, linens, etc. when rents are soft the ability to break even or make a profit is deterred and risks of loss or bankruptcy is a greater potential.
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Insurance is required by all lenders to protect money borrowed from a conventional (FHA / VA / Bank) or a private or hard money resource. Typically insurance has a statement of limitations and does not cover floods, flood insurance must be obtained from a specialized source. It covers for fire, theft, natural disaster (Other than Floods) and covers personal injury and property liability.
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When a home is completely lost a new survey, soils testing, perk test and new plans to todays code is required. Plans will need to be submitted for plan approval and special assessment fees and permit fees will need to be paid for construction. If public / private utilities are damaged the builder or project will be delayed until utilities are repaired / replaced and utilities can be connected, signed off and a certificate of occupancy issued.
Access may be an issue if roads or bridges are washed out which could delay someone from starting to rebuild by months or years because sufficient access is limited to make construction cost effective.
Your welcome,
GR