When Mike Taylor, a home appraiser who grew up near the Spring neighborhood of Wimbledon Champions, helped friends clear out their homes after Hurricane Harvey, he saw strangers walking up and down the streets.

“They were…” he paused and let out a sigh. “I hate to say circling like sharks. But they knew what they were after.”

The well-dressed crowd making offers on the spot were crisis investors, people who throng to the scene of natural disasters looking for damaged homes that can be purchased for dimes on the dollar. They followed Hurricane Katrina into New Orleans and went onto Sonoma, Calif., after the Tubbs Fire. Soon, they’ll likely be knocking on doors of ruined homes along Imelda’s path.

These investors fix and flip, and the faster they sell a home, the lower their holding costs and the greater their profit.

That’s the way it’s supposed to work. But two years after Harvey, dozens of investor-bought homes remain vacant, standing in various combinations of repair and neglect. In one Wimbledon Champions home, a newly renovated breakfast bar overlooked a pool half-filled with emerald green water — where the pool filter should have been lay a nest of disconnected pipes.

Investors raised more than $1 billion to invest in damaged Houston homes in the wake of Harvey, much of it in the form of so-called hard money loans. Wimbledon Champions, where more than 165 of the community’s 1,100 homes sold after the hurricane, was one of the most impacted neighborhoods. In Bear Creek Village, which hugs the northwest corner of the Addicks Reservoir, at least 310 of 2,500 homeowners left; 200 of 2,800 left the modest neighborhoods south of the south Sam Houston Tollway and west of Interstate 45, according to information collected from the Harris County Flood Control District and the real estate analysis firm ATTOM Data and analyzed by the Chronicle.

Investors snap up Harvey-flooded homes

One in eight homes sold in the six months following Hurricane Harvey sustained damage during the floods, according to a Houston Chronicle analysis from 2018. Thousands of the homes were purchased by investors as rental units, transforming some Houston-area neighborhoods.

Source: ATTOM Data Solutions/Harris County Flood Control | Data analysis by Matt Dempsey | Map created by Rachael Gleason

Buying, then defaulting

Kevin Johnson, a Wimbledon Champions homeowner who stopped working for six months as he restored his home — it was his daughter’s senior year, and he wanted to return her life to normalcy as quickly as he could — was puzzled by the condition of a house around the corner. Eventually, he paid his own landscaper to tend the yard.

“It was horrendous,” he said. “I think the owner just walked away from it.”

He was right, in a way. But the owner who had walked away was not the family that had lived in the home for a quarter century before the storm. It was Home Today Inc., a crisis investor based outside Las Vegas.

Home Today didn’t walk away from just one home. It walked away from dozens. In the six months after the disaster, the company bought 72 homes in Harris County, according to documents from the Harris County Appraisal District, making it one of the top buyers of Harvey-flooded homes. Two years later, 61 of those homes had entered foreclosure.

On HoustonChronicle.com: In Houston’s flooded neighborhoods, real estate investors see an opportunity

The Nevada company has been sued by contractors, who claim to be owed $195,000. Harris County and the Spring Independent School District have also sued, saying they were owed a cumulative $34,343.85. Home Today’s lenders have been trying to recoup $15.7 million they lent the company.

Representatives of Home Today, which calls itself a nonprofit on its website, did not respond to multiple phone calls and emails.

The company was not alone in its troubles. Many investors hoping to find gold in the floodwaters instead found themselves dragged into the same mire of financial troubles faced by homeowners throughout the region. And because many bought at scale, their difficulties had an outsize impact on communities.

More than 150 homes purchased by investors within six months of the disaster have entered foreclosure, data from Foreclosure Information and Listing Service show. Many of those homes may have been eligible for programs in which government agencies buy out homeowners whose houses have repeatedly flooded. At least 88 Harvey-flooded homes Harris County wanted to purchase this way were instead acquired by private parties.

Shopping around

The ease with which investors such as Home Today borrowed money to purchase homes starkly contrasts with the rigorous vetting process when an individual buyer applies for a conventional mortgage. Following the housing bust in 2008, underwriting of consumer mortgages — loans made to someone who will live in a home — became more closely linked to a borrower’s ability to repay. Investor loans, referred to as hard money because they are generally issued based on the value of a property and not the creditworthiness of the borrower, are not.

As a result, Home Today borrowed more than $11 million from LendingHome, a San Francisco company, despite reporting just $622,000 in revenue the year before. Home Today then moved on to other lenders, borrowing $3 million from Civic, a lender based in Redondo Beach, Calif., then another $14.5 million from Anchor Loan, a lender from Calabasas, Calif.

And while Home Today did not comment on its situation, representatives of LendingHome and Anchor Loans said the investor told them its struggles were due in large part to Houston’s mandate to elevate homes in the 500-year flood plain that had been substantially damaged during Harvey. That mandate, however, applied only to permits issued after September 2018, well after Home Today bought the bulk of its homes, and had been announced months in advance.

The lenders also said repaired homes sat on the market for longer than Home Today had expected. When sales are slow, an investor’s costs add up. Every month a property remains unsold means an additional a month’s worth of taxes, insurance, utilities, homeowner association fees and landscaping costs eating into the bottom line. Selling quickly is especially important for investors who take out loans, which often come with double-digit interest rates.

On HoustonChronicle.com: HGTV’s new Houston show rides home-flipping wave

Many Home Today properties sat on the market for hundreds of days. The house Johnson had landscaped had been listed for 280 days before the lender foreclosed on it.

Mark Lee, chief legal officer for LendingHome, called the soft post-Harvey market an anomaly.

“Especially in California, after wildfires, most people want to get back into their community as quickly as possible,” he said.

But after Houston experienced its third 500-year flood in three years, people proved reluctant to move back into certain communities.

“This was a little bit counterintuitive,” Lee said, “and I don’t think anyone could have predicted that.”

Nonetheless, he argued Houston neighborhoods were better for the investors.

“If you had done no rehabilitation after the flooding, no investors went in to make improvements, the whole value of that neighborhood would likely decline — and decline substantially — because you’d have properties molding, sitting vacant, etc. So you’re propping up property values more than they would’ve been absent those rehabilitations.”

Neighborhood impact

Investors who walked away from unprofitable properties left houses in a type of purgatory as the community around them tries to heal. Others have stuck by their investments despite unforeseen costs.

One was Fred Farah, who bought more than two dozen homes in the area, hoping that the market would recover within a year and a half or so, allowing him to make a profit of 20 percent to 30 percent. But despite updating the homes, Farah, who did not bankroll his purchases with hard-money loans, has had a hard time finding buyers. After listing one home for more than 100 days, he decided to start looking for renters.

“I put it on the market in March,” he said. “Customers — when they hear ‘flooded,’ they’re not listening to buy.”

Further complicating sales efforts, sellers who have to contend with the stigma of flooded homes also are dealing with competition from other investor-owned houses in the same neighborhood. Because so many homes turned over at the same time, there’s a bumper stock of renovated homes on the market. Real estate agent Adel Hazim has worked with three investors in Wimbledon Champions and said they have to go above and beyond to sell a home. Houses need to have the nicest renovations or the best price to stand out from the crowd.

“Buyers can pick and choose, and they’re going for the best of the best,” he said. “You have to have that ‘wow’ factor for it to sell.”

On HoustonChronicle.com: In some Houston neighborhoods, homes that flooded and were renovated are the hot property

Meanwhile, holding costs have eaten away Farah’s profits. He has offloaded some of the homes to other investors, who are renting them out. And to stanch his hemorrhaging costs on the remaining homes, he has rented those out as well, becoming a landlord — something he never intended. He wasn’t alone. Only seven Wimbledon Champions homes had been listed for lease on the Houston Association of Realtors website in the two years before Harvey. In the two years after, that number increased to 49.

The residents of Wimbledon Champions have noticed the increase in renters, as well as a shift in demographics, that resulted from 15 percent of their community selling their homes after the flood.

“The whole investor concept changes the face of your community,” said Brittany Lopez, who lives in the neighborhood and repaired her home after the flood. Many of the people who sold to investors were older residents without children at home or jobs tying them to the area, and Lopez missed her street’s retirees, who made her feel that the homes were always watched over.

“I think it’s positive that we have a younger population,” she said. “But it’s a little bittersweet.”

Meanwhile, Farah still hopes the market will rise enough to make the homes worth selling after the leases are up.

“Maybe one more year,” he said. “Maybe the prices go up and people forget the hurricane there. You still have a chance.”

Includes previous reporting by David Hunn and Matt Dempsey.

rebecca.schuetz@chron.com

twitter.com/raschuetz