Afford Anything Podcast: "When Disaster Hits Home – Literally"

Host: Paula Pant
Guest: Joe Salsihai, Former Financial Planner
Special Guest: Prahlad Pant (Paula's Father)
Release Date: February 11, 2025

Introduction

In this special episode of the Afford Anything podcast, host Paula Pant delves into the intricate challenges of owning real estate in disaster-prone areas. Joined by financial planner Joe Salsihai and her father, Prahlad, Paula tackles a listener's pressing question about whether to sell or hold onto a condo in the aftermath of devastating hurricanes.

Listener's Question: Navigating Real Estate Post-Disaster

Listener: Prahlad
Context:
Prahlad and his wife own a two-bedroom condo on the ninth floor in Clearwater, Florida, purchased for $400,000 in 2015. Despite its appreciation to $800,000 in 2022, recent hurricanes—Helene and Milton—have impacted the building's infrastructure, leading to a projected decrease in value to $700,000. Additionally, an upcoming special assessment of approximately $30,000 for plaza deck renovations poses a significant financial consideration.

Prahlad's Query:
"Should we sell the condo now to pay off our recently purchased ranch home in Atlanta and become debt-free, or wait for the market to rebound?"

Expert Analysis: Assessing the Impact of Disasters on Real Estate

Paula Pant:
"We're going to answer a very special question today about what to do if you own real estate in a disaster-prone area, which is unfortunately an issue that is affecting a larger and larger percentage of people."

Joe Salsihai:
"Thank you so much for that question... It's great that you're safe and your condo wasn't physically damaged."

Historical Impact on Property Values

Paula examines historical data from the 1990s, highlighting that major natural disasters typically cause home values to drop between 2.5% to 5%, with more severe impacts on directly damaged properties. Furthermore, a 2020 study in the Journal of Urban Economics revealed that severe disasters increase outmigration rates by approximately 1.5 percentage points over a 90-year span.

Paula Pant [06:31]:
"Following a major natural disaster, home values in those areas dropped somewhere between 2.5% to 5%, with the most severe impact on homes that suffered direct damage."

Current Market Dynamics and Future Considerations

Joe emphasizes the volatility inherent in disaster-prone real estate markets, noting increased insurance costs and the role of state regulations in shaping insurance premiums.

Joe Salsihai [14:21]:
"Insurance companies ... are regulated by the state. So when they send you notices, when they raise premiums, they have to be really careful about what they do."

Paula and Joe discuss the rising frequency and severity of natural disasters, the insurance market's response, and the growing viability of remote work, which may influence future real estate decisions.

Special Assessment and Its Implications

A significant part of Prahlad's concern revolves around the upcoming $30,000 special assessment for plaza deck renovations. Joe advises that such assessments, being pre-announced, are typically factored into property prices and should be transparently disclosed to potential buyers.

Joe Salsihai [31:36]:
"There has to be an assessment coming. Sure, 30,000 bucks."

Joe shares a cautionary tale about the importance of transparency in disclosures, emphasizing that hidden or poorly communicated assessments can lead to buyer distrust and complicate the selling process.

Strategic Decision-Making: Sell Now or Wait?

After comprehensive analysis, Joe and Paula discuss strategies to help Prahlad decide whether to sell his condo immediately or wait for the market to recover.

Key Considerations:

1. Impact of Lobby Reconstruction:

   • The ongoing reconstruction of the building's lobby can deter potential buyers due to poor first impressions.

   Joe Salsihai [27:21]:
   "That's a reason to wait."

2. Market Recovery Timeframe:

   • Studies suggest that property values in disaster-affected areas typically recover within one to three years.

   Paula Pant [44:11]:
   "Mathematically it truly is. What's the interest on the mortgage? How does it compare to the appreciation?"

3. Financial Calculations:

   • Assessing the interest costs of maintaining a mortgage versus the potential appreciation if holding the property longer.

   Joe Salsihai [43:16]:
   "You're going to have the peace of mind knowing that you were able to reach your goals and get where you wanted to go anyway."

4. Hurricane Season Timing:

   • Listing the property post-reconstruction but before the onset of the next hurricane season (June-November) could optimize selling conditions.

   Paula Pant [50:14]:
   "The biggest rebound tends to happen after basically in one year."

Final Recommendation:

Joe advises waiting until the lobby's reconstruction is complete to reassess the market, leveraging professional real estate expertise to evaluate current property values and neighborhood trends.

Joe Salsihai [43:33]:
"The quickest that you solve for the get rid of the debt equation, the happier you'll be... The happiest retirees don't have debt."

Conclusion: Informed Decision-Making for Property Owners

The episode underscores the importance of data-driven decision-making when dealing with real estate in disaster-prone areas. By understanding historical trends, assessing current market conditions, and considering personal financial goals, property owners like Prahlad can make informed choices about selling or holding their investments.

Takeaways:

• Assess Impact: Understand how disasters have affected property values and migration patterns historically.
• Evaluate Costs: Consider ongoing costs like insurance and special assessments.
• Leverage Expertise: Utilize professional real estate agents for accurate market insights.
• Strategic Timing: Align selling strategies with market recovery phases and seasonal factors.

Notable Quotes:

• Paula Pant [06:31]:
  "Following a major natural disaster, home values in those areas dropped somewhere between 2.5% to 5%, with the most severe impact on homes that suffered direct damage."

• Joe Salsihai [14:21]:
  "Insurance companies ... are regulated by the state. So when they send you notices, when they raise premiums, they have to be really careful about what they do."

• Joe Salsihai [43:16]:
  "You're going to have the peace of mind knowing that you were able to reach your goals and get where you wanted to go anyway."

• Paula Pant [44:11]:
  "Mathematically it truly is. What's the interest on the mortgage? How does it compare to the appreciation?"

This episode of Afford Anything provides invaluable insights for anyone grappling with real estate decisions in the wake of natural disasters, emphasizing the balance between emotional comfort and financial prudence.