Golden State residents are a little different from everyone else. You can attribute it to the sunshine, to the frontier mentality, to the fascinating and tumultuous politics, to the movie and aerospace and tech industries: in any case, it’s a unique place. Also unique to California are the increased seismic concerns, which, in the United States, are of an importance on the West Coast to a magnitude unfelt anywhere else. These concerns play a huge role in the fix-and-flip industry, where seismic retrofitting is often a requirement before a house can be put on the market.
Thanks to scientific advances, new buildings in California tend to be pretty sturdy. We’ve learned a lot about earthquake prevention in the last few decades, and the shattering events in 1989 and 1994 just reinforced processes that were already underway. However, many houses were built before these advances. This means that people taking out a hard money loan for a fix-and-flip property have to consider what steps are needed in order to prepare their property for an earthquake. What, both morally and economically, are the essential factors for a seismic retrofit?
Knowing If Property Needs A Seismic Retrofit
1979 was the year that California imposed stricter seismic standards on new construction, which means that houses built before that year may be vulnerable and in need of a retrofit. Some estimate that in the Northridge area, the scene of a deadly and devastating earthquake just 20 years ago, almost 50% of the houses would be unable to sustain a large earthquake and could completely collapse.[1. Wells, Jane, “California is still not ready for the ‘Big One.'” January 17, 2014. http://www.cnbc.com/id/101345966] And that’s in an area that has experience with disaster. With the risk of an earthquake potentially rising, that leaves many people in danger.[2. Lin, Rong-Gong and Rosanna Xia, “Risk of 8.0 earthquake in California rises, USGS says.” March 10, 2015. http://www.latimes.com/local/lanow/la-me-ln-chance-of-80-earthquake-in-california-rises-usgs-says-20150310-story.html]
Luckily, there are many steps that a real estate developer can take when they’re looking to get a house on the market. The first step is gaining a solid understanding of exactly how seismic damage occurs during an earthquake.
An earthquake can do three things. It can slide your house off its foundation, which means the walls no longer have that support and can collapse under the weight of the rest of the house. It can also “rack,” which means it shakes from side to side, causing the walls to buckle and potentially collapse. In a particularly terrifying scenario, it can lift the house off of its foundation and turn it on its side, tossing it like a plaything. All three of these can potentially occur, so it’s important to know whether or not a house is specifically vulnerable. This can be established with an expert inspection.
Costs and Effects of Seismic Retrofit
So, if a house is vulnerable, what needs to be done? There are several important steps that can be taken to secure the property:
- Foundation Bolting: What two of the above scenarios have in common is that the house comes loose from the foundation. This can be mitigated by foundation bolting, where bolts are added to improve the connection between the frame and the concrete foundation. In some cases, the original bolts are weak, or there simply weren’t enough of them. Surprisingly often, there were no bolts at all, and the house stayed on the foundation simply due to its own weight. Expansion bolts work best in homes with stronger concrete, where they hold better, but for homes with older concrete, epoxy bolts are probably your best bet. Foundation plates also can strengthen the connection.
- Cripple Wall Bracing: In many homes, there is a small wall between the foundation and the main floors, in the sub-crawlspace area. This is known as the cripple wall and many are not very strongly supported. In an earthquake, the cripple wall can collapse, bringing the first floor down on top, pancaking the house and leading to a total collapse as it shifts off the frame. Strengthening the cripple wall is extremely important, though many engineers warn against making it too strong- ductility is also important when the shaking starts. Houses without cripple walls are less vulnerable, but braces can be used to make them stronger.
- Foundation Brackets: These don’t necessarily keep the house from coming off the foundation, but they do work to stop the rolling that leads to racking. These brackets are attached from the foundation to the frame, making the frame less of a collection of disparate parts and better holding all the pieces together.
Financing a Seismic Retrofit
All of these things are important, but what about the cost? Estimate range from $4000-$7000. The question is whether or not it’s worth it for your property. There are a couple ways you can consider this issue.
By having this done, not only are you helping to ensure the safety of your buyers, which is a moral good, but you will also find that a safe home is easier to sell. A house that’s been made less vulnerable to earthquakes can be a major draw for families looking to put down roots. Most residents do not have earthquake insurance, as a quirk in California law does not include earthquake coverage in standard homeowner’s policies. Even with insurance provided by the California Earthquake Authority, possibly 90% of residents could be ruined. [3. Ferris, Robert, “California not ready for big quakes, and they’re coming.” January 21, 2015. http://www.cnbc.com/id/102355698] Owning a house that is already protected could be very important to buyers.
On the other hand, there are programs designed for homeowners to take advantage of – you can receive help upfront,[4. Romero, Ric, “Earthquake Retrofit Program Helping SoCal Homeowners.” January 17, 2015. http://abc7.com/news/earthquake-retrofit-program-helping-socal-homeowners/479209/] as well as tax credits,[5. http://www.californiaresidentialmitigationprogram.com/] for applying a seismic retrofit to your property. As the owner of the property, you could take advantage of these before selling, but it is also something your buyer can do. Doing the inspection and letting them know what is needed is a good way to engender goodwill.
In the end, you need to balance what needs to be done in the house with the financing you have available. If your budget is tight, consider applying for an equity-based hard money loan to finance your project. Using a hard money loan from a leading California lender to apply a seismic retrofit could be what separates your property from the competition. At the end of the day, safety is everyone’s responsibility. Being prepared and helping your buyers be prepared has the highest possible ROI.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.