Disasters are unfortunate on so many levels— definitely not something to joke around about. As an investor, you need to be aware of the risks and adjust your investment strategy accordingly. It’s time to be real. It might seem great to put all of your money into beautiful beachside properties, but it may also include lots of risks. The property's chances of being wiped out by mother nature increase significantly. Let’s say you have a couple of billion in the bank. If that's the case, you’re not as at risk financially and able to invest in multiple beachside locations that lie directly in a hurricane zone, or might fall into the ocean due to global warming.
If you are like the majority of the population— and you don’t have that kind of cash lying around— maybe you need to take a second to look at the inherent risk of investing when it comes to facing natural disasters.
Natural Disasters Across The Map
There is an interactive map by CNN Money that shows the potential natural disaster risks to real estate property across the United States. There are areas which are obviously in the path of disaster more than others. Your odds of losing your assets and their cash flow are far higher in some places. There are risks from wildfire, earthquakes, tornados, floods, hurricanes, and more. Another aspect of investing that has changed in this era is that we face human-made disasters and terror threats— unlike in previous times.
Although it’s true that the direct risk of damage to one property in any season is small, most people under-predict the impact of the risk on the local economy. If local businesses close due to having no power and no water, that will affect the demand and the ability to pay rent and owners to pay their mortgages. The domino effect!
If you are a buy and hold investor, you will need to keep up on your rehab work. Property maintenance makes a difference between happy tenants and unnecessary stress. What are features that you could add to help protect your property? Often, when you do this, it could give you a discount on your insurance.
Also, if you diversify your investments, this will make you the chance to earn profits from multiple avenues, which will, in turn, save you from a lot of risks. It’s never a good idea to put all of your eggs in one basket unless it is in a large multi-family deal you manage. Not only is it a good idea to diversify by property size and cost, but take into consideration the potential to expand based on location. A natural disaster could hit Florida, but at least your property in Indiana is not affected. Remember to read up on buying in markets across state lines and always do your due diligence.
The main thing is, for you as the savvy real estate investor, is to think long term and consider all potential good— and bad— scenarios. This will mean that you will be more prepared for whatever comes your way.