If you’re not evaluating a property’s disaster risk before buying in, you need to.
According to a new report from CoreLogic (NYSE: CLGX), climate-caused catastrophes inflicted over $10 billion in damages last year -- and that’s all on top of a global pandemic. There were wildfires, floods, earthquakes, and countless hurricanes, some that saw Southern communities (like Lake Charles, Louisiana) hit twice in just a two-month span.
If you’re a real estate investor, understanding these risks is critical before expanding your portfolio. For one, you’ll want to secure adequate insurance to hedge your risk. On top of that, though, it can also shed light on your property’s long-term value as well as what investing approach you should take to maximize your returns.
Are you properly assessing disaster risk before buying new properties? If not, read on.
Where disaster risks are highest
According to CoreLogic’s report, there were more than 10 catastrophic weather events that caused over $1 billion in damages last year. Hurricane Laura alone caused at least $8 billion in losses.
Is your area at risk for such damage? Probably. As CoreLogic’s chief scientist, Howard Botts, explained: "By leveraging granular data for the increasing frequency and severity of catastrophes, we are able to see that 35 million homes -- which is almost a third of the U.S. housing stock -- are exposed to high risk from natural hazards."
To assess property risk across the country, the company looked at things like severity and frequency of disasters, average annual losses, reconstruction-cost value, and more, creating what’s called a "peril score."
States with the highest peril scores were California, Texas, Oklahoma, Kansas, and Nebraska. Geographically speaking, risk was highest in areas along the Mississippi River, the Gulf of Mexico, and the Atlantic Ocean.
Assessing risk and prepping your property
Obviously, it’s best to know a property’s risk before buying it. This can allow you to properly assess its value and your long-term goals for the home. But if you’re already stuck with a property in a high-risk area, your best bet is to get proactive.
Make sure you have the appropriate insurance in place (including flood and earthquake insurance, which are additional policies) and take steps to update your property physically. That might mean putting storm shutters on areas at high risk of hurricanes or removing large trees in places with earthquake risk.
Ready to get started? Here’s what CoreLogic says property owners in the highest-risk areas should watch out for:
- California: Earthquakes, wildfires.
- Texas, Oklahoma, Kansas, Nebraska: Tornadoes, hail.
- Mississippi River: Floods, earthquakes.
- Gulf Coast: Hurricanes, storm surge, floods.
- Atlantic Coast: Hurricanes, storm surge, floods.
Of course this isn’t an exhaustive list of risky areas or the potential disasters your property could fall victim to.
Though CoreLogic’s report shows about a third of U.S. homes are at high risk, that doesn’t mean the other two-thirds have it easy. As Frank Nothaft, chief economist at CoreLogic, put it, "Nearly every property in the U.S. has exposure to peril risk." And understanding and preparing for that risk? Those are critical steps to minimizing potential losses.
The bottom line
Don’t let natural disasters catch you off guard. Do your research before buying a new investment, and make sure the home isn’t in a flood zone, a high-risk wildfire community, or somewhere prone to earthquakes.
If you already own a risky property, take steps to protect it from future events, and make sure you diversify that portfolio. That can help you hedge any losses you might experience later on.