Natural disasters, not to mention their costs, have been on the rise. In fact, according to recent data, these events cost the U.S. a whopping $95 billion in damages last year -- nearly twice the amount seen in 2019.
It’s a stat that should have property investors rightly worried.
Though the damage done by natural disasters is often covered by insurance (if there’s appropriate coverage in place), the impact for an investor can be sweeping. They can open the door to endless costs, hassle, and liability, and they can take a property -- and its income -- out of commission for months, years, or in many cases, even permanently.
Want to prevent these unfortunate effects from hurting your bottom line? Keep these facts in mind.
1. Insurance is more important than ever
You don’t want to be on the hook for all the damage caused by a flood, hurricane, wildfire, or another natural disaster. According to the Insurance Information Institute, Hurricane Katrina alone caused an average $85,570 loss per property. Losses for hurricanes Sandy and Harvey clocked in above $31,000.
And those are just insured losses. Imagine if you were footing those bills yourself. Would you have the cash? How long would it put your tenants out? And where would you house them while doing the repairs? The costs and impact would be significant.
Set aside some time to review your existing insurance policies and make sure you’re properly covered. Double-check FEMA’s flood maps, and check out your property’s risk of wildfire. There’s a chance your risk has changed since buying the home, and you may need to adjust your policy (or buy a new one, like flood insurance) to better protect yourself.
2. Choosing your location is critical, too
If you’re thinking about expanding your portfolio this year, you’ll need to be extra choosy about where you buy. Make sure you’re not purchasing in a flood zone, high-risk wildfire community, or somewhere prone to earthquakes.
Be extra thorough in your research, too: If you’re investing in a new area, talk to other property investors, enlist an experienced real estate agent, and do a Google News search to learn about any recent disasters or weather events in the region.
3. Proactivity is key
If you already own a property in a higher risk area, study up on when your risks are highest. In hurricane-prone regions, for example, you’re most likely to get hit between June and November.
When you near these more dangerous times of the year, you’ll need to be proactive in preparing your property. Trim the trees, have the right supplies on hand, and talk to your tenants (if any) about any protocols you recommend they follow.
You never know when a storm may hit, so being ready from the get-go could save you significantly if the worst should occur.
4. Putting all your eggs in one basket (or one market) could be dangerous
Finally, remember to diversify your portfolio. Betting all the odds on one property -- or a handful of properties in the same area -- can be extremely dangerous if a natural disaster hits.
As a Houstonian, I experienced Hurricane Harvey first-hand. And some harder-hit areas? They’re still recovering almost four years later. If you can’t imagine — or afford — having your properties offline and under repair for several years, spreading out your investments is absolutely critical.
The bottom line
The dangers (and costs) of natural disasters can be significant. Want to make sure your portfolio is insulated from these risks? Then be proactive, choose your properties carefully, and be sure to diversify your investments. You should also meet with a local insurance agent annually to be sure you have adequate coverage in place.