Is This the Most Overlooked Threat to Real Estate Investors?

A study by the National Oceanic and Atmospheric Administration found that since 1980, the number of floods classified as “extreme” has doubled. But floods are just one example of natural disasters slamming the US.

There’s also record-level wildfires, destroying homes and making it harder to build new ones in affected western states including California, Utah, Colorado, Nevada, New Mexico, and Oregon.

Here’s what real estate investors should consider when it comes to natural disasters and climate change.

Natural disasters to pay attention to

1.      Floods

Floods are capable of completely damaging properties, making them uninhabitable. 

In the Northeast, floods have increased by more than 500% since the 1950s. And, the damage from floods is getting worse.

Flood natural disaster affecting community
Source: Unsplash

In the past, investors could rely on insurance to cover the cost of repairs, but insurance companies are starting to exclude instances of damage from flooding. This means that investors often pay for repairs out of their own pockets.

2.      Droughts

As of April 26, 2022, more than 45% of the US and nearly 55% of the lower 48 states are in a drought

Droughts lead to problems like water shortages, increased risk of wildfires and dust storms, poor air quality, and rising utility costs. In severe cases, they can also fuel mass migration.  

In terms of properties themselves, droughts obviously affect aesthetics such as landscaping. But on a more serious note, droughts can cause cracking, sinking, and shifting in foundations. And needless to say, repairing a foundation is a property owner’s nightmare. 

3.      Rising water levels

Coastal areas are popular for real estate investors, and for good reason. But, if sea levels continue rising, what does that mean for those who own property on the coast? 

Bloomberg opinion columnist Jonathan Levin states, “Buyers are oblivious or indifferent to the risk of rising sea levels and need better information about the threat.”

To take precaution, property owners often invest in flood insurance, but unfortunately also may end up paying out of pocket costs when it comes to fixing some of the damage.

4.      Wildfires

Not only do wildfires destroy homes and businesses, but they can also make areas uninhabitable for years. This often leads to a decrease in property values and increased vacancy rates.

Source: Unsplash

While more wildfires occur in the east, wildfires in the west are larger and burn more acres. The riskiest states for wildfires include California, Texas, Colorado, Arizona, and Idaho. 2020 was a record high for wildfires, burning through more than 10 million acres across the country.   

Unfortunately, insurance doesn’t always cover damage done to homes by wildfires in high-risk states such as California. In fact, an estimated 350,000 Californians were unable to get property and casualty insurance in 2018 after its record-high year of destructive wildfires. 

High-risk states

Coastal areas are particularly vulnerable to climate change, and we can expect to experience more severe and extreme weather conditions in the future.

South Carolina, Georgia and Florida 

These states are particularly vulnerable to hurricanes and tropical storms, often leading to flooding. 

According to the National Hurricane Center, South Carolina has been hit by hurricanes or tropical storms an average of once after every 3.6 years since 1950. In Georgia, that number is once every 4.6 years. 

Florida has experienced some of the most destructive hurricanes to date, as well as fires, floods, tornadoes, and other severe storms. 

California, Oregon, Colorado and Arizona

While flooding is a major concern in some parts of the country, wildfires are a problem in others. The western United States is particularly vulnerable to wildfires due to the dry conditions.  

Texas

Texas has been crowned by many to be the worst natural disaster state, due to its risk of wildfires, floods, hurricanes (including Hurricane Harvey), tornadoes, and droughts. 

Source: Unsplash

Low-risk states

The good news is, for real estate investors who are concerned about natural disasters, there are low-risk areas to consider.

Particularly in certain parts of the midwest, threats of wildfires, flooding, earthquakes, tornadoes, and droughts are less frequent. While they may experience snow storms every so often, lower-risk states include Michigan, Minnesota, and Illinois. 

Source: Unsplash

The bottom line

With any investment, it’s important to assess the risks involved. While not to steer investors away from real estate, it’s helpful to consider how climate change and natural disasters could affect areas of interest. 

Taking precautions such as investing in different types of insurance, protective infrastructures, and having a plan in place in the case of disasters, can help give investors peace of mind while still maintaining quality real estate investments no matter what states you’re purchasing property in.

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