A Natural Disaster Could Wipe Out Your Investment: What to Consider Before Buying

A Natural Disaster Could Wipe Out Your Investment: What to Consider Before Buying

2 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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Disasters are no joke. They are tragic on many levels. And as an investor, it is vitally important that you are alert to these risks and invest accordingly.

Let’s be real. It might seem cool to invest in some beautiful coastal properties, but it may also come with the extreme risk that the property won’t last very long. If you’ve got a couple billion in the bank and you are OK with gambling a couple million on a beach home in a hurricane zone because you know you you can afford to buy another without it hurting you financially, go for it. But if you really can’t afford to lose your capital or your home, then it’s worth paying attention to the physical risks associated with holding real estate.

home flood protection

Related: The Texas Flooding: 5 Scams For Homeowners to Avoid During Rebuilding

Natural Disaster Risk Across the United States

This interactive map from CNN Money shows the natural disaster risks to real estate across the United States. Some areas are clearly far more prone to disaster than others. That means your odds of losing your assets and their cash flow are far higher in some places. There are risks from wildfire, earthquakes, tornadoes, floods, hurricanes, and more. In this day and age, we are also increasingly facing man-made disasters and terror threats in some U.S. cities too.

It’s true that the direct risk of damage to a single property in a given season may be small. However, many underestimate the risks of local economic pain associated with these disasters. What if half of your neighborhood is wiped out by a storm? That’s still going to impact your property. If local businesses are shut down for months because they have no power or water, that is going to impact demand and the ability for tenants to pay rent and owners to pay mortgages.

How do you minimize your exposure to these hazards? Insurance is a good start. Don’t just get the most basic coverage with the highest deductible and leave it unchecked forever. Get a deductible you can afford. Make sure you have extra coverage for local hazards like flood. Review your insurance regularly to increase or decrease coverage and premiums as the property value fluctuates.

protect_vacation_property

Related: Managing Your Property Manager: How to Prepare For Rental Disasters

Protect Your Property

As a buy and hold investor, making sure your rehab work is good quality and that you keep on top of property maintenance can make a difference too. What features can you add to protect your property? Note that these might earn you a discount on your insurance.

Diversification is also necessary. Instead of putting all of your eggs into one basket with one big house, consider spreading your capital across several less expensive properties. If one out of 10 gets hit, you will probably still be fine. Diversify by location, too. Maybe you’ll choose a small portfolio in Ohio or Indiana to balance what you own in California or Florida. This is another reason to use leverage. By partnering up or using financial leverage, your cash position in each property and the risk of losing it is also minimized.

Where are you investing right now? How seriously do you look at risk of disaster when choosing markets?

Let me know with a comment!

When considering a market to purchase real estate, the potential for hurricanes, flooding, and other natural disasters should always be on your mind.