Real Estate Investment: The Impact Of Record Setting Natural Disasters
A spree of back to back natural disasters in September 2017 has left many property owners and investors the U.S., the Carribean, Mexico, etc. wondering about the impact on real estate, and their own financial futures.
Numerous new natural disaster records have been set in the past few weeks when several category 4 and 5 hurricanes teared through many islands in the Carribean, Florida Keys and mainland U.S. Further, Mexico experienced multiple earthquakes greater than 6.0 magnitude all in the month of September that claims the lives of a few hundred people to date. Personal tragedies have hit too close for home for thousands of individuals. Further, with hurricane season not ending until November 30th, the possibility of more storms and rains is daunting to say the least.
Hurricane Harvey hitting Houston, TX was the first big one in the US in 2017. It is believed to have set a new record for damage costs. Estimated to be well into the tens of billions, if not far more. This was followed by a new record of 3 active hurricanes threatening the US at the same time. From Florida Keys up through the coast of West Florida was hit by gigantic Category 5 Hurricane Irma causing record numbers of people to be evacuated. Then there was Maria which completely wiped out Puerto Rico, and may leave the country without power for months. At the same time Mexico was hit with back to back cyclones, hurricanes, 2 major earthquakes, and tsunami warning, and a volcano eruption. These are only the major stories that we are hearing about. Yet, they seem to be part of an increasing trend in record setting natural disaster threats along the line through the Caribbean, Southern US, and Mexico.
Back to the Basics
While many will no doubt rebuild again, global and Canadian real estate owners and investors who have put money into property in this region are once again reminded of two of the most basic, but often dismissed financial and investment principles. The first is to seek wealth preservation before promises of high returns. Many Canadians and Americans squeeze out every dime to invest in property, and then opt to save money by not fully insuring their investment. This strategy is risky and you could risk losing it all. The second is to be careful where you invest in property. In these areas, it is not a matter of whether you will be impacted by major disasters, or not. It is a question of how often, and how hard you will be hit.
There are going to be extreme costs and losses to those invested in these areas. While we all love holidaying in the sunshine, many may start to rethink the wisdom of not adequately insuring your investment.
Out of disaster, could potentially start a new trend of foreign investment capital returning to Canada and seeking a safer harbor. There are some Canadians whose investments were adequately insured. These investors may choose to bring their insurance proceeds and possible the cash from the sales of damaged homes back to Canada to be reinvested. If they do so, the increase in demand and equity could only add to the value of Canadian real estate, and the strength of the investment property market.
As sad as it is to see so many struggling to pick up the pieces, the fact remains that we still have two months to go before hurricane season is over. Some homeowners in these disaster areas will choose to relocate and start over somewhere else. Others will rebuild and add additional insurance. Some new investors will enter the market and buy damaged properties, while others investors that were directly impacted, may likely choose to redirect their resources closer to home.