To what extent should natural disasters factor into decisions?

[Account Closed]

I'm a commercial real estate investor in California and am interested in hearing about how and if other investors factor earthquakes into their investment decisions. For example, if there's a 50% chance of a magnitude 8 earthquake within the next 30 years, would that factor into your underwriting/valuation at all?  Would you consider it at all when deciding whether to sell vs. refinance-and-hold a property? (Assuming you're experienced enough and comfortable investing outside of California) 

Earthquake insurance is very cost-prohibitive and deductibles are usually 25%, so let's disregard property insurance. It doesn't seem like any brokers or investors in California are considering earthquakes. On one hand, you don't want to let something that may never happen get in the way of your financial growth, but one natural disaster can ruin your portfolio especially if you only own a few properties.  Looking forward to hearing your thoughts.

[Ronald Rohde]

Originally posted by @Account Closed:

I'm a commercial real estate investor in California and am interested in hearing about how and if other investors factor earthquakes into their investment decisions. For example, if there's a 50% chance of a magnitude 8 earthquake within the next 30 years, would that factor into your underwriting/valuation at all?  Would you consider it at all when deciding whether to sell vs. refinance-and-hold a property? (Assuming you're experienced enough and comfortable investing outside of California) 

Earthquake insurance is very cost-prohibitive and deductibles are usually 25%, so let's disregard property insurance. It doesn't seem like any brokers or investors in California are considering earthquakes. On one hand, you don't want to let something that may never happen get in the way of your financial growth, but one natural disaster can ruin your portfolio especially if you only own a few properties.  Looking forward to hearing your thoughts.

The investors I know that are concerned about losing it all to an earthquake and won't carry insurance don't invest there. Plenty of lower risk locations with insurance to provide a complete hedge against total loss. Another way would be to put earthquake rebuild funds into an escrow account, whatever you're willing to pay as a premium could be used toward re-building.