Its a beautiful spot - but developing anything there is extremely hard to do as you are essentially building on solid rock, completely off-grid in most places there is no country electric, sewer, water or internet access for most of the island... and being in construction I'm guessing the island is plagued by a lack of skilled workers as it is everywhere.

I used to be a property manager and at least in our contracts and agreements, natural disasters were our responsibility to prepare for.

That becomes naturally easier over time as you build your rep. 

My natural inclination would be to pull the money out now and pay the penalty and taxes and then use that money for down payments and never pay taxes again on the cash flows. 

So if it’s too risky for them to pursue value add properties, are they mostly doing stabilized buy and holds, and their main upside is perhaps improved management and natural appreciation/market rent increases?

Behind that drywall.The beauty of having a basement is that any work on the plumbing, electrical, or ductwork is a lot cheaper because of easy access to those systems.

@Pete TorrezFirstly, your understanding of the situation is incorrect.The active/passive distinction you are referring to has to do with the nature of how income to the IRA is generated. 

And there is always advice from everyone saying you don't need it if not required.Flooding is the #1 natural disaster that the US faces that is over fire (do most of us have homeowners insurance policy?)

Note all investments, including real estate, carry the risk of loss in addition to possibility of gain.Investors who are retiring or seeking a life style change and would like to take a more passive role in their real estateInvestors who wish to consolidate their holdings of multiple smaller properties into fewer large properties for ease of managementInvestors who are seeking to diversify their real estate portfolio into higher quality investment grade real estate, but lack the experience, resources or capital required to manage or acquire larger institutional quality real estate.Investors who are in their 45 day identification period and are seeking a viable replacement property option to satisfy their 1031 exchange or need a backup option in case their primary property falls throughInvestors who have excess proceeds in their 1031 exchange and rather than pay the capital gains tax, would like to replace it with more property to receive 100% tax deferral.They are very hands off in nature.

We may find another beautiful house to upgrade to before the 30 years are up!