Finance

Disaster Investing: What Is It and Should You Get Involved?

Broken piggy bank depicts financial crisis, bankruptcy, and economic stress from lost investment.

Real estate has historically been one of the best investments around. There are lots of ways to make money, including disaster investing. Yet among the many real estate options, disaster investing tends to be low on the list. It definitely comes with its share of concerns.

Do you know what disaster investing is? Should you get involved with it as a way to make money in real estate? The best way to answer these questions is to do your research. Learn everything you can about disaster investing and then go from there.

Disaster Investing in a Nutshell

The simplest way to explain disaster investing is to look at the example of a natural disaster – like a hurricane, wildfire, or flood. Natural disasters devastate both residential and commercial properties. Insurance claims take a long time to process. Rebuilding can take even longer.

Disaster investing is a strategy that involves buying up damaged properties for the purposes of rebuilding and getting them back on the market. Investors tend to focus on residential properties, but commercial properties can be attractive under the right circumstances.

What’s Good About It

Disaster investing has its good and bad points. Let us start with the good. First, a group of well positioned investors can help lead the charge to revitalize devastated communities. They can move more quickly than insurance companies and banks. They have access to resources that will allow them to quickly get to the business of rebuilding.

Investors can also make life easier for unaffected property owners by relieving said owners of the pressures of having to deal with rebuilding in an area that may be subject to strict state and local regulation.

For investors, disaster investing offers the opportunity to earn significant returns. If they are willing to invest in disaster mitigation at the same time, they can make the properties they acquire even more valuable when it comes time to sell.

What’s Bad About It

The chief concern with disaster investing is the potential for property owners to be taken advantage of. Disaster investment critics say the practice is unethical because it takes advantage of people already under significant stress. Property owners looking at devastating losses may not make well informed decisions.

From the investor’s perspective, financing disaster investments is rarely easy. Even hard money lenders like Salt Lake City’s Actium Partners are very reluctant to get involved. More often than not, investors have to make use of government revitalization programs or invest their cash reserves to buy properties.

Investors also need to be prepared for physical damage that goes way beyond anything they might have expected at the time of purchase. Natural disasters have a way of doing considerable damage that makes a property too costly to repair.

The Community’s Perspective

In one sense, communities devastated by natural disasters benefit from disaster investing by way of willing partners ready to come in and help them rebuild. Communities tend to be rebuilt faster when investors are involved. But the flip side is that investors may end up changing the vibe or character of a local community. Longtime residents may be displaced as well.

Disaster investing is neither right nor wrong on its face. On the positive side, investors are willing to help devastated communities rebuild. On the negative side, communities may be taken advantage of. Ultimately, property owners and investors have to make their own decisions.

You now know what disaster investing is. If it is something you are interested in, be sure to do your homework before you invest. Be sure to understand all the financial and ethical implications.