There are a number of considerations when you’re buying a home, investment or not. But something off the radar is increasingly worth paying attention to — the effect of climate change and its ability to damage property or make getting insurance coverage a challenge. JPMorgan has a great piece on the topic — make the jump to read in full or keep scrolling for the highlights. We’re sharing their 5 tips for protecting your home’s value against climate risk.
First, the facts
Catastrophe policies are designed with an eye to historic losses. But climate change is changing the landscape — literally and figuratively — which means a greater risk of mispricing. In parts of California, for example, insurance companies are increasingly refusing to offer coverage, pointing to record wildfires fueled by years of drought. Since 2000, billion-dollar climate change disasters have increased erratically all over the US, and the writing is on the wall — higher insurance premiums and regular home improvements specifically relating to climate change are very likely on the horizon. The point is that homeowners will be well served to build a climate plan if you’re planning to buy or you already own a home.
Prepping in five steps
- Complete a climate risk audit. You can identify potential risks and hazards in your part of the country at climate.gov. Some insurers are also offering consulting services for climate risk to identify potential retrofits.
- Consider your liquidity. Imagine the worst — would you be prepared to handle the expenses without impacting long-term investments? If not, you might consider setting up a line of credit.
- Stay informed. Be clear about your purpose for buying. Is it simply an asset in your investment portfolio? If so, be strategic about keeping it geographically diverse or be prepared for retrofitting costs after a climate risk audit.
- Keep older homes up to code. New builds may meet new codes relating to climate change risks, but that’s not necessarily the case for older homes. Staying current on the latest codes can help properly prepare your home regardless of its age.
- Include climate risk in estate planning. If you’re planning on leaving a home as part of your estate, be clear about the future costs that may come with it.
Regardless of your personal thoughts on climate change, its impact is beginning to affect the real estate market. Being aware of that is an important first step, and taking steps to plan for any potential price bumps is not a bad strategy.