Holistic Survival
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How to Save Your Home, Business, and Life

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HS - Jason Hartman Income Property Investing (2)Jason Hartman talks with Peter Yanev who has more than forty years of experience in earthquake and structural engineering, and risk management. In 1981 he co-founded EQE International, a global risk management provider, and grew the company to 750 professionals before leaving in 2001. He currently advises organizations worldwide, including engineering firms, the World Bank, the Massachusetts Institute of Technology, and the University of California, Berkeley. More at: http://www.holisticsurvival.com/category/audio-podcast/. A former president of the Northern California chapter of the Earthquake Engineering Research Institute, Yanev has performed more than one hundred earthquake investigations, has published extensively, and is a frequent media commentator on natural disasters. He holds degrees in structural and earthquake engineering from the University of California, Berkeley, and the Massachusetts Institute of Technology. He lives in Orinda, California.

Some topics covered in this episode are: Supplies of food and water is not preparedness – safety is of course a concern but the real problem is what happens to your home, business, and investment. What can you as a homeowner do? What about the small business owner? Is insurance the right solution? Should you retrofit? Or do both? How can a home or business owner do some simple risk planning to help understand their risk?

The same issues apply more to apartment and condo owners especially those who are buying in new buildings – do they understand that the code is not meant to protect their investment (or business) and that it only means the building won’t kill you? Your building or home still might be destroyed. Do they understand that many new buildings are unsafe from a risk perspective?
We can elaborate on what the code means and what people should know about it – specifically what you should know if you plan on building or investing in real estate (home, office, etc).

About the book Peace of Mind in Earthquake Country, the best-selling book which for thirty years has helped homeowners everywhere protect their properties and loved ones from the devastating effects of earthquakes, is now completely updated and greatly expanded. The new edition reflects the latest advances in earthquake science, engineering, and financial management techniques for homeowners, home buyers, and businesses in earthquake country.

In this comprehensive resource, earthquake engineering and risk management experts Peter Yanev and Andrew Thompson, who together have more than sixty years of combined experience and have investigated more than 100 earthquakes around the world, demystify the confusing technical aspects of earthquakes and present a do-it-yourself approach to home and business preparedness. Here, they explain in accessible text earthquake-related concepts such as “liquefaction” and dangerous “soft-stories,” then present easy-to-follow steps to understand and judge your risk as a homeowner, the soundness of your property, your possible financial risk, your insurance options, and how to inexpensively strengthen your home or office.

Earthquake risks are high for anyone in California, Washington, Oregon, Alaska, Utah, the Central US, and more. It provides informative graphs and diagrams, hundreds of photographs, maps of existing and suspected fault lines, lessons learned from past earthquake, and the probabilities of future earthquakes. Chapters are devoted exclusively to earthquake risk management and insurance. Most importantly, you’ll learn what you can do to protect yourself and your property. This is a necessary guide for anyone living in earthquake country.

Narrator: Welcome to the Holistic Survival Show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival Show is your family’s insurance for a better life. Jason will teach you to think independently, how to understand threats, and how to create the ultimate action plan. Sudden change or worst case scenario, you’ll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places, and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

Jason Hartman: Welcome to the Holistic Survival Show. This is your host, Jason Hartman, and this is episode number 33. So today we’re going to talk about earthquakes and really what this talk relates to is not exactly what you’d probably think about on an earthquakes survival show. Now I’m here in California in earthquake country. And when we talk about the third pillar of holistic survival, protecting profits, I always tell my mother who was following sort of the old traditional plan of real estate investing, income properties you know I think is the most historically proven asset class and the best investment bar none in America today. And I always say to her “Hey mom, you’re not diversified enough with your properties. You need to own the in multiple states like I do because all of your properties, and this is not true anymore, but years ago it was before she started to follow my plan and diversify, are straddling the San Andreas fault. And very few people have earthquake insurance and then she doesn’t. We want to talk about earthquakes today from the perspective of safety of course, and how you save your life and your property, but also from the financial perspective and how you can save your property from financial ruin. So before we get into the interview with Peter Yanev who is an expert on earthquakes, a structural engineer, I wanted to talk to you about that third pillar of holistic survival. And that is protecting profits.

And my real estate company, Platinum Properties Investor Network, has a twice annual event coming up here in October in Irvine, California. And this is one of our really important events. It’s called the Masters Weekend: A Gathering of Experts. And what we do here is we fly experts in from all over the country to talk about all different areas of income property investing and how to create wealth in a prudent manner and how to diversify your portfolio and get away from that criminal enterprise, I think it’s criminal enterprise, called Wall Street. I think Wall Street is the modern version of organized crime that makes Al Capone look like Mother Teresa. And if you’re a Holistic Survival Show listener, you probably agree with me, don’t you? So we want to get away from Wall Street. We want to get away from the institutions. We want to be direct investors. And that’s’ commandment number 3 of my 10 Commandments of Successful Investing and that is thou shalt maintain control, thou shalt be a direct investor.

So we have a little contest going on. Of course you can register for the Masters Weekend by just going to JasonHartman.com and getting tickets, and we’d love to have you attend. We are also doing another one of our events the day before. So if you’re flying in from out of town, you actually can take advantage of the Creating Wealth boot camp on Friday and then the Masters Weekend on Saturday and Sunday. Now, also instead of just buying a ticket, which we’d love to have you do and you’re certainly welcome to, you can actually win free tickets. This is a $1500 value. And you can do that by just going to JasonHartman.com/contest.

So I want to play a little 1 minute and 30 second audio track of a video I recorded while on vacation recently in Saint Martin in the Caribbean. And that will explanation to you how you will win tickets.

And this is all so interesting from a viral marketing perspective. If you have a home-based business, if you have your own business of any sort, if you are in the internet business, you definitely want to learn and know more about viral marketing. So you may listen to this from the perspective of hey I want to win free tickets for the Masters Weekend: The Gathering of Experts, and you may also listen to this from the perspective of wow, how could I use viral marketing? How could I use this in my own business? And I think you’ll get some insight into that as well. So it’s 1 minute and 37 seconds long I believe and then we’ll go into the interview with Peter Yanev and we’ll talk about earthquake safety. So here we go.

Jason Hartman: It’s my pleasure to welcome Peter Yanev to the show. He is the author of a book on earthquake safety. This is all too important for those of you who may have properties or live in earthquake prone areas. The book is entitled Peace of Mind in Earthquake Country: How to Save Your Home, Business and Life. Peter, welcome.

Peter Yanev: Thank you, Jason. Nice to talk to you.

Jason Hartman: It’s great to have you on the show. We have not covered this topic as of yet, and I think it is vitally important. As we were talking for just a moment before coming on the air, you mentioned that in a lot of cases that the building code is really meant to protect life and safety which is great, but someone’s investment may be completely over even though the people are safe. So there’s really two sides of it. There’s, first of all, safety, and then the economics that happen after the incident, right?

Peter Yanev: That’s correct. That’s something actually that I would say only engineers understand enough and that is that the code as it is written is intended to protect life safety. In a moderate earthquake, you should have some damage, allow some damage. It’s too expensive to allow no damage, but the building should fundamentally be okay. On a very strong earthquake in the worst of earthquakes like the big ones we’ve had in Los Angeles, San Francisco for example, or Seattle in the future, the code really provides for life safety. You should be able to get out of your building. But the investment, that is not the code’s issue. That’s your issue. In other words, if you want a better building, you can always put some more money up front and build it better, not just to the code. So the real thing to understand here is to need code essentially means to barely be legal. If you want to have investment safety, especially in the bigger new buildings, you need to go beyond code. You have a pretty high risk. Now for houses, that is not the same. Houses are a much lower risk in a large earthquake. I’m talking about the new ones built to code because we have such very, very good statistics on houses and they’re built out of wood. The wood is much more flexible than the new concrete multi-story buildings and tends to perform very well. So again, the code as we have it today, is pretty good for the new houses and it is a very dangerous thing to assume that the code is good enough for anything other than houses.

Jason Hartman: This is very timely that we’re talking about this subject because there have been a stream of articles in the media lately talking about California specifically. I think they say that we’re due for a big earthquake every 88 years or something like that. Now I know they’re just playing probability there, but do you have any thoughts or studies on predictions or anything like that you want to share with the audience?

Peter Yanev: Absolutely. Prediction is a science that we haven’t conquered yet. We’re working hard on it. We’re down to basically understanding how frequently we’ve had strong earthquakes on various faults, the Hayward Fault in Northern California, the Seattle Fault in Seattle, the Northridge Fault in L.A. So we have a pretty good idea how often we get an earthquake. When it’s going to happen is very difficult.

So, for example, currently, the highest probability we know of, we think of, is the Hayward Fault in the San Francisco Bay area. Itself has three segments, but we don’t know exactly which one. Let’s say the middle. It is a very inexact science. When you say 88 years, that means that’s history. But like the stock market, if you rely on history, you’re in big trouble.

Jason Hartman: Right. Because you can’t necessarily predict it based on history, right?

Peter Yanev: That’s right, that’s right. We don’t know enough to say we’ll have an earthquake next year or the year after that or next week or a couple of months from now, but what we do know is some faults is much closer to breaking based on their past history and their knowledge of how the faults tend to move before earthquakes.

Jason Hartman: What’s interesting, some people may not really know this sort of basic stuff. Can you just give us a very quickie overview on how earthquakes happen and how are they measured?

Peter Yanev: Well, the fundamental way they happen is the plates, the continents in the ocean bottoms of the world, move around, adjusting themselves all the time because the world actually is not solid. It is soft down below. And because of that, we have frequent readjustments of the crust. The movements tend to happen along faults. Those are geologic weaknesses in the crust where we have some motion and we have an earthquake. And we have thousands of earthquakes per year. Most of those around the world, most of those are trivial. They just show you where the faults are. But now and then we get a big one like the Haiti earthquake earlier this year or the really big one, the Chilean earthquake this year which are fundamentally predictable on the basis of the frequency at which they occur, but not whether it’s going to be tomorrow, next month, or next year. But, in effect, the earth is a dynamic place, and we need to be prepared for when it shakes nearest us.

Jason Hartman: We certainly do. So one of the things that a lot of people don’t realize, and I didn’t many years ago, is how the Richter scale is counted, whereas you’ll get a very seemingly small difference. You’ll hear about a quake being a 6 quake versus a 6.5. Now that’s a hugely different occurrence. It’s not just .5, right, as most people would think of it. It’s a geometric progression, right?

Peter Yanev: That’s right. It’s even more than geometric. Each number is 30 times bigger than the previous number. The way the scale was created, it measures the amount of energy released in an earthquake, the total amount of ground moved, in effect the energy that is released in this certain break of the fault. And the way that the way that the scale was created by Professor Richter, whom I used to know well, that a magnitude 5 earthquake is 1/30th a magnitude 6. It takes 30 magnitude 5s to make a magnitude 6. It takes 30 magnitude 6s to make a magnitude 7. So it would take 900…These are rough numbers, roughly 900 magnitude 5s to make a 7.

And so many people have asked me in the past, will the little earthquakes that we see all the time get rid of the big one because they release the energy?

Jason Hartman: Great question, great point.

Peter Yanev: And the answer is absolutely not, because I don’t think I want to have a 30 magnitude 7. I’d rather have 1 magnitude 8 and get it over with. And if the small earthquakes released enough energy, we wouldn’t have the big earthquakes. So obviously, we’re going to continue having big earthquakes and you’ve got to be prepared for it.

Jason Hartman: It’s interesting you say that, because I’ve heard that since I was a kid that the small earthquakes are good. They relieve tension from the earth and they lessen the likelihood of a big one. No? Not true, huh?

Peter Yanev: Not enough. No, it’s true. They relieve energy but not enough. There’s enough energy left. The big is not relieved and so they have sudden large earthquakes. There are parts of the world, for example around the small of Parkfield in California where the fault is kind of lose enough that it continues to be slips and it seems to be not capable of generating more than about the magnitude 6 ½ earthquake, which is still a strong earthquake, but we’re pretty sure based on many years of studying now that that area doesn’t get big earthquakes. However. Los Angeles, Seattle, San Francisco, San Diego, not so lucky, or St. Louis for that matter.

Jason Hartman: And back to the measurement just for a second. Why is the scale so unusual that it has that 30 times multiple? Why was it designed that way? I never understood that.

Peter Yanev: It was designed that way because to understand earthquakes from a scientific engineering perspective, you need to learn about magnitude 3s which are trivial, magnitudes 4, 5, 6, 7, 8. And the scale of energy released between them is so big if you need some simple scale, in this case geometric progression as you said, to make it simple. Otherwise, we’ll be talking about this earthquake is the equivalent of let’s say 100 horsepower, 1000 horsepower, a million, a billion, a trillion, a quadrillion or whatever. Numbers get up too high too quickly. And because of that, scientists thought it was easiest with geometric progression. Many of you are used to it, and everybody has to get used to it.

Jason Hartman: So what do people need to know about rock, about soil, about the foundation for their property? What are the things there that they need to understand?

Peter Yanev: Okay, to have a safe property, you start with a local geology and a location. No matter how well you build a house or a building, if it’s on top of a fault or on top of a landslide it’s dangerous.

You’re not accomplishing your purpose of having a safe investment, both from a life perspective and a financial. So you need to understand when buying a property, after you’ve bought a property, are you on a landslide? If you’re on a landslide prone area, and many houses in the hills are, then chances are in a strong earthquake that landslide will move. You don’t want to be there. You don’t buy that. Or you have to maybe hire geologists to fix it if it is fixable, for that is ahead. Same thing with a fault. If you buy a house on top of a fault, good luck. Nothing is going to stop the fault from moving that we know of. We cannot do it. So it will rip the house apart just like a big landslide would. And then a house far from a fault is far enough.

In California, we have the so called Alquist-Priolo Zone, where we’ve plotted very, very carefully the faults. And the zone is defined as about an 8th of a mile on each side of the known fault. And building new properties, new buildings within that zone today is highly controlled. Unfortunately, we have many thousands of buildings throughout the world in the United States inside the fault zone. But they constitute a very small proportion of properties. Best advice, stay out of the zones. If you need to buy a house in the zone or near the fault, you better talk to a geologist and a structural engineer.

Jason Hartman: Now, how did they know the zones, though? Did they look at the earthquake map, the fault map? And how do they get this easily? Is there a website people can go to?

Peter Yanev: If you to the US Geological Survey, you will go to various sites within their site that show you some of the maps. In California, we have the California geological survey. It publishes a series of maps that show all the known faults, the ones we know about. And you can actually locate your house within a couple of yards of the known faults or a few yards of the known faults, keeping in mind that this is geology, so nothing is that exact. Just because it shows it 50 feet away doesn’t mean 50. It might mean 25 to 75. But it’s pretty accurate. So that information is available in my book Peace of Mind. I have those sources where you can go and find the property. And if you’re close, let’s say you live next to the Berkley campus in California, the best thing to do there is if you’re right near the faults, get a local engineer to help you figure of is it too close? And if it’s close, what you should be doing about it.

Jason Hartman: And what about soil? I mean there are different types of soil. I hear about clay in the soil and give us a basic overview of soil types if you would.

Peter Yanev: So the obvious observation for anybody going through an earthquake are buildings on rock tend to perform much better than buildings on soil for the same earthquake. And buildings on really soft soil like silt, like along San Francisco Bay or Seattle on silt, tend to perform very poorly compared to the buildings on rock. Why? Because soil amplifies the ground motion coming out of the rock. In the rock, the motion is very small. We’re talking about a few inches of displacement back and forth, whereas once you get into the soil and you get softer and softer and softer, the soil kind of amplifies that motion. I would like to think of it in terms of a bowl of jelly. You shake the bowl a little bit and the jelly shakes a lot. And fundamentally, that’s what we’re talking about.

So the worst soil, the softest soil, for that we have special procedures for building new buildings, but no matter what, if you’re in that kind of a soil, generally you will have much more damage than in the hills on rock. In the hills on rock, don’t want to be on a landslide as I said before. So everything’s got its advantages and disadvantages. Then, some of the better soils like stiff clays, well-drained soils and so on, are better than the soils along water courses and bays simply because they’re stiffer, the water tables tend to be sometimes lower, the earthquake is amplified less by the ground.

Jason Hartman: So what are some of the other hazards that the property may have? It is where it is. Maybe the listener already owns this property and now they just want to watch out for the other hazards. What do they need to know about?

Peter Yanev: You know, it’s really common sense. If you buy a house in one of five prone areas, then you have a high risk of fire. With an earthquake, it’s the same thing. You probably don’t want to be right below a dam for example. I mean it seems natural that a dam is a manmade structure. It has a probability of failure in a strong earthquake for a whole different reason. We have evaluated the dams pretty carefully, especially the bigger ones. But still, the probability if something goes wrong is higher. You don’t want to be under a dam. There are better locations than that. Another thing is if you buy let’s say a house right next to a taller building, and especially if that’s an older building, especially for example if it has parapets. Those parapets can come off. Your building can be okay. But the building next door, the brick can come down and smash your house up. So if you’re buying a building next to an adjoining taller building, heavier engineer, look at both buildings and tell you how he or she expects the taller building to perform so it doesn’t damage your building that you’re buying. So it’s really common sense.

Jason Hartman: Alright, that’s good to know. How does a building work? How does it perform in an earthquake in terms of its resistance to the quake? I mean I’ve always heard that the thing to have is a building that is not too rigid, something that will bend and flex with the movement. And I know that the high rise buildings are built, some of them on rollers, right?

Peter Yanev: Not on rollers, but we have a special system called base isolation, but yes. So it’s simple. They’re not built on rollers. That’s one of the common misconceptions. We don’t put things on rollers.

Jason Hartman: I always wondered exactly how that looked below the building. And I’ve never seen it, but I’ve heard it.

Peter Yanev: That’s a technique that we’ve used worldwide for a few hundred buildings, so let’s not even worry about that one. What we worry about is is the building built properly? And first, the people we go to work with, I [00:21:14] , I sent colleagues to the earthquake in Southern California last month. I sent colleagues to Haiti. I went to the Italian earthquake last year. I’ve been through over 50 earthquakes around the world. And the reason we go, the reason structural engineers, earthquake engineers go at least to see how the buildings perform, what new things we might learn, where the codes are deficient, where the codes are okay. So every earthquake teaches us new lessons and we keep improving the codes. What I’m saying by this is that the older codes are not nearly as good as the newer codes. That automatically means the older buildings are not as good as the newer buildings. And this is especially true for houses. Houses built before the 1940s throughout the United States did not require several features that today are required that eliminate 80% of the damage to houses, 80%.

There are two or three features that eliminate most of the damage in houses. The first one is, again, old house don’t have it, new houses have it, is the foundation bolted, the wood foundation, the sill, bolted to the concrete foundation below the house. If it’s not, the house can just slip off, fall down, and you have anywhere from severe damage to total damage, including life safety. Next step, is the house braced with plywood in the crawl space, that would be the space usually between the ground and the first floor of the house. Sometimes it’s a couple of feet, sometimes a full basement, depending on where you are. And if it’s a hill, not critical to put plywood around the periphery of the building. That did not used to be required in California until about the 1971 San Fernando earthquake where many brand new houses, 1971, brand new houses in LA in the San Fernando valley collapsed because they didn’t have the simple plywood bracing. And you have to nail it to specifications in the code every 2, 3, 4 inches. Very tightly nailed, strong. You put these two features in the typical older house in the United States, in earthquake area, you probably fundamentally eliminate 80% of the potential damage. It’s a huge number for very small effort. But you have to do it for all the houses. The code doesn’t say go back, you have to fix, you have to retrofit. We haven’t gotten to that stage yet.

Jason Hartman: Any estimates on what that would cost to do that, in just a typical over house?

Peter Yanev: I have advises lots and lots of people on how to do it and how much to do it, and it depends on how extensive it is. Bolting the house down, let’s say you’re talking maybe putting 50 bolts in the house, 100 bolts, maybe $20, $30, $40 a bolt. Whatever, depends on the contractor and the area. You’re talking maybe a couple of thousand dollars gross. Could be less, could be more, depending. The plywood, it takes a number of hours for somebody that knows how to do it, a carpenter to get them to the house and nail it down might be a couple of thousand dollars, maybe more. But the thing that tends to be more expensive, if you have a lot of glass or you have a garage with one or two stories above it where you need something more sophisticated, you need engineering help, that gets more expensive. But usually, to bolt a house down, and to put the bracing in the crawl space is you’re talking $5000, $10,000 max. Now, what’s interesting here is if you do that you might wipe out the need for insurance. And right there, you may be standing anywhere from $1000 to $5000 a year for insurance. It would pay very quickly for some of the necessary retrofits to the house or the building.

Jason Hartman: Do you think that earthquake insurance is worth it? Most people seem to think it’s not worth it. They’re also afraid that planes won’t be paid if a big disaster hits and the whole state is basically destroyed.

Peter Yanev: Well, we won’t be all destroyed. Look what happened in Chile. This was a monster earthquake compared to 1906 in San Francisco, yet we only lost only…It’s a big number still, but 400 people compared to 200,000 in Haiti. Chile knew how to build good buildings. Most of the people killed actually were from the tsunami. That’s a different story. So we know how to build buildings. So technically, insurance should be only if something unusual happens. Technically, okay. In earthquakes, that’s not the case. So to give you a simple answer, in most cases it doesn’t make sense to buy insurance for houses, because in most houses, especially the newer ones with a few important features, and you need an engineer for that, most houses will not have enough damage to get over the deductible. The typical deductible in California is 15%. To keep things simple, okay, a half million dollar house, that is $75,000 of damage. That’s a lot of damage. So you paid for $75,000 on a half a million dollar house and the rest is covered by insurance. That is a lot of damage to happen. If it’s a good house, it shouldn’t happen. Now, in all the houses, it’s not bolted down, if it doesn’t have plywood in the basement, if it’s got too much glass, if it’s got these huge brick chimneys that can come through and crash into the house and causing all sorts of damage, yeah, you should buy insurance. But no, before

buying insurance maybe you should fix the house and don’t waste your money on the insurance, and then you get insurance kind of as a last resort in case we or don’t know something or we’re completely surprised by an earthquake or there’s a fault underneath your house that we don’t know about yet. So insurance is not a bad idea. In most cases, however, people should put the money in the house, fix the property, and then the insurance is sort of redundant.

Jason Hartman: So self-insurance and taking action, being proactive is maybe the best thing. What are some of the best types of construction for resistance to earthquakes? Maybe just outline, when we talk about residential, what are the different types of construction people see out there and then what’s the best to survive a quake?

Peter Yanev: Okay. In tall buildings, just to get it out of the way, in tall buildings, the best construction we know, based on our extensive experience is steel framed buildings, preferably with massive concrete walls inside around the elevator course. That’s one of the best constructions. In houses, steel houses are fantastic, but they don’t happen often. Most houses are wood frame. And it turns out that by luck and from engineering principle, wood is the best thing for small buildings because it’s flexible not in the way that it moves around the land, but it can absorb energy, not be formed that much, and it’s just the right material for earthquakes. So we’re looking at that respect. However, if you have a brick house built 80 years ago, 100 years ago, 20 years ago in some of the prone areas of the United States [00:27:53] for example. That is very dangerous. Brick construction that hasn’t been retrofitted afterwards for earthquakes is the most dangerous smaller old construction. Of the new construction, as far as I’m concerned, the worst performance are larger reinforced concrete buildings, not steel. And again, coming from having sent teams to over 100 earthquakes, including Chile, concrete buildings, especially the older ones, were very poorly detailed. For example, in 1971, we had a brand new hospital, 3 month old, the Olive View Sanitorium in the middle of the San Fernando Valley of LA collapsed, 1971. What that tells you is any concrete building prior to 1971 is probably a much higher risk than a convention of the building, and especially the wood frame building.

Jason Hartman: That hospital was 3 months old and they’re just collapsed in that quake, huh?

Peter Yanev: And the new apartment building that collapsed in Concepción in Chile was also six months old. And that’s a complex that isn’t collapsed in quite a lot of detail, I know the reasons. But fundamentally, concrete construction is much more dangerous than steel and wood. That doesn’t mean that steel and wood cannot be dangerous if it is improperly designed, okay, but relative.

So what happens today is if you buy an apartment in some of the new taller buildings, I once said before the codes is really for life safety. So if you’re buying an apartment in one of the taller new reinforced concrete buildings, you better talk to a good structural engineer because the risks for risking your investment in that building are much, much higher in events of steel framed building or it’s that three or four story wood frame building that’s also the same advantage. Huge difference in expected performance, especially in these speculative buildings.

Jason Hartman: So how does someone minimize damage to the interior, the utility of the property and the equipment in the property. What we’re taling about here is there’s a lot of stuff on earthquake safety and people have been, to some extent, educated in being prepared and so on and so forth, for their own safety. But we’re talking a little bit about the economic side of it. That’s what people don’t really talk about is after the quake the economic devastation that occurs, right?

Peter Yanev: That’s right. For office buildings, for the typical public buildings, actually one of the biggest problems is what happens to the functionality of the building. I just came back from Chile. I spent with my son two weeks there and in [00:30:54], looking carefully at the damage. And there were thousands of new buildings with no structural damage. Inside, they looked like a tornado had gone through them. The ceilings are down. Ventilating air conditioning ducts are hanging all over the walls. The fire sprinklers turned on, flood the place. The control equipment that controls the air conditioning, the boiler for the water, etcetera, all over the ground. Why? Because those details were not properly connected. Our code is a little better than the Chilean code in that respect, but it was a really good lesson. What we need to do is once we are safe in the building, make sure that that building functions after the earthquake, that the ceilings haven’t come off, that the computer floors haven’t collapsed, then the critical equipment, like in a house, your water heater, hasn’t fallen down and ruptured the gas line and start a fire. That’s simple, you put a strap around it. You have to do the same thing for all of the important equipment inside a building. In the basement building or the roof, where the elevators are for example, the controls, you have the electrical control system in a building. These are motor control centers, switch gear. If those things are not properly bolted, and I’ll tell you, 90% of the time they’re not, the equipment falls over, breaks, everybody’s equipment breaks in the earthquake, and then for two months you cannot get to the equipment. So you sit there waiting.

We were in a hotel near the central area in Chile just a couple of months ago, and the hotel was charging one…what was it, it was $150 normal rate and they charged us $30 a night. Why did they charge us $30 a night? The hotel was okay. Because they didn’t have hot water.

Jason Hartman: Oh, wow.

Peter Yanev: The reason they didn’t have hot water is because they hadn’t sat down the water heater or bolted it down in that case. It fell over, everybody else’s fell over. They’re all busted. They don’t have hot water. So they were losing $125 out of $150 per day per person because of four stupid bolts. I can’t think of a better word for that. Four bolts would have taken care of it.

Jason Hartman: Very good point, Peter. I mean just preparedness and thinking this stuff through, very important. Good example. Any others on that?

Peter Yanev: Oh yeah, oh yeah. You go into the typical luxury high tech plant in the United States, I don’t care which company. We can name a whole bunch them, high tech, they manufacture chips. The code requires that the fire protection lines are properly connected and the field of things are properly connected. The code says nothing about the equipment inside, the manufacturing equipment, which is the heart of those buildings. So we can rally, for example, around San Jose. Most of the equipment there is not anchored because the code doesn’t require it. It’s a trivial thing to do it. An earthquake happens, the buildings are okay because they’re designed to code, the equipment’s all over the ground, busted. It takes them weeks and weeks and weeks and weeks with [00:33:42] business interruption loses because they didn’t put bolts there.

Now we require extensive bolting of equipment in hospitals so that the hospitals are functional after an earthquake. We require bolting of the equipment in schools so that it doesn’t come over and hit the kids. But we don’t require any of that for a manufacturing plant where the building costs $50 million and the contents are a billion dollars. It’s interesting. But if it’s your plant, all you need to do is get an engineer and a construction company and go bolt down all the equipment. It’s not that expensive and it prevents huge amounts of damage and a huge amount of business interruption. In Chile, that kind of damage in business interruption is by far the largest percentage of the damage overall. It’s probably…The financial damage, equipment building contents and stoppage of work is probably 75% of the loss.

Jason Hartman: That kind of insurance, that kind of preparedness just makes simple economic sense and it’s so cheap to do many times. Hey, Peter, let’s close with just an overview of what to do before, during, and after a quake.

Peter Yanev: Okay. Well, I think we said it several times different ways. What you do before the earthquake is find out what will happen to your property. If there’s any concern about life, obviously you have to do something, but you need to understand the risk.

Step one, understand the risk. Get an engineer to help you. Get a geologist in a landslide area, whatever it takes.

Next step, evaluate what you can do to reduce the risk to an acceptable level of risk. In a house, you don’t want the chimney to fall down and go through the roof and break the house or the house went over the foundation. You fix that. What does it cost? Usually pretty reasonable. In a taller building, find out what there is to the building. Find out what the risk to the contents is and then do a simple cross benefit analysis. If I spend so much money, I’ll reduce the risk so much. If I spend a bit more, I’ll reduce it that much more. Stop at the point where it makes sense. A couple of days of business interruption won’t kill anybody. It’s okay, but it may not be worth fixing.

And the third step, fix it. Do the construction. So on the standard risk, decide what is an acceptable level of risk for you and how much it will cost to get it down to that level and then go ahead and spend the money. And, in addition, if you need it, you can always buy insurance.

Jason Hartman: Peter, give out your website so people can find out more and tell them where they can get the book.

Peter Yanev: Probably the best site would be TheEarthquakeBook.com.

Jason Hartman: TheEarthquakeBook.com.

Peter Yanev: TheEarthquakeBook.com, it’s a single word, or just Peter at Yanev.com.

Jason Hartman: Excellent. Peter, I’ve got to mention to you that I really appreciate the book you sent over. There are some fantastic pictures and illustrations in the book. It’s really enlightening to look through this and to see how to do kind of the forensic analysis and see what happens and in some cases how easily things could have been prevented. You have some amazing photographs in this book. So again, Peter Yanev, thank you for joining us today. The book is Piece of Mind in Earthquake Country: How to Save Your Home, Business, and Life. We appreciate the insights today and everyone should go out and take a look at the website in the book.

Peter Yanev: Thank you, Jason. That includes you too.

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Narrator: Thank you for joining us today for the Holistic Survival Show, protecting the people, places, and profits you care about in uncertain times. Be sure to listen to our Creating Wealth Show which focuses on exploiting the financial and wealth creation opportunities in today’s economy. Learn more at www.JasonHartman.com or search “Jason Hartman” on ITunes. This show is produced by the Hartman Media Company, offering very general guidelines and information. Opinions of guests are their own and none of the content should be considered individual advice. If you require personalized advice, please consult an appropriate professional. Information deemed reliable, but not guaranteed. (Top image: Flickr | martinluff)

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Transcribed by Ralph

 

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