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When Insurance Kills the Deal: What Every Real Estate Investor Must Know · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  Academy Presents Real Estate Investing Rocks,
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  and I'm here to help you if you want to go for
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  your piece of that pie. Are you new? Are you
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  from here? Are you a seasoned real estate investor
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  who is doing great but maybe you just want to
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  hone a few skills here and there? This is the
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. Hey guys thank you all
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  for being here you know we're talking about a
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  lot of different things today like the operations
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  side and the systems side well one of the other
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  really important things that you need to always
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  have in the back of your mind is the insurance
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  side and so JT is here and we're going to talk
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  some about insurance some of the potential reasons
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  why insurance is going up which for me it killed
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  a deal and just insurance companies are even
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  leaving. They're leaving this particular space
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  too. And so we're going to kind of talk about
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  all of those and then anything else that we think
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  of that might be relevant, we'll talk about that
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  too. So JT, thank you for being here. The good
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  thing is anytime that I'm with you, who knows
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  where the conversation is going to go. So there'll
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  be plenty of questions and scenarios to go through,
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  I'm sure. So we will not be without content,
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  that's for sure. Just to kind of let the audience
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  know, JT is the guy you call. when you're looking
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  at a property. Yep. Um, we actually did get a
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  call, um, for the one that the insurance killed
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  the deal. Um, we got a call. We were at Jason's
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  mom, mom's house in Waco and the broker was like,
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  Hey, y 'all actually called the insurance agent,
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  right? Like, yeah. And I thought it was the weirdest
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  question. I haven't heard this story. Okay. Yeah,
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  no. So you had not heard it. Um, because I thought
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  everybody called. and got some kind of an insurance
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  quote because you just never know. Yeah. And
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  like Jason had underwritten for one amount and
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  then we talked to you and it was double that
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  amount. And that was what killed the deal. And
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  so when the broker called and said, hey, y 'all
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  actually spoke with an interest agent, right?
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  We were like, yeah. And he's like, would you
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  remember the numbers? And I was like, I always
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  laugh because I'm like, you really don't want
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  to talk to me about numbers. Yeah. I was like,
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  I think. that it went from like, cause Jason
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  under wrote like 3 .25 or 4 .25 a door and it
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  was over 700. Yeah. And Steve was like, wow.
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  Yeah. I think we may need to talk to the sellers,
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  but it just kind of blew me away because I thought,
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  well, the prudent thing to do is to get in touch
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  with you or another insurance provider and get
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  some level of a quote for the property. Yeah.
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  And I think people They want to do their homework,
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  but maybe they don't know how or don't know what's
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  appropriate. And I've heard this before that
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  someone will contact a broker and go, hey, I
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  need help on this property. And the first thing
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  they'll ask is, is it under contract? And when
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  you say no, then they'll say, well, call me when
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  it's under contract. I don't want to waste my
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  time. And my point is, well, how are you going
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  to get it under contract? How are you going to
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  get it to that point if you don't even know if
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  it's $400 a door or $800, right? And talk about
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  wasting time. If you get it to underwrite it
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  to $400 a door, get it under contract, then contact
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  me. And then we're going through, could be three
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  months worth of things. And then I get you a
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  final quote and it's $800 a door and it kills
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  a deal. Talk about wasting time. Or I could just
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  spend 30 minutes looking at it with you and help
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  you out in your underwriting right off the bat.
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  So that's my way of thinking it. So, but yeah,
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  there's probably a lot of people out there that
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  don't even know that you can call me and help
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  you through it. So yeah, maybe that's why. Wow.
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  Yeah. I just, I don't, I mean, there were things
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  that we were taught early on. And one of the
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  things was, you know, walk every unit, which
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  we've strayed from. That's a tough ask. Well,
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  during all this COVID era, it's been difficult.
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  Well, everything was difficult before that, but
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  especially now, yeah, people don't want to be
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  in their space. No, and so like, we get due diligence
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  teams or we get assurances from the property
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  management company that, you know, within the
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  next six weeks, we will have walked 95 % of them.
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  Yeah. And I mean, things still come up. But we
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  can go into those later because I've had a really
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  fun time while Jason and Julianne were at Philmont
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  and had no cell or internet access. Yeah. Our
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  world pretty much burned down around. Yeah. When,
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  yeah, when, when everything went wrong, right?
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  If it could, well, I won't say if it could, it
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  did, but it, it felt that way for sure. Um, well,
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  you know, I, I think I told you that whenever
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  I'm out of town, my wife just stays with her
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  parents. You did tell me that is super smart,
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  but my mother -in -law is actually kind of scared
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  by myself and. my parents will take me out to
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  eat and help with the kids. So why not? You know?
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  Wow. Yeah. No, that's super smart. Um, but like,
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  so one of the reasons why insurance has gone
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  up in my mind is because of everything that happened
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  in, was it February 21? Yeah. Like millions upon
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  millions, if not billions of dollars were paid
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  out because Texas isn't made for sub zero. Yeah.
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  It's just not. Yeah. It, you know, it's kind
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  of crazy. There wasn't it wasn't a hurricane
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  Harvey type crazy, you know. It's hard to explain
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  that it's it was one of those disasters that
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  was kind of inconvenient and crazy, but really
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  didn't do. Like it, the problem was this Texas
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  is so big and it affected the entire state of
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  Texas all the way down to Galveston Beach. We
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  had turtles washing up on the beach because they
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  were frozen, right? Um, you don't remember that
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  story. I do not remember that story. Sea turtles
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  got too cold and they stopped moving, you know,
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  and they, so people had to go down on the beach
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  and collect all these turtles and took them to
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  warehouses, warmed them up. And then after the
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  storm, they, they put them out and got them back
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  in the ocean. But you know, that, that those
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  things just don't happen. So there's, it wasn't
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  a one hurricane, you know, Harvey type incident,
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  but, but the fact it took the whole state. That's,
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  that's why it was such a big deal. Um, so. The
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  damage wasn't flood damage. It was broken pipes
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  here or there that, you know, that's that's not
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  a huge deal. It could be a bigger deal depending
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  on the property. But when you times that of the
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  whole, you know, Texas is the size of the country
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  of Spain. So a whole country has all these broken
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  pipes everywhere. Yeah, it adds up pretty, pretty
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  big. And then, yeah, we saw, you know, there
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  weren't even enough plumbers, but especially
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  materials to even go do all this stuff. So a
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  lot of those claims They drug on, I'm still seeing
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  some that are open. So they just drag on and
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  yeah, really put a strain on the whole industry,
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  which was already kind of strained to begin with
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  in multifamily. And we were kind of talking before,
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  there's just not, you're looking at your normal
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  personal lines, home coverage. So you've got.
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  I can't even name them all, you know, the progressive,
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  the farmers, you know, go on and on. You can
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  see all the commercials, right? There's just
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  not that many for multi -family. And so when
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  there's not that many and there's an event like
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  that that happens, all those claims are now on
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  these limited amount of carriers. And now they
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  have to get that, you know, recoup them somehow,
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  right? So that it's really tough on them. And
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  like you said, some have not just increase premiums,
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  but said we can't do it anymore. We're not renewing
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  all of our current clients and we're not taking
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  on any new ones. And we're not riding habitational
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  risks in Texas anymore. And then of course, that
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  puts a strain on the other companies that are
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  left, right? Because now they've got to take
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  on these clients. It's just kind of a snowball
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  effect. The neat thing is though, When a big
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  carrier like that leaves, there's all these other
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  little carriers that you wouldn't necessarily
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  think of that kind of pop up and say, well, we're
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  not going to take that whole book on, but we
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  will take all 1990 and newer in Dallas that have
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  a brand new roof, right? All of these have these
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  weird little appetites. So there's all these
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  little ones that have kind of popped up and it's
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  our job to stay on top of it to know. who they
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  are, what is their appetite, where can we move
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  this stuff to, and it changes all the time. So
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  yes, I can get you a great estimate before you
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  submit your LOI. I try to get as close as I can,
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  but with a market that seems like it changes
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  every week, sometimes that's tough to do. But
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  in your case, when talking about a claim that
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  big, You know for me it was pretty easy because
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  I said, you know what? I just wrote a property
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  that was in the same scenario I just got done
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  going through this I know there's two places
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  I can go and I know what the rate is I know what
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  the deductibles were and I know the outcome I
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  Can't promise you that that's what it's gonna
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  be if y 'all go through with this, but that's
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  what just happened And my client unfortunately
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  was saying JT if I knew this from the start,
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  I wouldn't have bought this property It's like,
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  I know, I know, I'm sorry, but here we are. He's
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  got all this guaranteed money up, so he has to
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  do it. Good news is next year, things are going
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  to be different, and he's already at the property
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  fixing things and improving it, and it's going
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  to get better next year. But I would rather tell
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  you off the bat, this is probably what's going
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  to be versus. Telling you the bad news later
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  on when there's you know, there's nothing you
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  can do about it So and I mean it can be heartbreaking.
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  That's why you shouldn't fall in love with the
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  property Bad angel What do they say when you're
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  trying to buy a new house? Like don't don't move
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  your furniture in in your mind because it may
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  not may fall through. Yeah Yeah, and I mean the
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  other option was I mean they could have come
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  down to where we were offering Because we're
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  seeing we're seeing a lot of that right now.
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  If the owners think that they can get away with
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  not telling you about these claims, it's getting
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  harder for them to do that. So yeah, if you know
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  that there's a big claim there, go back to them.
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  Like let's negotiate, especially if it's open
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  and they, you know, it's a big fire claim that
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  happened four months ago. The claim is still
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  open, meaning they didn't. They're not done with
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  their investigation. They're not done with paying
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  out for the claim. So it's still open. They're
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  still working through these things. And then
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  if it's open, chances are that the fire damage
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  hasn't been fixed either. So if all those are
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  the case, well, then we don't really know where
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  that's gonna fall. And so you can understand
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  why carriers don't wanna get into this and they
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  don't wanna be brought into this claim that I
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  didn't have anything to do with. If something
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  happens during construction, I don't want to
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  have anything to do with it. So we've seen owners
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  and buyers negotiate. You know what? I will fix
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  the damage, but come down a million dollars.
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  Let me bring in my contractor to fix this damage.
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  You keep your insurance claim and all that and
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  we'll take it over. Just come down on the purchase
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  price. So there's a lot of. ways that we've seen
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  those negotiations go. But yeah, that's definitely
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  something you want to know ahead of time.