Latest / The Academy Presents podcast / Insurance Realities in Real Estate Investing: Deductibles, Risk, and Rising Costs

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Insurance Realities in Real Estate Investing: Deductibles, Risk, and Rising Costs · 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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  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
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  a lot of different things today, like the operation
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  side and the system 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. insurance companies are even leaving.
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  They're leaving this particular space too. And
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  so we're going to kind of talk about all of those
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  and then anything else that we think of that
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  might be relevant, we'll talk about that too.
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  So JT, thank you for being here. The good thing
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  is anytime that I'm with you, who knows where
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  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 what the
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  audience know, JT is the guy you call. when you're
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  looking at a property. Yep. And so I have heard
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  that there's these kind of I guess these policies
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  out there that it's like there's an amount on
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  the top like a million two million that if the
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  claim is less than that they just handle it.
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  And so like if it's a $10 million property maybe
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  they're only ensuring it for like eight because
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  they're going to cover the top two. I had never
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  heard of anything like that but what is that?
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  I'm not sure. Maybe if I saw the policy, maybe
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  the way you're explaining it is just confusing
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  me. So maybe - The way it's in my mind could
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  be weird. All right. So what I'm thinking you're
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  saying is the person that is choosing this insurance
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  policy says, you know what? I will take a high
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  deductible and say $100 ,000 deductible. and
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  anything under $100 ,000 I'll just pay out of
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  pocket and then anything over that then I'll
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  put in a claim. Is that kind of what you mean?
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  Yeah but I swear it was like a million dollars
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  and I was like why would anybody agree to fix
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  something if it's a million dollars? Yeah well
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  you know some of these wind hail deductibles
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  they're they're expressed in percents so like
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  a two percent wind hail deductible is very common
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  now we're seeing some three percent and up to
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  five percent so when you get up especially up
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  to five percent I mean Yeah, that hail claim,
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  that 5 % deductible on your total value of your
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  building could be million dollars depending on
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  the size of the property. Maybe less is the high
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  deductible kind of thing and I just wasn't understanding
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  it. When you get into those high deductibles,
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  you're almost self -insuring. How much is a new
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  roof cost on your property? It's a good size
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  property, but it might only be $350 ,000. And
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  so we're talking about a 3 % wind hail. It's
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  close to $350 ,000 already. So might as well
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  have a 5 % wind hail because I'm going to pay
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  for it anyways, right? So, and I always tell,
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  everything's a bit of a gamble. You're gambling
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  that this will not happen to you this year. So
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  I'm going to take a high deductible and risk
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  that. but also you can be a little smarter on
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  it too. And everybody's risk tolerance is different,
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  so this doesn't work for everybody. I have people
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  that let it ride every year and I have some that
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  go, no, I will pay the extra premium because
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  I don't want anything to happen, right? But if
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  you have a brand new roof on your property, chances
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  are you're probably not gonna need a new one
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  the next year, right? That's not a given, but
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  chances are I'm not going to have to have a claim
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  when a new hail storm comes through. So then
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  maybe it is worth it to you to have a higher
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  deductible for your wind hail this year than
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  definitely than it would be if you had a 10 year
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  old roof, right? So those are kind of things
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  that you want to think about as well. And I definitely
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  won't talk to you about it, you know, before
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  binding coverage because yeah, it does make a
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  difference. Do you have access to like weather
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  patterns for an area. Cause like in my mind,
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  if someone didn't live where we live, they wouldn't
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  understand that hail literally can be softball
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  sized, softball sized here. Yeah. Well, not only
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  that, but we can count on what three hail storms
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  a year at least to come through, maybe more,
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  you know? We had a random one this past like,
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  what was it? It was, it would have been just
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  like totally outside. Was it November? And it
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  was like a little tiny piece of the hill and
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  they were like, it fell really fast. And there
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  was like an inch and a half ice on the road.
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  And I'm in the jeep and just like slide all over
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  the road. I'm like, what the heck? It's like
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  November. Yeah. Well, and then yeah, sometimes
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  you'll see that in one or it was February, but
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  it was a weird season. Yeah. And then it'll just
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  go away real quick too. So, you know, not every
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  storm is going to have the softball size. But
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  again, you can count on probably three. My, my
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  house will get hit by three hail storms, you
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  know, quarter size, dime size. Right. Whether
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  they're damaging, you still count on that. And
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  so, uh, other parts of the country, it's, it's
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  just not that way. And, and North Texas, yeah,
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  you can just count on that. And it's, you know,
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  replacing roofs are very expensive along with
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  all the other things that can get damaged, uh,
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  along with hail, you know, it's not just roofs,
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  but that's the big thing we think of. and say
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  to one about insurance companies and they're
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  greedy oh my god well you're paying say a hundred
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  thousand dollars for your property that's the
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  annual premium you know for the year but then
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  you make it maybe it's a wind hail claim for
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  three hundred fifty thousand dollars well they're
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  already behind or even worse it's a fire that's
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  one point six million dollars you only paid them
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  $100 ,000 and now they're paying you $1 .6 million.
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  So you can see how quickly they can get behind,
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  especially if they've got this happening to multiple
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  properties. So it's something that, you know,
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  there's other carriers that'll come in and like
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  I said, have certain appetites and kind of pick
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  up the pieces. This will ride itself as long
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  as we don't have another February storm. I hope
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  that doesn't ever happen. Hey, were you without
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  power at all? So ours is a little bit different
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  because we're a special needs son. So the electric
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  company works to turn our grid on first. So like,
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  I think the first day we were, we were without
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  for 17 hours. And the next day we were out for
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  like 15 and maybe eight the following and then
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  we were back on. Wow. Yeah. And so the hardest
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  part was it was Josephine's birthday in there.
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  And so when the power came on, we like fly, we're
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  like, breakfast pancakes, again, breakfast pancakes.
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  And then when it came on again, we threw together
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  a birthday cake and she was like, this is the
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  best birthday ever. And we're like, memorable
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  for so just never forget it. She had to play
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  in the snow and then they went down to one of
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  the hills and like everybody in town had like
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  whatever they could find, whether it was blow
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  up mattresses or whatever to slide down this
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  hill. So she thought it was great. well kids
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  are so funny too because and I know a lot of
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  families they huddled together in the living
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  room together and I'm sure kids love that for
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  us we're my house is close enough to a fire station
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  and a water tower that I never lost power so
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  people were coming to my house to to cook and
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  do just warm up and so yeah we had people across
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  the street from us that were out for five days
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  wow that's real Yeah, but like I said, we're
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  one of the grids that gets turned on first, but
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  like even on my street, if you had a two -story
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  house, you had to move while they re -did the
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  house because every single two -story house in
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  our area, the upper story pops first. So I guess
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  the electric company just knew the demand on
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  the grid that individual houses took and would
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  only take. Well, so you can turn it in because
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  so we use TXU. We won't ever use anybody that's
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  not a big person that we can turn stuff into.
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  And we told TXU and then I guess they handed
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  it off to the local grid. But you can let your
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  electric company know if you're in a situation
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  where you have to have electricity. Yeah. And
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  they'll work to make sure that you get a special
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  needs child or something like that. That's good
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  to know. Yeah. You know, I also heard a stat
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  the other day that there were actually more deaths.
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  We're from that winter freeze than in Hurricane
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  Harvey. Isn't that nuts? Well, I mean, we ran
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  out of firewood. Right. And you couldn't get
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  it. And looking for us, we order a lot of Amazon.
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  So we had a ton of Amazon boxes and Jason and
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  the girls pulled them up super tight and then
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  like screwed big long screws into so that they
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  would stay tight and not burn as fast. And so
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  we used Amazon logs. It must be an Eagle Scout.
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  Yeah, well, and again, it was just a few freak
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  deaths here or there. Like, like you heard the
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  family that got in their car in the garage started
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  it just to warm up. But of course they ran their
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  car in the garage, right? So, but, but little
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  stories like that all over the whole state is
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  just equals a greater amount of people that got
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  affected than just in Houston. You know what
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  I mean? No, it is like we were, we were cooking,
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  we were cooking in the fireplace and we got out
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  the little camp stoves and everything else. I'm
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  like, Jason, is this safe? He's like, oh, we're
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  fine. No wonder your kids have fun. Yeah, they
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  were camping. Yeah, we were camping inside. But
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  it was like, I think about the stories that I've
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  heard of people like using, I guess, coal or
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  not coal, but charcoals have been there for our
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  places to cook and it makes you sick and all
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  of that. So I, I don't know. I mean, there's.
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  There's a lot of things that happen like that.
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  And then of course insurance payout pays out
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  for that too. And then I was thinking like, so
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  a friend of mine, they have, um, he's got like
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  a local store and all of the, um, all of all
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  the fire sprinklers, all of those bust. Yeah.
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  So did the same insurance companies that ensure
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  like multifamily and other habitation. So they
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  also do the insurance for those kinds of commercial
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  buildings as well. Yeah. Some of them do. Yeah.
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  So they were double and triple hit. So again,
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  we all want to think of these insurance companies,
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  oh, they're so greedy and taking all the, but
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  I mean, think of how much money worth the claims
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  that they've had to pay out just through that.
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  And they've got to recoup that somehow. And so
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  how do they do it? Fortunately, they have to
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  increase premiums to get that pool of money back
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  to be able to pay out claims again. So that's
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  just where it is. Hopefully there's no more huge
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  natural disasters like that when you kind of
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  come back to normal. I also think that owners
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  are getting smarter. You know, I think we talked
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  before about those stove top fire stops that
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  stick to the vent hoods and the apartment complexes.
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  Did we talk about that before? I think we did.
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  So yeah, it's just this it almost looks like
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  a hockey puck and inside it or a tuna can and
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  inside the can is fire retardant and you put
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  it It's a magnet, and you magnet up to the venerhood.
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  And if there's a grease fire or something like
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  that, and a flame touches that, then it'll come
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  and extinguish it. And it's something crazy,
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  like 85, 86 % of these claims on these properties
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  are small kitchen fires. And it's because of
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  certain things like that. You can get these on
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  Amazon for, it's like $5 a thing. So why wouldn't
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  you do it, right? And so I think a lot of owners
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  are getting wiser to that. as deductibles go
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  up, as these claims are just killing them, let's
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  do whatever we can so that there's not a claim.
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  Let's make our property safer. Let's think ahead
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  like you. Let's stay awake at night and think
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  of things we can do to make the property safer.
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  And in the end, that's just going to benefit
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  everybody. Everybody wants their property to
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  be safer. Yeah, I think owners are getting wiser
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  to to try to do certain things to protect their
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  property because they don't want to have to pay
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  these high deductibles and they don't want their
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  insurance to increase because they had a claim.
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  So they're doing everything they can to think
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  ahead of what could I do to get ahead of this,
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  just like you do for your property, right? The
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  days of slum lording and just letting it ride,
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  there's no way you could afford that, right?
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  You got to fix that railing that's loose. You
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  got to make sure that your tenants are taken
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  care of. even small things like trips and falls
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  in the parking lot. They could happen because
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  you've got a parking lot that needs to fix the
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  potholes, right? So yeah, get these things done.
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  Yes, it's a pain in the butt. Yes, it costs money
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  now. It could cost you a fortune later on. Just
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  go ahead and get it fixed. And also the good
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  news is the carry will come out and do an inspection
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  for you, right? And they'll tell you, hey, these
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  are the 10 items that you want to look for. Is
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  it a pain in the butt to tell your tenants not
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  to have a grill on their balcony? Yes, because
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  every tenant wants a grill on their balcony.
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  Do all apartment complexes have tenants that
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  have grills? Yes, they do. You gotta try to tell
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  them to get them out of there. Maybe make grilling
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  stations out on your property that are nicer
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  than the little grills that they could have,
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  right? Make it enticing for them to want to use
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  that versus having a grill on their patio. And
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  then you don't have to worry about that. Any
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  trick that you can have, I recommend looking
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  into it because it's going to cost you more in
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  the long run usually if you have these claims.