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#34 LA Fires & Real Estate: Insurance, Rebuilding & Market Shifts · Own More Doors

• 0:00
  SPEAKER_01: What's up, everyone?
• 0:00
  SPEAKER_01: Juan Weezar here with the Own More Doors podcast.
• 0:03
  SPEAKER_01: This specific episode was first shared on our YouTube channel, Sage Real Estate.
• 0:08
  SPEAKER_01: Check it out.
• 0:08
  SPEAKER_01: And we're excited to bring it to you here.
• 0:11
  SPEAKER_01: We hope you enjoy the interview.
• 0:13
  SPEAKER_01: One of the biggest conversations we have right now is the fires.
• 0:16
  SPEAKER_01: How are the fires going to impact real estate, investment, uh construction costs, insurance costs?
• 0:23
  SPEAKER_01: Tune in today when Cody and I do a deep dive into how this is, what's the ramifications of the fires that we're experiencing now?
• 0:31
  SPEAKER_01: Hi, I'm Juan Weezar.
• 0:32
  SPEAKER_00: And I'm Cody Charnell.
• 0:34
  SPEAKER_01: And thank you for tuning in.
• 0:35
  SPEAKER_01: Cody, let's just hop right into it.
• 0:37
  SPEAKER_01: So we we did a few videos leading into the new year, how we we expected this year in the multifamily market to experience more confidence, more sales.
• 0:49
  SPEAKER_01: And a lot of that had to do with the fact that prices had dropped.
• 0:53
  SPEAKER_01: You know, in the commercial market, the five unit and above market, we had seen values down by 15% from the year before.
• 1:01
  SPEAKER_01: And because of that decrease, values came up.
• 1:04
  SPEAKER_01: In the forplex market, which we do a lot of, we saw the same thing.
• 1:08
  SPEAKER_01: Slightly more sales because prices were down by 10%.
• 1:12
  SPEAKER_01: And within the first week, we experienced some of the worst fires in the history of Los Angeles.
• 1:20
  SPEAKER_01: And so a lot of structures were burnt.
• 1:22
  SPEAKER_01: Our hearts go out to the families and children and all the folks who've experienced uh hardship of losing their home.
• 1:30
  SPEAKER_01: Um one of the conversations that we're getting now, it's kind of it's hey, should I should I hold off from buying?
• 1:38
  SPEAKER_01: Should I hold up from selling?
• 1:40
  SPEAKER_01: What are some of the conversations that you're hearing from people?
• 1:43
  SPEAKER_00: Yeah, so it has been a wild start to 2025.
• 1:47
  SPEAKER_00: Um you know, luckily we're far enough away from the wildfires here in Long Beach to not be directly, directly impacted.
• 1:56
  SPEAKER_00: Um however, a lot of the conversations we're having with clients is about insurance, right?
• 2:01
  SPEAKER_00: With so much property damage up in LA, you know, everyone is expecting insurance to change here.
• 2:09
  SPEAKER_00: And I actually just interviewed a couple of insurance brokers last week who confirmed that.
• 2:14
  SPEAKER_00: So basically, we're expecting rates to go up.
• 2:16
  SPEAKER_00: You know, insurance was difficult before the fires happened, but now insurance carriers are getting even more restrictive.
• 2:23
  SPEAKER_00: So they want to see major upgrades for any like major system within a building.
• 2:28
  SPEAKER_00: So electrical is the biggest one.
• 2:30
  SPEAKER_00: They don't want anything older than 30 years old, plumbing is another big thing, roof, um, HVAC, or or just wall heaters, which is what most of the apartment buildings have.
• 2:41
  SPEAKER_00: So, all of that stuff they want to see that it's been updated within the last 30 years.
• 2:46
  SPEAKER_00: So, um, you know, that that's adding expense for a lot of people who own buildings or who are planning on buying a building that might need some work.
• 2:55
  SPEAKER_00: And, you know, we're also expecting just rates for insurance policies to go up.
• 2:59
  SPEAKER_01: And you know what's interesting is that rates had already gone up.
• 3:03
  SPEAKER_01: We had done a video before in 2024, and and we had said that over 200 insurance carriers had left California.
• 3:12
  SPEAKER_01: And so there's only so many left.
• 3:14
  SPEAKER_01: And we were already struggling last year with getting insurance quotes.
• 3:19
  SPEAKER_01: A lot of people had a contingency in their offers.
• 3:22
  SPEAKER_01: The contingency was that they could get an insurance quote that was acceptable to them.
• 3:26
  SPEAKER_01: And so to Cody's point, costs have already gone up 40%.
• 3:32
  SPEAKER_01: And not only the cost, but like if if we're selling, say, an eight-unit building, that new buyer is having their insurance is going to go up significantly.
• 3:42
  SPEAKER_01: And then the insurance company will most likely say, We need you to replace the electrical panels and the roof.
• 3:50
  SPEAKER_01: And we see this often.
• 3:51
  SPEAKER_01: And so it was already causing delays and making it difficult for us to sell uh sell properties because in some cases they were not pencil.
• 4:01
  SPEAKER_01: What people would say, you know, the deal doesn't make sense, it's not gonna pencil.
• 4:04
  SPEAKER_01: And now I would imagine it's gonna continue to get even worse because of all that's happening.
• 4:11
  SPEAKER_00: Yeah, yeah.
• 4:12
  SPEAKER_00: I mean, you know, people are buying these properties so that they can cash flow, you know, build wealth.
• 4:18
  SPEAKER_00: They don't want to be putting money in every every month.
• 4:21
  SPEAKER_00: So if you have a really high insurance premium, it just drives up those costs and it reduces what a lot of people can pay for buildings.
• 4:29
  SPEAKER_01: You know, the other thing that I that we've been talking to people is construction cost.
• 4:35
  SPEAKER_01: Okay, so labor is is up, it's been up, it's been up since COVID, material cost is up.
• 4:41
  SPEAKER_01: Um, you know, there was a time, there was a time, this was years ago where where we would estimate, hey, it's gonna cost about$100 a square foot.
• 4:49
  SPEAKER_01: Those days are long gone because now we're more looking like at$300 a square foot in new construction.
• 4:55
  SPEAKER_01: And so what's gonna happen is we have thousands and thousands and thousands of homes that are gonna need to be rebuilt.
• 5:02
  SPEAKER_01: And you only have so many contractors, and so the demand, their demand's gonna go up.
• 5:07
  SPEAKER_01: And so labor cost is gonna go up, material cost is gonna go up.
• 5:11
  SPEAKER_00: What do you think about that?
• 5:13
  SPEAKER_00: Well, um it makes sense.
• 5:15
  SPEAKER_00: It's supply and demand with whatever it is, 25,000 structures that have been destroyed that need to be rebuilt.
• 5:23
  SPEAKER_00: There's gonna be a huge spike in demand once people are able to start rebuilding.
• 5:27
  SPEAKER_00: So I think we have a window here where, you know, there's contractors available, there's materials available.
• 5:33
  SPEAKER_00: We haven't seen a huge spike in demand, but I think it will come once those insurance policies start paying out and people can start rebuilding.
• 5:42
  SPEAKER_01: You know, it's interesting.
• 5:43
  SPEAKER_01: At first, I I thought, and and we're gonna talk about this, how how the governor, the governor Newsome is is passing some laws to help expedite the building in a lot of these areas.
• 5:53
  SPEAKER_01: And and I was talking to a friend who's a contractor, and I said, hey, this is gonna happen quickly, and he says, I don't think so.
• 5:58
  SPEAKER_01: He says there's a lot that needs to be approved within the land to make sure that's even safe to be built on because there's gonna be contamination and all these things.
• 6:05
  SPEAKER_01: And so, where at first, when I was looking at this, I thought that having this be expedited, that the building was gonna happen quickly.
• 6:13
  SPEAKER_01: Now I'm not 100% sure.
• 6:15
  SPEAKER_01: What are your thoughts there?
• 6:17
  SPEAKER_00: Yeah, so you know, government Governor Newsom did pass a few executive orders, which I think are are a big plus for people who are in this situation where they're having to rebuild.
• 6:28
  SPEAKER_00: One of them was N-4-25, which is supposed to streamline the permitting process.
• 6:35
  SPEAKER_00: Basically, you don't have to get CQA approval, which was taking a lot of time previously.
• 6:41
  SPEAKER_00: Um, it also allows uh property owners to clear their own lots.
• 6:44
  SPEAKER_00: It doesn't, in most cases, the state would have to come in and clear out lots, so that'll save some time.
• 6:50
  SPEAKER_00: Um so hopefully we see you know time frames for rebuilding shorten and people can get to work a little bit faster.
• 6:58
  SPEAKER_00: Because these people are still on the hook for mortgages.
• 7:00
  SPEAKER_00: Like just because you know the house burned down, it doesn't mean you can stop paying mortgage.
• 7:05
  SPEAKER_00: You still have property tax expense, you still have insurance expense.
• 7:09
  SPEAKER_00: So, you know, these people are motivated to build as fast as they can so they can get back into their homes.
• 7:15
  SPEAKER_00: Um, but yeah, you know, it's it's gonna be difficult to predict exactly what's gonna happen.
• 7:21
  SPEAKER_00: I think we just have to watch it play out.
• 7:24
  SPEAKER_01: Um, let's get into the impact on the rental market.
• 7:27
  SPEAKER_01: We've been seeing, and there's reports, price gouging, and and we've seen it, you know, there's um people out there on social media are actually exposing some of these landlords.
• 7:39
  SPEAKER_01: And a lot of the demand for rentals is we're not building it out here in Long Beach.
• 7:43
  SPEAKER_01: If if anyone, if you're in Los Angeles Los Angeles, LA County, you know how massive it is.
• 7:48
  SPEAKER_01: And so although the fires were in LA County, it's I would say North LA County, and and we're not getting the calls on our rentals based on the fires, but this is happening in Santa Monica and and West Los Angeles.
• 8:01
  SPEAKER_01: And we are seeing where a rental was asking$8,000, the fire happens, they bumped it up to$12,000.
• 8:09
  SPEAKER_01: And that is price gouging, and that's certain, certainly something that we don't want to condone, but it is happening unfortunately.
• 8:15
  SPEAKER_01: Um, and it looks like there's gonna be a law passed to try to prevent some of that.
• 8:19
  SPEAKER_00: Yeah, well, price gouging is already illegal in California, especially when there's a state of emergency.
• 8:25
  SPEAKER_00: Um, Governor Newsom did sign another executive order, which uh it's N-7-25.
• 8:33
  SPEAKER_00: So it extends price gouging laws, but it also makes it illegal for investors to solicit offers to owners who, you know, were impacted by the fires.
• 8:42
  SPEAKER_00: Um, and just to add to what you were saying about price gouging, um there's a group of people who put together a spreadsheet of all of the owners who have been price gouging.
• 8:52
  SPEAKER_00: I think there were something like 475 people that they identified who had increased asking rent by over 10%, which 10% is the threshold here.
• 9:02
  SPEAKER_00: Anything over that, it's you're you're in violation, you can be reported and prosecuted.
• 9:07
  SPEAKER_00: Um but but yeah, I I think what a lot of property owners might not realize is that Zillow shows changes in price.
• 9:15
  SPEAKER_00: So you can scroll down to the bottom of a Zillow rental listing and it very clearly shows if you did a huge spike in rent.
• 9:21
  SPEAKER_00: So it's not hard to identify.
• 9:23
  SPEAKER_00: The MLS does the same thing.
• 9:24
  SPEAKER_01: One of the new impacts that that is happening, um, Los Angeles City, it's the city council.
• 9:31
  SPEAKER_01: What they're what they're trying to propose is another rent freeze.
• 9:36
  SPEAKER_01: So a rent freeze is where they're telling every rental owner that you can't raise the rents.
• 9:42
  SPEAKER_01: So right now in Los Angeles City, again, we're in Long Beach, so this is those are different guidelines.
• 9:47
  SPEAKER_01: Right now, the allowable rental increase is 4%.
• 9:51
  SPEAKER_01: But during COVID, there was a rent freeze.
• 9:54
  SPEAKER_01: And so I'm gonna say this these poor rental housing providers suffered a lot during COVID.
• 10:01
  SPEAKER_01: They did.
• 10:02
  SPEAKER_01: Tenants suffered also.
• 10:03
  SPEAKER_01: I'm not saying, but I'm just saying owners did as well.
• 10:05
  SPEAKER_01: And so there was this rent freeze, finally got lifted.
• 10:09
  SPEAKER_01: And by the way, most cities in in all of California didn't have to, did not have a rent freeze.
• 10:16
  SPEAKER_01: So now what's being proposed, Cody, is that they're gonna put another rent freeze again because of the fires.
• 10:23
  SPEAKER_01: And the reason why I have a problem with that is that this shouldn't be this blanket law that passes to every rental property owner.
• 10:31
  SPEAKER_01: I I think it's unfair.
• 10:33
  SPEAKER_01: I think that a lot of the people that have been displaced, a lot of them are looking at a different rental market, not exactly the one bedrooms, the studios, the two bedrooms in Los Angeles.
• 10:43
  SPEAKER_01: I don't know that they're looking to move in there.
• 10:45
  SPEAKER_01: But for them to do that, I think that they're they're they're trying to capitalize and push their agenda during this emergency time, which I don't think that that's fair.
• 10:55
  SPEAKER_01: And I think when people hear about it, oh yeah, of course, fires, don't raise the rents.
• 11:00
  SPEAKER_01: It's not that easy.
• 11:01
  SPEAKER_01: This is not, people are not trying to move to say South LA who moved out of Altadena or or uh Pacific Palestines, simply not.
• 11:10
  SPEAKER_01: And that's who you're restricting, and that's why I have a problem with it.
• 11:13
  SPEAKER_00: And so Yeah, and it it's tough because you know, we saw this during COVID.
• 11:19
  SPEAKER_00: Um, as insurance carriers started leaving California and you know, creating additional costs for property owners, and they weren't able to raise rent, it just squeezes a lot of mom and papa owners out of property ownership.
• 11:32
  SPEAKER_00: They they get fed up, they want to sell their buildings and either just cash out completely or move their money out of state.
• 11:39
  SPEAKER_00: So I think right now, with all of the different insurance requirements, as you know, people come up for renewal, their insurance company approaches them and says, hey, we need you to update these panels, we need you to rewire that's not been too electrical, we need you to replace the roof, and they're hit with tens of thousands of dollars in upgrades that they have to do.
• 11:58
  SPEAKER_00: And on top of that, they can't raise the rent.
• 12:01
  SPEAKER_00: I I think it's gonna be tough for a lot of people to handle that.
• 12:04
  SPEAKER_01: Right.
• 12:05
  SPEAKER_01: Um, but also, you know, our channel since day one is teaching people how to build wealth through apartment ownership.
• 12:12
  SPEAKER_01: And the one thing we've always said is that here in Southern California and all of California, we don't have enough housing.
• 12:17
  SPEAKER_01: Well, now there's even less housing.
• 12:18
  SPEAKER_01: And so, even more, I think, I think if if people were wondering, or hey, can we still look forward 30 years from now and know that we're making smart, prudent choices by investing in multifamily, I think the answer is yes.
• 12:33
  SPEAKER_01: I mean, when when a natural disaster like this happens, you realize we're fortunate to have our houses, but we're fortunate to be able to provide housing for a lot of people.
• 12:43
  SPEAKER_01: And so I think that this just reinforces, yes, have housing now because of the insurance requirements.
• 12:50
  SPEAKER_01: Um, some of these upgrades are it's probably a good thing that we're doing them, right?
• 12:53
  SPEAKER_01: We want to keep new roofs to prevent water intrusion.
• 12:56
  SPEAKER_01: And of course, we don't need more fires caused from uh older electrical panels that are antiquated.
• 13:02
  SPEAKER_01: So I think housing improvements will get better, but from an investor standpoint, they need to break even.
• 13:11
  SPEAKER_01: They need to make financial sense because you can't you can't put all this expense on an owner and expect that they're gonna be wanting to do it.
• 13:17
  SPEAKER_01: Sometimes they can't do it, which makes it difficult.
• 13:20
  SPEAKER_01: So we're in the process right now of representing um a client of ours, and they're buying a house in Los Angeles.
• 13:27
  SPEAKER_01: This this client is a substitute teacher in the Pasadena area that's close to Altadena that had severe fires.
• 13:34
  SPEAKER_01: And the school that she substituted at had a lot of fire, and just this week that it got reopened and the the teachers got to come back.
• 13:43
  SPEAKER_01: She called me and she said that a lot of um state counselors were there to provide support to the children.
• 13:49
  SPEAKER_01: And this was one of the saddest things that I that I've heard is she said that all day long the kids that she teaches were crying all day because most of them lost their houses.
• 13:58
  SPEAKER_01: Uh, some of them are living in their cars.
• 14:01
  SPEAKER_01: And it just reminds us, you know, sometimes we watch the news, and in our case, I see a lot of fires that that's what they're covering, but they're not really covering the families that have been displaced.
• 14:11
  SPEAKER_01: Yes, they'll show the house that was burned down, but I want to not that I need to see, but sometimes you need to hear the stories of, well, what's happening now with these folks who are out?
• 14:21
  SPEAKER_01: And it it really is a tragic situation.
• 14:24
  SPEAKER_00: Yeah, and one other thing that we're seeing right now for people who are purchasing properties, we're seeing moratoriums from insurance companies.
• 14:32
  SPEAKER_00: A lot of companies are not issuing new policies if a building is located within 25 or even sometimes 50 miles of an active fire.
• 14:41
  SPEAKER_00: So a lot of escros right now are just on pause, kind of waiting for these fires to be fully contained.
• 14:47
  SPEAKER_00: It looks like you know, the fires are being contained.
• 14:50
  SPEAKER_00: We're getting closer to that point, but just something to keep in mind if you're out there buying or selling your property right now.
• 14:56
  SPEAKER_01: Especially if you're near the fire.
• 14:58
  SPEAKER_01: One of the examples, we're in escrow right now, and the the scenario that Cody just brought up, it's caused a problem.
• 15:04
  SPEAKER_01: So a week before the fires, they would have been able to get insurance on this one specific property.
• 15:08
  SPEAKER_01: Now they can't.
• 15:10
  SPEAKER_01: And so the last alternative, the last alternative is um is the California Fair Plan, which is actually not even a government program.
• 15:18
  SPEAKER_01: It's owned by a private individual.
• 15:19
  SPEAKER_01: Now, the problem with that is that they've been in uh inundated with a lot of requests and they're simply not staffed up to handle all the new um insurance information that's coming in.
• 15:31
  SPEAKER_01: And so, but when you go with the California Fair Plan, the problem is they most times can't insure 100% of the structure.
• 15:39
  SPEAKER_01: So then someone is having to close a property because that's the the insurance of last resort is that, okay.
• 15:46
  SPEAKER_01: And in this case, they're only insuring uh like 30% of what the structure is worth, which is a problem.
• 15:53
  SPEAKER_01: Um in this situation, our client is buying it cash, and so it's not like a requirement that the um that the bank is putting on them.
• 16:01
  SPEAKER_01: And so hopefully, as as things progress and more laws get passed to help, there'll be more insurance options, but we'll see how this all plays out.
• 16:10
  SPEAKER_01: So there you have it.
• 16:11
  SPEAKER_01: Hope you enjoyed the show.
• 16:13
  SPEAKER_01: Tune in for next time.