00;00;06;16 - 00;00;28;28

Unknown

Welcome to the Profit First for Real Estate Investing podcast. Every week we bring you top investors and experts sharing how they create clarity, cash flow and consistent profit. This episode is brought to you by simple CFO. Profit first. Profit always. Let's go. Okay. Don't throw stones at me. Today we have an insurance carrier on. So I. I really like them though.

00;00;29;01 - 00;00;52;15

Unknown

It's Obi insurance here. Not only a lot of great things. People that we I know use them. People that I'm connected to. We actually get to talk to the co-founder and he puts stuff on the bottom shelf. Thank God this this is an episode where if you're like, oh my gosh, my rates are going nuts. He gives you practical steps of like things that you could do to make those go down, or just thinking about, what can I do in order to not think about insurance as much as possible.

00;00;52;15 - 00;01;13;18

Unknown

So if that's you, right now we talk about the state of Florida, all the things going on and crazy. So hopefully this is very helpful for you. And thank you for being a listener of the Profit First Aria podcast. Hey everyone. It's David Richter at the Profit First Aria podcast. Have Aaron, let's eyes are here super excited because he's going to talk about insurance.

00;01;13;19 - 00;01;29;13

Unknown

Usually not an exciting topic. Usually people throw stones the way because I talk about financial stuff and he's in the insurance world, so you're getting the double whammy here. But he said one thing beforehand, which I'm really excited. He said he can make it interesting. And I like when people can take usually boring topics and make them exciting.

00;01;29;13 - 00;01;46;28

Unknown

So I know this is something that a lot of people are probably struggling with. Right now in the insurance for. I live in Florida. A lot of people are struggling down here. In the state of Florida. Insurance is going nuts. So really excited to have Aaron on to like, demystify some of this stuff. But also just talk about like, what the heck is going on in the insurance world.

00;01;46;28 - 00;02;04;20

Unknown

So Aaron, thanks for being on. Thanks, David. Hopefully, hopefully I'm not getting a lot of a lot of stones, thrown my way. But yeah, yeah, it's, insurance is a, not something that people had paid a lot of attention to, but certainly, and especially if you're in Florida, the insurance markets got a little wild over the last couple of years, so.

00;02;04;22 - 00;02;35;07

Unknown

But it's you through it. And you work with O.B. in church. You're actually a co-founder, correct? Yeah. That's correct. Started O.B., a while ago now. But we're, we're an insurance technology company that's solely focused on the residential real estate investing class. So whether you are the accidental landlord, right, you buy your condo unit and you didn't want to sell it, you turned it into a rental property when you buy your first home or, you know, a similar type of setup all the way now through kind of your sub institutional owners, two, three, 5000 units under management.

00;02;35;09 - 00;02;53;11

Unknown

We wanted to build a, a platform that I think provided a bit more of a, consultative and transparent, insurance process that I think what, you know, myself and my brother, who's my co-founder, we used to see, you know, when we were in the real estate, private equity world. Yeah. So you've been in the real estate world before then?

00;02;53;13 - 00;03;10;00

Unknown

Yeah, correct. So we we spent a lot of time in that space, Ryan. More so than than myself. Although he's the one that gave me the, the real estate investing bug. You know, he was he was buying, you know, value out of apartment and single family rental portfolios, primarily across the southeast, and just got really frustrated by the insurance process.

00;03;10;00 - 00;03;26;07

Unknown

I had had my insurance license for a while, so I knew what those pain points looked like. But he always felt like, you know, and this is more so true now, today than probably in the last decade. But he always felt like he was one of the largest line out of expenses that he had, but the one that he always had the least amount of control and insight into.

00;03;26;07 - 00;03;44;04

Unknown

Right? He always felt like. And people describe it the same way to us. A miserable black hole, right? Nobody likes insurance. That's made worse by the fact that, like, now you're operating this business or you're trying to you're trying to run a pal. And, you know, maybe you trusted the investment sales broker, or maybe you were all hoping that that rates would stay flat.

00;03;44;04 - 00;04;02;01

Unknown

To what the the previous owner had. And, you know, for a lot of folks, it's a, it's a wake up call. And so we wanted to build a product that people at least felt a little bit better about. We wanted to put owners in the driver's seat to make their own decisions. You know, we've been really successful being able to help, real estate investors be able to do that.

00;04;02;03 - 00;04;20;22

Unknown

Okay. Awesome. I like that. That's came from the aspect of, like, yeah, they saw a need fill a need, you know, in that space. Now you mentioned the technology companies. So are you more of a broker or do you actually have the insurance in-house without me? That's a great question. So we started as a broker, initially years and years ago.

00;04;20;22 - 00;04;37;23

Unknown

And you know, while the while the website, the forum might have looked pretty, it was really just it was really just me behind the keyboard. Right? Entering those quotes into websites as quickly as humanly possible so I could make it feel techie. But it, it worked out right. We wanted to be able to validate the thesis that we had in the market.

00;04;37;25 - 00;04;57;17

Unknown

And it turned out everybody else felt like insurance was a miserable black hole, too. So that worked out well for us. And we ended up, you know, that that led us to build our own insurance products so we could still broker policies out. We still have about 60 carrier relationships out in the market, but we wanted to build, you know, I think really the product and the experience that we wish we would have had.

00;04;57;19 - 00;05;13;23

Unknown

And so now at this point we're underwriting these. We have the, you know, the rates, the forums, we've built these products internally. We're available in all 50 states plus Washington, DC. We really wanted to be able to provide our partners, and our clients with the type of experience that we think the insurance market should be at today.

00;05;13;25 - 00;05;33;00

Unknown

Yeah. So then, okay, in the insurance world, since you've got the behind the scenes working and all of that, you're underwriting it as well now too, and that you have those partnerships. So then what else do you see. You know it's obviously a big line item for real estate investors. What other black hole type things or like is there anything else there?

00;05;33;02 - 00;05;54;18

Unknown

You're like, yeah, this is another reason why we went down this road. Then I'd like to go into some of the insurance process too. You know, we always felt like insurance. You know, we we really we never really found that that insurance broker or that process where somebody would, would think about our deal and our business inherently like, like they did.

00;05;54;18 - 00;06;08;21

Unknown

Right. And so, you know, if I was, it's to no fault of like an insurance agent, right? Like they they're a lot of them are generalists. And we can certainly talk about why it makes sense to use a generalist or like a really a specialist in the space. But, you know, I wanted to talk about cap rate, right?

00;06;08;21 - 00;06;26;28

Unknown

Like I wanted to talk about, you know, my my net operating income on this property. And, you know, I want to have a conversation with somebody to say, hey, if I move my deductible from $1,000 a year to 10,000, right. What is my savings going to look like over the next couple of years? My inherently going to be paying for the claim that I may or may not have versus right now.

00;06;26;28 - 00;06;48;02

Unknown

I know I'm going to be able to have the savings. Right. And so that was the piece that I think was really missing in this space. And as a as an owner, I think you know, we've all taken for granted that the last, you know, a little over ten years since the the financial crisis in 2008, 2009, people started pouring money into, you know, the alternatives to the public equities market.

00;06;48;02 - 00;07;03;25

Unknown

One of those has been real estate. Yeah. Right. And so from that the times have been great. Right. People think the top was 2018 and then the top was 2020. And then the top was 2021. I think we started it and I hit that ceiling. Interest rates certainly helped push it in that direction. But when times are great right.

00;07;03;25 - 00;07;20;27

Unknown

Like you don't have to worry as much about your your pal. And I think now that, that the market is kind of caught up with, you know, where the rest of the, the players are at, it it really does have a big material impact. And so that's the black hole for everybody. Yeah, that makes sense.

00;07;21;01 - 00;07;38;29

Unknown

So it's finally caught up and now the people are paying attention to it. So now that they are how do you separate yourself out from the pack then. You know, like because there's a lot of insurance carriers out there and some of them, you know, deal to the re world and are specialists in that. So, you know, what does Obie do that helps people?

00;07;39;02 - 00;07;57;08

Unknown

The first thing I would say is that that, you know, we're quick and transparent about the process. So whether you access us through your independent insurance agent, we work with a bunch of independent agents around the country, or you come to our website yourself. You know, what I like to tell people is you can sit on your couch on a Saturday morning and buy insurance without having to talk to anybody.

00;07;57;11 - 00;08;19;10

Unknown

You can go through our coding process. You can sit there and you know you can. You can mess with the combinations to your heart's content. One of the biggest frustrations that I had as an owner is that I would fill out a spreadsheet, I would fill out a PDF application, then I'd send it off to my broker, and then that broker would go out and, you know, they procure a bunch of quotes for me, but and again, to no fault of their own, this is the way the market is set up.

00;08;19;13 - 00;08;34;23

Unknown

If I wanted to look at any different combinations, right, maybe I want to look at a higher deductible or lower down. Yeah, maybe I want to add this coverage or not. Every one of those is that power broker having to go back to those carrier, maybe multiple carriers and say, hey, can you can you run these five different combinations?

00;08;34;26 - 00;08;55;18

Unknown

And that four carrier has a real person sitting on the end of that, that email that has to re plug all of this back into a spreadsheet. Right. Much like we're underwriting a real estate deal. And so what we inherently did is we we digitize that underwriting model, right? We we took all the rates and the forms and looked at that and said, hey, there's a real human sitting behind this, this model.

00;08;55;21 - 00;09;10;12

Unknown

Why don't we, you know, why don't we build a computer model around that? Right? Like, how about we we allow people to be able to do that instantly. And so that's what we've been able to build. You know, more often than not any 1 to 4 units structure, residential investment structure. Multifamily is a little bit harder to do.

00;09;10;12 - 00;09;27;17

Unknown

It's not as instant, but any 1 to 4 unit structure in the US. We can underwrite that instantly. And what that means for you as an owner is like, then again, you get to sit there. You can check out with our recommended coverages or you can play around with it, right? You can plug those numbers into, you know, your proforma for the year.

00;09;27;17 - 00;09;45;22

Unknown

Or maybe you're you're looking at acquiring an asset and you want to make sure that the insurance line item or your insurance assumption actually matches with where the market's at. You can do that as many times as you want, right? No insurance agent, myself included. And I say this with love. As an agent, I don't want to sit there and you know, help you, David, like you're looking at 50 different properties on Zillow.

00;09;45;22 - 00;10;00;02

Unknown

I don't want to run all 50 for you. Right. Because you don't even know if you're going to buy it yet. And that's the way the market's been built. So that's the big piece for us is that, you know, speed and transparency and, you know, more of a consultative approach to what it is that you're buying, what you're paying for.

00;10;00;04 - 00;10;25;28

Unknown

That's the that's the difference with Toby. Now I like that a lot. So a lot of people need that in the real estate world. Then. Do you cater more to like the buy and hold landlord or like to the fix and flipper? You know, someone who, you know, short term, long term does it matter doesn't doesn't matter. I would say, you know, again, kind of going back to what I was saying before, a lot of carriers would shy away from that fix and flip model or people that were only going to hold the asset for maybe 3 to 6 months.

00;10;26;00 - 00;10;44;16

Unknown

And that's because they had so much business coming through the door. They didn't want to have an underwriter sitting there underwriting a three month deal or six month deal, and they could spend the same amount of time underwriting a 12 month policy. But for O.B., again, it doesn't matter, right? For us, if you want to come in and you want to be able to quote that out, there's a machine that's doing that right now.

00;10;44;16 - 00;11;01;01

Unknown

We have people in the background. If you want to talk to somebody, you've got questions. You want to talk to a sales agent or a service rep. Really understand that coverage. There's there's people available to do that. But we found that the average real estate investor today, they've grown up with an iPhone. They have an expectation of technology and immediacy.

00;11;01;04 - 00;11;24;10

Unknown

And so we wanted to be able to build a product that supports the way that they want to own, manage and purchase investment assets versus, you know, somebody that that's sitting there kind of really sitting with the status quo the way this has been done for ages. All right. I have to pause the episode real quick. If you're a real estate investor who's tired of wondering where your money is going or why you're closing deals but still feeling broke, you need to talk to a simple CFO.

00;11;24;17 - 00;11;45;15

Unknown

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00;11;45;19 - 00;12;12;20

Unknown

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00;12;12;27 - 00;12;32;09

Unknown

Now back to the episode. Okay, I like that. So it really doesn't matter what a long term short term, you're just trying to get them the best thing. Like you said, you're taking the more consulted, you know, consultative approach of what is your business trying to do? I really like that a lot as well too, because, you know, it's usually just a cog in a wheel.

00;12;32;09 - 00;12;58;11

Unknown

Let's just move it along. You know, as far as, for most people. Okay. So insurance is so crazy across different states, I feel like Ford has gone nuts. Like, how do you maintain a competitive rate versus, you know, other places or especially in these states that I feel like I've gone a little bit cuckoo bananas recently. It's, you know, it's a it's a tough challenge.

00;12;58;11 - 00;13;14;21

Unknown

We leave that up to, like, really smart actuaries who are a whole lot smarter than I am. But it's it's tough, I think, like, you know, Florida always kind of gets the brunt of of the insurance world, I think Louisiana, southeast Texas, right. Like, everybody's really loved the Harris County area, both in the single family, the multifamily areas.

00;13;14;27 - 00;13;32;08

Unknown

So your best markets to have invested in in the last probably, you know, five, seven, ten years are also the ones that are getting hit the hardest with the insurance. Right. And so that's really a couple of things. One, people think it's it's usually the weather. And that's true. But weather patterns, even though they've gotten a little bit more erratic like they're they're fairly predictable, right.

00;13;32;08 - 00;13;49;03

Unknown

Yeah. Insurance carriers run what's known as a PML study. So probable maximum loss. Right. Like what is the probability that you're going to sustain like a total loss on these assets. And they're running that every year. So it's not about the weather per se. It's about everything else that's being added into that. So you've got inflation right.

00;13;49;03 - 00;14;06;15

Unknown

These carriers that said you know what David I'm going to rebuild your property. I agree with you on this replacement cost. Something happens to it. There's a tragic fire, right? The entire place burns down. I'm going to rebuild that for you. What carriers, I think, didn't underwrite for is the fact that lumber prices. Right. We're going up. Material labor costs were going up.

00;14;06;15 - 00;14;32;18

Unknown

And so where they thought they were going to have this slim margin of of profitability and that's the way the insurance market is, has grown successfully for decades. Suddenly they all see themselves taking it a dollar and premium and paying out $1.10, $1.20 in in losses. And that's not sustainable. So, you know, you add that in I think Florida fortunately is has dealt with, I think a little bit more of the litigious nature of, you know, a lot of the claims processes.

00;14;32;18 - 00;14;57;13

Unknown

Right. People show up at your door after a hurricane and say, hey, you're, let me put on a brand new roof for your insurance company. I'll pay for it. I think the state's starting to to tack down on that a lot. But you know what we hear often, and I think this is, again, the first time you've had this confluence of events, people in Ohio or people in Michigan or people in Pennsylvania or North Dakota, they say, hey, I don't live in Florida, right?

00;14;57;13 - 00;15;15;28

Unknown

I haven't gotten hit by a hurricane. I don't live in California. Right. I don't live in Southeast Texas. Louisiana. Why are my rates going up? And I think for the first time, people are realizing that the insurance market has operated at a loss in a lot of those states or southeastern states, and they're supplemented right by like everybody else.

00;15;15;28 - 00;15;36;01

Unknown

And that's and that's how that's what makes like a beautiful insurance market work. Is that in the, you know, the the, the wildfire seasons out west isn't necessarily the same times as you're getting, hurricane season, which isn't always necessarily the same times you're getting tornadoes to rip through Tornado alley, right? Which isn't the same time as, like really bad winter storms.

00;15;36;03 - 00;15;54;13

Unknown

And so these national carriers are able to balance out those risks and be able to refill, I guess, you know, they're the reserves, for lack of a better term, all around the country. And so that's really what's been happening. And so it's important for folks to look at their portfolio and say, you know, number one, find an agent that knows and understands the real estate investment space.

00;15;54;13 - 00;16;18;23

Unknown

I can't I can't, you know, encourage that enough. That could be Obi or anybody. Find somebody where real estate investors are a large part part of what they do. Yeah. And then in those conversations, talk about the things that that you as an owner can do to mitigate those potential future claims. You're never going to be able to stop a wildfire or a hurricane, but you can do some things to make sure, hey, maybe they had that tenant cause kitchen fire or that water issue.

00;16;18;24 - 00;16;38;01

Unknown

Your your property. You may not be able to prevent that, but you might be able to at least decrease the severity of that coming up. And a really good agent's going to be able to talk through some different ways of doing that with you. Yeah. What about claims? How are claims like, the claims process is a pretty streamlined because there's been some insurance companies I've worked with before where it's like, wow, this is pretty streamlined.

00;16;38;01 - 00;17;02;09

Unknown

And it's like, oh my gosh, I'd rather pull my hair out than go through this process. So how's claims? Yeah, I mean, plate claims. You know, there's the two worst days of anybody's life and insurance, right? It's it's the day you pay for it, the day you file a claim. Right? Yeah. You know, what I have to say about that is like the the the feeling that people have around insurance is that they buy insurance.

00;17;02;11 - 00;17;16;05

Unknown

Insurance is a very complex product. They file a claim and then that claim gets you know, all, you know, completely denied or partially denied or it takes a really long time. And so what we've done Adobe is a couple of things. One is that as soon as you file a claim, you're going to get a claim number, right.

00;17;16;05 - 00;17;32;04

Unknown

You're going to have, an adjuster that's going to be assigned to you very quickly thereafter. We try and move that process quickly as long as possible. If I'm paying up a claim, I don't want to be the carrier that sits there for a month or two months at three months to get you that check, right? A policy is a contract.

00;17;32;07 - 00;17;55;17

Unknown

If you have coverage, I'm giving you your money right now. I'm going to do that as quickly as humanly possible with, you know, within reason, assuming that it's a very clear cut claim. The second thing that I would say is that in doing this in a digital way and empowering you as a real estate investor, we have folks that that come to us and maybe they get a claim denied or they picked a deductible that was too high, but they finally made that decision.

00;17;55;20 - 00;18;11;28

Unknown

Right? I think that's the powerful thing of what insurer like what technology can do for the insurance world is that, you know, David, you might have been might have been paying $1,000 deductibles for the last, you know, ten, 15, 20 or whatever it might be. And then you look at that and you say, wow, like, I never file a claim, I don't.

00;18;11;28 - 00;18;30;04

Unknown

I move up to a $10,000 deductible. I'm going to see immediate savings, right? Like there's going to be an immediate ROI for this change. But you made that choice, right? It wasn't you going back and forth with an agent or an agent, just throwing a bunch of PDF documents in front of you. You might have wanted to add on the, you know, the, the, the, the roof, you know, replacement.

00;18;30;04 - 00;18;46;08

Unknown

Right. You might have wanted to add in some, some enhancements or maybe not. Right. Maybe you said, you know what, I'm willing to take that risk. But when a claim happens, you were the one that decided whether or not you wanted that coverage. You were the one that decided, and you were empowered to make that decision on the size of the deductible.

00;18;46;08 - 00;19;04;05

Unknown

So if you said, hey, I've never had a claim, knock on wood, nothing happens. You went from up to a $10,000 deductible and you have a, you have a, you have a $7,500 water leak issue right in the property. And you're like, oh, damn, it should have kept the thousand dollar deductible. But that that's on me, right? Like I did that I made that choice.

00;19;04;05 - 00;19;28;28

Unknown

And so I think flipping that narrative, I hate that there are career experiences out there where you're waiting forever, right? Like that, that that makes no sense. And then people get annoyed and frustrated by the time it takes, but they're also annoyed and frustrated because they don't understand why this happened. And then when they go back and they look and they say, well, my agent and by extension the carrier, they only gave me a couple options and I didn't feel empowered to go back and say, hey, can you run this a couple of different ways?

00;19;29;05 - 00;19;45;17

Unknown

That's what we want to change. And if you can change that, you're never going to like insurance. But maybe the experience you have to either get that loan or a refi, or to change property managers or to just shop your insurance costs. Maybe we can make that experience just a little bit nicer and a little bit more pleasant for you.

00;19;45;20 - 00;20;04;25

Unknown

Yeah. So it sounds like you do have like a standard operating procedure for a claims turnaround for at least communication or something that costs. Oh yeah. Yeah, yeah. So yeah. Oh I 100%. Right. Like the more I can automate that, the less I have to use like actual real humans, you know, like humans are what, you know, ultimately and to no fault of their own like that.

00;20;04;25 - 00;20;19;02

Unknown

That's what delays things, right? Yeah. You don't know if somebody is having a good day, a bad day, whatever that might be. They get to your email, maybe they go to white. If it's a, if it's an OB products like one of the ones that we've built ourselves and you file that claim online, there is an automatic process that is kicked off.

00;20;19;02 - 00;20;36;08

Unknown

Right. And then we have our SOPs with our adjusters and everything else to make sure they're evaluating that claim. They're seeing if it's something that, you know, requires a site visit, maybe it's something that with the appropriate amount of evidence, which we give everybody the opportunity when they're filing that claim, give us as much as possible. Right. It was everything you got.

00;20;36;13 - 00;20;57;23

Unknown

Right? Because then I can get to a decision and we can adjudicate that claim like, much quicker. So that's the type of experience we want people to have, because again, if you're paying out the claim anyway, like, why make the situation worse by waiting a month, right? Yeah. If these people are like, well, you know, we, we we gave approval to issue the check in the check, you know, check processing times are 7 to 14 business days.

00;20;57;23 - 00;21;14;24

Unknown

And then we got to put it in the mail and then we get a come on man like, ACH, me my money and let's move on. Right. Yeah. Now I like that. That's usually one of the bigger questions I think most carriers and just people get about insurance is the claim process. And like what was your experience with the client?

00;21;14;24 - 00;21;36;12

Unknown

You know, like if you had to file a claim because that's when the rubber meets the road. Usually in how they separate out, you know, from the pack. Now you just do. Is it residential real estate investing properties or do you do homes as well, you know, like personal homes or is it like just a specialty of, you know, the real estate investing space?

00;21;36;14 - 00;21;53;15

Unknown

Yeah, that's a great question. So we don't do we don't do like owner occupied, right. Like we don't do personal lines. Somebody comes in and has a rental property and then they're home in their auto. We have a couple of agencies that we partner with, people that I think share the same type of ethos that we have about protecting insurance in this way.

00;21;53;17 - 00;22;11;29

Unknown

And so it's a very nice, like reciprocal relationship. Right. Anybody that that needs, you know, an investment property, they've got an appointment and then anybody, any of our clients that might need that type of products, we get to ship them over there. Yeah. And so we really want to focus on this niche. There's 17 million, you know, landlords in the US.

00;22;11;29 - 00;22;25;23

Unknown

They spend over $60 billion a year on insurance coverage just in this market. Wow. We want to do one thing and do it well. Right. And I think this is this is a place that we can have a really good impact. And then from there we can say, all right, we're just in the residential real estate investment space.

00;22;25;26 - 00;22;46;04

Unknown

Can we start doing commercial? Can we do self-storage right? Can we start expanding this exact same type of thought process? And this go to market to other verticals that we see our own customers, you know, investing in. And I'm sure you see that from, you know, from your world as well. Once somebody gets the real estate bug, right, they might have that condo or the townhome or that first starter home.

00;22;46;04 - 00;23;03;16

Unknown

They turn that into a rental, right? Rental turns into 2 to 3 other properties because they're sitting there at night on, on, you know, on Zillow. Right. And then that turns into a ten unit or 15 or 25 unit building that when I'm, you know, I'm with some friends and then undoubtedly you get that guy that calls and says, hey, I found this self-storage place, right?

00;23;03;23 - 00;23;21;22

Unknown

The owners are getting up there in years. They want to sell. I really want to get into self-storage. And I'm like, I don't have a product for you yet. But I will soon, right. And so that that's the that's the thing. It's like it's such a large community, but it's such a small network, that people are always constantly looking for new deals and new opportunities.

00;23;21;22 - 00;23;37;11

Unknown

Because once you get over that first hump of being a landlord and you, you, you know, dive headfirst into becoming really comfortable as a real estate investor, you know, you see people start to branch off, right? And they get that same itch that I got years and years ago to say, wow, maybe we want to underwrite this 20 unit building.

00;23;37;11 - 00;23;52;14

Unknown

This looks really interesting. And while there's like this small, you know, three storey office building, it's fully leased up. Maybe I can use that for my business. Right. I go into one floor and I rent out the other two. Maybe I find a mixed use property. That's that's how we see the evolution of real estate investing.

00;23;52;14 - 00;24;12;10

Unknown

And we want to be the brand that continues to service them throughout all the assets that they end up putting in their portfolio. Yeah. Awesome. I like that. I do have one random question, actually. Is it the actual cash value versus replacement cost that most carriers give to you? Give that option between actual cash value and replacement. And which one do you prefer people choose?

00;24;12;13 - 00;24;30;15

Unknown

Or whether it's you? It's a great question. I think probably ever more, important today. Right? Again, with inflation costs and everything else, the first thing before I, before I directly answer your question. Yeah. What I can tell everybody and it's related is go check your policy. And number one, find out if you have actual cash value or a replacement cost.

00;24;30;17 - 00;24;47;25

Unknown

Like a lot of people are confused by that into, you know, for your listeners it sounds like the exact phrase right, replacement cost is the amount that the carrier is going to pay to rebuild your property in a light condition at the time of the loss, right? Actual cash value is we're going to give you a check. Whatever you do with that check.

00;24;47;25 - 00;25;06;18

Unknown

Best of luck. See you later. Right. And there are contingencies and policies at times to say, hey, if you don't have enough coverage on the replacement cost side, we're just going to give you the check. And so the biggest piece of advice that I can tell your listeners is go check out how much property coverage you have. Depending on the carrier, it might be called coverage.

00;25;06;19 - 00;25;24;23

Unknown

It's your property limit. And you want to look at that and you want to say in the event the entire place burned down, not just to rebuild the property. And like condition, but also to haul away everything that just burned down and remediate that property and then to rebuild it in a light condition. What's the average price per square foot if you don't know, right?

00;25;24;23 - 00;25;42;00

Unknown

Just go ask any of the local builders that you might, you know, be around, right? Any of them are happy to tell you. They can tell you off the top of your head. But we have seen clients where they bought a rental property or an apartment ten years ago, and they listed the, you know, the, the, the, replacement costs at $80 a square foot.

00;25;42;02 - 00;25;56;16

Unknown

And they've never they've never updated it. Right. And they keep renewing with their agent, their agent, you know, they might not focus in this area. They don't know what the goals are. And so you look at that and you say, hey, there's probably not a place in America right now that you can rebuild for less than $120 a square, right?

00;25;56;16 - 00;26;12;23

Unknown

Yeah. Do you only want to rebuild just the first floor? Right. And then they you kind of have this light bulb moment, and I think the one piece, you know, from an insurance perspective that a lot of people don't realize is if you have a loan on that property, of which 93 to 95% of investment properties have have that on them.

00;26;12;26 - 00;26;28;10

Unknown

Yeah. When the carrier says, hey, you don't have enough coverage here to rebuild the place, right? You selected replacement cost, you wanted to be able to rebuild it. This is how much you told us as the carrier, you could rebuild it for. Yeah, you're not gonna have enough here. And they're going to tell you that, and they're going to tell the lending company.

00;26;28;10 - 00;26;45;00

Unknown

Right? They're going to tell the mortgage company. That mortgage company might say, listen, I'm not in it to to try and be the, you know, the lane holder, right? Or the note holder on a, on a half rebuilt house. Just give me my check. Right. And it almost this mortgage company saying, hey, I want my actual cash value.

00;26;45;07 - 00;27;02;28

Unknown

And so you're then left with, you know, however much you have on it, maybe you have 20%. You just bought the place. You got 30, 35 or 40% of equity. That's your pro-rata portion of the check that you're going to get. Yeah, that's going to be nowhere close to what it's going to take to remediate that property, clear everything out, start rebuilding.

00;27;03;01 - 00;27;22;21

Unknown

And we have tragically, you know, seen folks that are adamant that, you know, they don't want to increase the replacement cost. And then they have that accident. And again, that mortgage company says, hey, just give me my 100 grand. Right. That's my that's my 65% pro-rata. That's how much equity I got left place. I'm out. Right. Yeah.

00;27;22;23 - 00;27;37;12

Unknown

Then the owner's like, what do I do? Do I sell it for land? And that that's what they end up having to do. It's literally like a it's a burned out shell. They've got a piece of land. They try and sell it. They try to get something for it. And there are groups that'll buy houses like that, but you're getting pennies on the dollar at that, right.

00;27;37;12 - 00;27;56;13

Unknown

So that's my my biggest piece of advice. So going back to your original question, my preference is always replacement cost. It's going to it's going to it's going to cost a little bit more. And let me caveat that I would say I would always do replacement costs if I have a you know, if I have debt on the property, if you own it outright, that's that.

00;27;56;13 - 00;28;14;02

Unknown

Again, kind of gets back to the first decision we were talking about at the beginning. What what deductible do I want? Yeah, that's about you as a real estate investor and how well you can sleep at night depending on the decisions you make as a as an investor and so if you say, hey, listen, I own this thing outright and cash place burns down, give me a $100,000 check and I'll sell the property.

00;28;14;05 - 00;28;35;17

Unknown

Right. And that's okay for them. But that's the thing you want to think about, right? Actual cash value. Somebody is giving you that check replacement costs. They're going to partner with you to try and rebuild that property up to the limit that you agreed on with them. They're not going to go above that. And they're also not if you end up rebuilding that property for less, it's not also a blank check that you're going to be able to do a bunch of upgrades on the property, right?

00;28;35;20 - 00;28;55;18

Unknown

I had, you know, you had basic countertops and you want to try and go to you know, Italian marble. Good luck because you have an extra 50 grand in that limit. They're not going to do it right. You submit invoices back to the carrier. That carrier's making payment. Yeah, that makes sense. So I like this a lot. That's been really good and helpful because on the first hour I podcast I want people to keep more money.

00;28;55;22 - 00;29;10;15

Unknown

You know, like I want them to actually have more money. At the end of the day, what I'm hearing here, from what you've said from a lot of the things is, number one, you look at your policy, do you want a higher deductible? So it's like less out of your pocket every month. But the more risk, you know, it's like, or do you want a lower one?

00;29;10;15 - 00;29;27;23

Unknown

And like you know, then it's a higher monthly. So it really depends on your risk tolerance there. I would also say another big thing that you brought up was like personal responsibility. Like you, it's you need to know enough to be dangerous to know what to look for on your insurance deck. Pages like do I have replacement cost?

00;29;27;23 - 00;29;42;10

Unknown

Do I have actual cash value or do I am I assured for enough if I've had this property a long time, am I covered? Because the best way to keep your money is like to not lose money and insurance helps you not lose the money that you had into the place, and especially if you don't know those things.

00;29;42;10 - 00;30;04;12

Unknown

So I'm glad you took the time between actual cash value and replacement cost. Because if someone's new, or even if they've been in their own time, I feel like that's going to help them make a more informed decision. And then making sure that at the end of the day, you have the insurance that you really want in place and using someone that knows the space that you're in is going to help you really keep more of what you're making.

00;30;04;12 - 00;30;20;24

Unknown

That was some of the big ones that I got, from today. I like you that you speed and transparency. Yeah. It's that's how like some of the big ethos of what you've got going on over there that you really want to be, but also consult, you know, consulting the people on the other end and helping them make informed decisions.

00;30;20;26 - 00;30;40;26

Unknown

Just really good. Do you have any last advice here before just one final question? No. I would say again, you know, if there if there's nothing else that people do find an agent that knows this space. Yeah, that that is the biggest thing that you can do. So many insurance agents that actually work in the space are small real estate investors themselves, right?

00;30;40;26 - 00;30;58;01

Unknown

You're going to know that instantly based on the conversation that you start having. And those are the people that are going to have access to the right markets. Yeah, the most competitive rates, the best coverage. Right. Find those people, partner with them. It's nothing against your agent. You can keep your, you know, your home and auto and your life insurance and your boat in your RV with them.

00;30;58;03 - 00;31;19;20

Unknown

Find somebody that knows and understands your business and make them your partner going forward. No, that's really good. And I would just stress again what you said. It's your personal responsibility. Just your lack of knowledge does not make it, you know, all the issues go away. So it's like that's why I like that. You take the consultative approach of like, okay, where do we go here?

00;31;19;20 - 00;31;39;02

Unknown

What do we do? You know, like being able to ask those questions because the insurance world isn't something that everyone dives into every day. So I really like that a lot. Okay. Awesome. Last question. How can people find you? Like, how do people look up O.B.? Do they just type in? Yeah, you can type in OB.

00;31;39;05 - 00;31;59;07

Unknown

You can go to the website ob Insurance.com ob is ob I insurance.com always email me. Oh great question. So, my brother, actually he had a dog named OB at the time. We, we came up for the company and the dog was named after a beer. Belles over on, Okay, there we go. Let's hear the beer.

00;31;59;07 - 00;32;14;15

Unknown

Name the dog. The dog. Name the company. Okay. Awesome. Sorry to cut you off. How do you get Ahold of you? You said your email address you're going to get. Yeah, yeah. If, if you want to reach out to me, I can point in the right direction. It's Erin at OB insurance.com. We got a lot of smart people.

00;32;14;15 - 00;32;29;16

Unknown

People smarter than me. So I can. Yeah. Always happy to to answer some questions or find some experts here. You. He's your co-founder here. And he just gave out his email. So he'll make sure to point you in the right direction. That means a lot to me. When people like that get involved and make sure you get to the right place.

00;32;29;16 - 00;32;48;09

Unknown

So, Aaron, this has been this has been interesting. You know, I think I you know, I think that some fundamental things discussed on this podcast, where now wherever you are in your insurance journey, I hope you're a little bit smarter after this. And listening to Aaron, I feel like, put it on the bottom shelf for all of us here too, because some of the stuff I'm like, this is good.

00;32;48;10 - 00;33;09;25

Unknown

Like this stuff I, I needed help on as well too. So, Aaron, thanks for being a great guest here. And if you're listening to this podcast and you're like, good grief, I'm you know, yeah, insurance going out the wazoo, everything's going, you know, going six ways from Sunday. Make sure to reach out to OB. You can also reach out to us at simple cfo.com, where we're making sure that you're putting the money in the right place.

00;33;09;25 - 00;33;23;06

Unknown

It's like, do you have the right insurance? Do you have the right things? Do you have the right monthly expenses? Like at the end of the day, you got to make sure you're making a profit or like, why are you doing this? So we got to make sure you're profitable. Go to simple cfo.com. We can at least point you in the right direction.

00;33;23;09 - 00;33;40;18

Unknown

Bring you great people like Aaron into your life as well too, so you can get the right help that you really need as a real estate investor. So Aaron, again, thank you for being on the show and providing all this great information today. Thanks, Sarah. Lots of fun. Yeah, that's it for today's show. Be sure to subscribe, review and share this episode.

00;33;40;18 - 00;33;48;22

Unknown

If you're serious about financial systems and keeping more of your profit, visit simple cfo.com to take your free discovery call today.