Hello, and welcome to another episode of Passive Real Estate Investing. I’m your host, Marco Santarelli. You know, I haven’t done an episode on rental property insurance for a while. I guess some people find that to be kind of a dull, boring, dry subject. But the thing is, is it’s very important. And if you’re gonna be a property owner, especially a real estate investor, you need to understand the importance of property insurance and what kind of coverages you need, the questions to ask, who to work with, and also just understand what’s going on in the world of insurance, because it applies to you. You don’t want to carry unnecessary liability and exposure. Look, you’re an investor, you’re a business owner, you need to be smart about this stuff. And when you look at the team that you have, that you build, one of those people on your team is your insurance broker.
They’re gonna be the ones to help advise and protect you. So that way you’re not a target and your properties are covered properly. And if something should happen, regardless of what it is from a flood to an earthquake, to a fire, you’ve got yourself covered. You’re not gonna be at a loss. So with me today is a guest that I invited on after being impressed with what he has done and the website and company that he has joined with. He is the chief insurance officer of a, a company called Obie, and his name is Matt. I hope I don’t butcher his last name. Sika. <Laugh>. Perfect. But here’s my little spiel about Matt. He’s an award-winning entrepreneur and a business owner in the insurance technology sector for about a five-year period. He was a top ranked State Farm agent. His company was Skylight Insurance.
And in a short two year period, he grew that company to be a 5 million plus brokerage with partnerships and technology in the multi-family community space. He had a staff of less than five people in a zero-marketing budget, but what he did is he bridged, you know, insurance principles with technology. Then he ultimately joined forces with Obie, which is an insurance distribution platform for real estate investors, which is kind of cool because, you know, they’re catering to us and they’re a pretty big company. They employ more than 70 people and they’ve raised over $14 million, and today he serves as the chief insurance officer.
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So with all that, Matt, welcome to the show.
Hey, thank you for having me.
Well, it’s great to have you on. It was interesting chatting with you before we started recording here. Sounds like there’s a lot we can talk about. So let’s try and cram as much as we can into the next 35 minutes or so.
<Laugh>. Absolutely, I and and your point on insurance not always being as sexy. I, I, I do promise your audience I will make insurance as sexy as possible and most interesting as possible. And I do always joke that for my episodes, just put like, surprise new episode and, you know, so that way they don’t see insurance involved and, you know, not jump on, but we’ll have some fun with it and I, I think they’ll get a lot of value out of it.
Cool. Well, that’s a good, a good tip. I’m sure I missed quite a bit, but what else can you tell us about yourself that I didn’t cover in, in your intro?
Yeah, I think the, the intro is great. I think the, the biggest thing is you know, I’m gonna talk to you about insurance today, but in from a lot of areas, I’m just like your viewers, right? I own single family rentals. You know, I invest as an LP in a lot of real estate deals. And along with even my business partners, they have a real estate background and we really built OB to, you know, do insurance for a real estate person. But it was in our perspective, like, what didn’t we like if we were in your shoes in the insurance side. So really that’s like the main thing that I saw they were missing is that, you know, I’ve, I’ve always been in the real estate spot from my state farm days. I worked with realtors to write homeowner’s insurance, moved over and built an insurance company for Century 21, which of course is in the real estate space, then flipped over to getting more into the landlord large multi-family space where I’m, I’m at today.
Nice. So very, very high level. You know, insurance is a massive industry and it’s probably changing on a regular basis. I certainly don’t follow it, you know, I just want to know that I’ve got the right coverages and I have my insurance in place, and it’s kind of set and forget, but kind of as a lead in, you know, what’s, what’s the latest in the world of insurance? I, I know that it’s kind of a dry old industry, but at the same time it’s being morphed and changed with changes in technology and whatnot. So what can you tell us about the world of insurance?
Yeah, I, I, you know, to lead off with the technology piece, I think insurance is going through the same industry changes that you saw with the airlines. You know, going to Expedia and Travelocity and these type of sites, you know, everybody right now wants things faster. They want it at their fingertips. And more importantly, even like the next step of that is they want to do business where they’re already doing business, right? I e Amazon, if, if, if I can log into my Amazon right account right now and anything in my life that I need to do for that day, anything that my wife asked me to do, a couple errors, if I could get it all done in Amazon through embedded or, you know, some type of link, you know, I’d probably do that. And so insurance is going that way as well. And that’s what we’re concentrating on is, you know, not only having a product that you can go to our, our, our website and, you know, get a quick quote and, and bind a policy for your rental, but we’re starting to try to put our real estate into other prop tech companies or other lending institutions or just other places that people listening to this right now are already at, they’re already into chase.com for their, their mortgage.
You know, we want to be there to provide the insurance. They might already be through a large prop tech type company for property management. We want to give them access. So that’s really where I see not only the change in the industry of go getting into the technology and being there at the fingertips, but also getting our product where people are already visiting for the day or already spending their time. Embedded is the cool word that a lot of people will use. But that’s really the future, right? Is, you know, one day you will go into Amazon, they already have all your information on your home and where you live and on the right side of the screen will offer you a homeowner’s quote. It’s just, it’s going to happen, right? I think their test pilot in Europe, we’ll see here in the United States in very short order. Everyone kind of usually understands the, the Amazon example.
Yeah. So insurance is catching up to the rest of the e-commerce world, how it’s simplified.
Absolutely
Interesting. So, you know, I mentioned that your insurance broker is an important member of your real estate investing team. Maybe this is just an overly simplistic question, but why, why is having a good insurance broker important as part of your team? I mean, we know what they do, but why do you need a good insurance broker? What are they gonna do for you?
Yeah, I, I think it’s a absolutely fantastic question. You know, to take the elephant outta the room first is most people will value an insurance broker nine outta 10 times as he or she gets me great pricing, right? That’s what you, you hear. Yeah. So, you know, kind of going aside from that, of course, our job, we’re gonna try to get you, you know, good pricing, right? Like, I want good pricing for you because I want you to not yell at me on the phone. I’m kidding. But like <laugh>, we all want you to have good pricing, but more importantly when you take it to that next step, the reason why I moved over to this space is most people in this space are business owners or they’re entrepreneurs, right? Like, or, or both, right? And they need to make business decisions. And really their biggest business decision is what to do with their time, right?
And so, where I see people feel like they have the most success in the insurance space is I’ll talk to a guy and he’s like, you know what? This week over the last five days, I went out to 75 brokers and 68 carriers, and I saved myself a hundred dollars on my, my rental. And I said, all right, well, how much do you, how much do you charge per hour? You know, of your time, right? And so that’s really where we fit, is I think, you know what’s called 80%, 90% of the time, we’re gonna probably provide you close, if not the best price that might be out there. But what we will do a hundred percent of your time is make sure it’s lender compliant. We will get it done quickly and efficiently. We will help you close, and we’re not gonna take more than probably five minutes or less of your time during either an acquisition or a renewal process, which is all the savings in the world.
The, the average single family rental policy is what’s called maybe a thousand bucks for the year. So even if you’re able to save 10% and a hundred dollars, right? That’s not as important as if you have to sit on a the phone with a broker for three hours, right? Like, it, it, it, it comes down to we try more to work with our clients and make business decisions than we do pricing decisions. And that just comes from like, we are in the industry. Like we get what it’s like to actually own, you know, these, these properties. So that’s really why you want someone on your team. You want someone that you can trust that, like I said, I’m just throwing out statistics, 80, 90% of the time they’re gonna get you the best price that’s even available, but every time they’re going to just take insurance off your plate so you don’t have to worry about it, right?
You’re probably not, you know, doing this with anything else and on your decision plate that people do with insurance. But for some reason people get very fixated. And I know it’s a large cost in the, you know, in the process, but the amount of people I see that literally will go out to like 45 brokers and a million carriers to try to save 50 bucks is, is pretty high. And so that’s what I always recommend. Just don’t pick a horse, whether it’s an it’s OB or another broker that you really like and just make sure that they, you know, get the deals done for you.
Okay. I’d like to come back to that later with OB and how it works. I want to kind of talk a little bit about coverage first, and then we will kind of wrap things up with OB because I’m, I’m actually kind of curious on how OB works for myself. So I might have some questions that are, you know, personal when it comes to coverage. I mean, I think most people are not fully educated in terms of what to ask and what to look for and what they should get. And you know, the, the danger I think is that people don’t know what they don’t know, so they don’t really know what to ask or look for. So kind of a broad question, but what is something that most real estate investors in your opinion, probably don’t know about insurance and don’t actually have, you know, with their insurance or the type of coverage, or kind of a very broad question, but, you know Yeah. What is it that they don’t know that they should know?
Yeah, absolutely. So, you know, I’ll, I’ll break this in kind of three parts. The first of like, don’t know, what they don’t know is things I see missing are usually add on endorsements, what’s caught, like backup of sewer and drain or maybe an umbrella, you know, for extra liability protection or maybe some flood coverage. But for the most part, you are going to have three coverages for your property, property coverage, which is going, you know, and I’ll speak at a very one-on-one level here. Property coverage is fire happens, theft, vandalism, tornado, hail items like that, that’s gonna cover. And something damage happens to your property, that’s gonna be the policy that kicks in and replaces the roof or places deciding or rebuilds, right? And then you’re, your next one is you’re gonna have a, a general liability or a liability. And what this covers is, you know, someone comes over to your property, they trip and fall and they hurt themselves and their lawyer is sending you a nasty note saying you’re responsible.
They, they broke their hip on your property and you know, you’re, you know, we’re gonna sue you basically. Right? It’s, it’s, it’s more on the lawsuit side, it’s more on the liability side that your property, you know, you almost think of your property as if it was a human. It’s like your property created this liability to this individual, or they, or they believe that you did and you need someone to defend it. You either pay that out of pocket if you don’t have liability coverage, or if you do, that will kick in and it will provide that, you know, that defense and that coverage, you know, for you if you’re found that you were liable. And then the last is your umbrella. What the umbrella does is give you extra liability above and beyond the, the general liability, which is normally at 1 million in coverage.
So if you feel like, hey, I have a lot of assets, or I have a bigger liability than, you know, just $1 million if someone was to get hurt on my property, or, you know, something like that, you might want what’s called excess liability, which is, you know, the umbrella. And you might say, I want five more million dollars. So that first million would kick in under your GL and then the next 5 million coverage would sit on top of that. That’s why they call it an umbrella and would kick in, you know, afterwards, you know, on those, a lot of times that coverage amount, these coverages, these policies are dictated by your bank. The best thing that everyone has going for them, even though it will be the thing that everybody complains about the most is what’s called lender requirements. So if you’re working with majority of banks, they’re gonna have insurance requirements that me as the broker has to make sure is on your policy, and they will review and they will sign off that they’re on there before they will let you close and have insurance.
So it is a pain for a lot of owners and stuff because usually a lot of those requirements make the price go up a little bit cuz they’re, you know, they’re, they’re making sure you have everything and you’re not underinsured or undervalued or you’re missing a coverage. But from a standpoint of, am I covered correctly, do I have a coverages? It does a really good job of checks and balances between me as the broker or just like we talked about from a digital experience. Like you can go to our website and go get your own policy and your, you know, and quote it yourself and bind it yourself. We do our best to put some, you know, items in place to try to get the correct replacement cost coverage for you and everything like, but you do have some choices on your own, right? It protects you there because you would’ve to send that policy over to the lender same way I would as your broker.
And they’re gonna say, no, no, no, no, you need to increase the coverage or you need to add this or add an umbrella. So that to me is a great safety net. Now where I see people get in trouble is cash deals, things like that where they don’t have the lender requirements and they call their broker up and say, get me the cheapest policy you can physically, for me, I don’t care what the coverage is, you know, put it down at $75 a square foot. You know, I just got something on there to close. That’s where, you know, sometimes you get into a little of a, of a, a risky situation, but I think most people are taken out a loan it seems like nowadays for their purchase or at least majority of the time. And it’s a pretty nice process that you go through to make sure that you’re covered correctly.
Yeah. Okay. So of the three categories, I mean, I think a lot of people ignore the umbrella coverage, you know, what I call just backstop, you know, once your primary policy is tapped out and let’s call it a million dollars of coverage and you have a an additional requirement, where does that come from? And umbrella coverage is so cheap, I, I don’t understand why anybody would not have, you know, that secondary policy in place just as you know, a backstop.
Absolutely. I, I think, you know, the interesting thing from being on both sides of the coin here is I think right now we’re in a, a little bit of a tougher market, you know, as you’re, than it was, you know, over the last couple years where you could kind of buy everything and anything and everything was hitting your marks after 18 months and it was good. I think the number one thing I could give for an advice, right, of why some people don’t choose coverages is they’re getting into deals that they’re trying to, they’re forcing to pencil out that really you shouldn’t mm-hmm. <Affirmative>. So my advice is when you’re going through the process before you even buy the asset, right, get with your broker, this goes back to why you should have some, a trusted individual, have someone who’s gonna tell you the truth, right?
We have an estimation department and at our company, and anytime I talk to a client, especially one that I know that we have a good relationship with, I always tell ’em, like a lot of times you might not like the answer we give as far as like what we think the estimated rate will be, but it will be accurate. And I think too many people unfortunately go to the wrong broker or they quote it themselves incorrectly, I don’t wanna pick on other brokers, right? And they try to just get insurance where they need it to be to so that the deal pencils out so they can feel confident about purchasing it, they get into it, then all of a sudden they get the real quote, right? And it’s higher cuz the lender kicked in at that time and now they’re complaining that the insurance is too high and this is gonna, you know, hurt their proceeds or you know, it’s gonna screw up noi and they kind of did it to themselves, right?
They should have probably maybe walked away from that deal. So I see that mistake actually happening before you buy the asset. Then people who actually own and operate ’em later on, I see it like they’re making the mistake up upfront. You’d walk away if they wouldn’t match your, your, your price that you would pay for it, right? Like, you know, yeah. You know, in negotiations people force insurance costs to fit their Excel sheet or fit their, you know, their number that they need it to be and that’s what gets ’em. And then you never can catch up cause insurance is not getting cheaper, right? Yeah. I wish it was, it’d be great for me, but it’s not, even if we don’t have a crazy bear market continue, you know, we will continue to have just normal increases from inflation, et cetera.
Yeah. Yeah. Cutting corners like that just leads to problems and, and risks. You know, speaking of risk, from your experience, Matt, what is the biggest risk investors leave themselves exposed to when it comes to insurance?
I think the biggest risk they have is, you know, I hate, I hate to repeat, but it is, it is not doing the correct underwriting before they purchase. You know, I think that’s the biggest risk. I I don’t see a ton of people unless they’re on a cash deal or they don’t have a lender involved getting themselves into too low of replacement cost or not having some of the run coverages. Of course, course there’s people who choose not to have an umbrella, which is a risk or you know, maybe, maybe they have the need for a backup and sewer of drain or flood coverage and they don’t have it, and that’d be a risk. But I see the biggest risk for most people, and it is insurance related, right, is the upfront underwriting of the deal and the lack of knowledge that they could get on a, a place from insurance.
And so everybody, again, is normally looking at insurances, what does it cost me? And does that work for my model? And they forget about that. Insurance has been on that, that single family rental or that apartment for a long time and has a history. Insurance can tell you about the crime score in the area. It can tell you has there been previous losses, right? Because the wiring’s really bad at the location. Maybe what, what’s like, you know, what if I told you you had three fire losses due to wiring over the last three years? Right? Very interesting. Whether you wanna purchase that or not, or get a credit from the seller when you’re doing that. So the best thing and the most intelligent people I think with their insurance is that they treat the insurance as a tool that can help them decide whether they should buy the asset.
The price of insurance is the price of insurance. And what I mean by that is like, you can figure out what it’s gonna cost for that asset, but it’s like, what’s all the other things that insurance can tell you, you know, to help you determine if this is a good asset for you, short term, you know, and long term, you know, on that. So that’s the biggest mistake I meet, I see mate, is before the purchase is really understanding what it’s gonna cost accurately and then also what information can I get from my trusted broker about this that I don’t know about as the buyer.
Will an insurance agent or brokerage provide that information to you? I mean, if they’re looking into it, is that something they voluntarily will provide?
Yes and no. Let me, let me tell you how it works and then how you can actually get it where they, they will provide it. So there’s a thing called a loss run, right? So in the automotive space, most people know this. It’s called the M V R and the auto space. And what that’s known for is you go to get auto insurance and they run whether you had tickets or accidents, rentals have the same history that it’s called a loss run. And every carrier that’s been on that risk can print out a, a 12 month loss run for when, when they had the coverage to show if there was any losses submitted and if there was claims. Hmm. What it doesn’t show is if something happened and the the current owner just paid cash for it and didn’t turn it in, of course that wouldn’t, you know, show up, but it’ll show up for any recorded loss.
Now most sellers have no problem, you know, providing the, this loss issue, you have to get it from the seller, right? But there are those who do, and I always say when you put in your, you know, your, your purchase agreement and you have kind of like a due diligence period or you know, you can say like, you need to give us like rent rolls or you have to, you know, things that the seller has to provide, just add right in there up-to-date loss runs. Just put it as a requirement, they won’t care at all at that point. The only time I do see them care is it’s two weeks before closing and you finally go to ask them and they’re just in this position of like, I don’t wanna provide anything that could maybe kill this deal. And so it could have, I mean people sometimes they don’t send them in their clear loss runs, they’re just, they get finicky. But if you have it in that contract that it’s something they have to provide, then they, they’ll get it done for you. So that’s why you want it and it’s out there and, and your broker can help you get that right and you can get it from the seller, but also set yourself up for success, put right into that contract that you would like the, the current seller’s insurance policy and current loss runs as part of the purchase.
Interesting. So I, I like to classify certain things as you know, must have, should have and could have. So if we apply this to insurance, what would you say real estate investors should have? Well, must have for insurance coverage, should have, and then the optional, if you will, could have.
Yeah. You know, very very simple. They must have, in my opinion, property and general liability. I mean that’s, you know, okay up to a lender requirement, they should have an umbrella to go with it, you know, very much on the same conversations. You know, not that I’m trying to just repeat myself, but insurance is simple in a way, right? Like especially on a, on a single rental asset, right? You should ha you must have property in gl you should have an umbrella and you could have flood backup with sewer or drain or some other endorsement based off of, you know, the, the, the reason why those varys, I don’t know if I’m talking to your audience in Arizona or California or type this depending on where you’re at in the country, right? Your should have is endorsements based off of your current location. So if you’re on the ocean in Florida, you might want to think about, you know, some flood insurance. You know, if you have a, a basement, you know, in Chicago that every June and July, the whole city floods probably wants some backup and sewer drain. And that’s where you’re trusted a, you know, broker advisor will be suggesting those to you.
How common is rent loss insurance and do you recommend it? Is it something worth having.
Rent loss and, and is built into your property coverage? So it goes into your must-have category. So part of the property coverage, right, that we talked about earlier is you have a hailstorm and the roof gets destroyed, right? Yep. The second half of that is you might have a few tenants that can’t live in their, their space or one tenant that can’t live in the space while you’re getting the roof fixed. You have rental income coverage that then kicks into, it’s all part of the property policy. It’s, it, you really don’t have one with the other other. So as you’re fixing the roof and you’re out two months of rent because you know, the tenant has to go live in a Best Western for a co couple months and they were paying you $2,000 a month in rent, part of the overall claim settlement will be providing you $4,000 in those rents that it’s called rental income and coverage insurance doesn’t go into like convictions or people don’t pay their rent. Like right, it doesn’t go into that space. It goes into, if you have a claim and you’re at a loss of rent, you’ll get coverage for that. And that’s built in with your property policy.
Sure. Yeah. Makes sense. Take 30 seconds or a minute, whatever it takes to explain the difference between these two things. I’ve brought this up years ago and it still confuses people. Sometimes investors or just people in general get offered one or two different types of policies. One is replacement cost policy, and the other is what they refer to as actual cash value. I think most people are confused by this. And, you know, then the question is, is, well, which one is better? Which one should I choose? How do you answer that question?
Absolutely. So I’ll use an example. Cause I think that’s helpful for people to kind of understand the, the difference with that. All right, so imagine the roof on your home, right? And I’m gonna say that everybody that’s listening has a 15 year old roof, right? That’s the age of the roof, right? A new roof when you first put it on 15 years ago costs 10 grand just for easy, easy math. And anybody valuing it right now at a 15 year old roof, if someone was gonna, they, they were gonna show up at your door and say, you know what? I want to buy your roof. I wanna buy your 15 year old roof. I’ll give you $3,000 for it, right? Let’s just, just, you know, so you can follow my analogy or my example here, right? So brand new is 10,000, 15 years go by.
It’s now worth what did I say, $3,000 for that 15 year old roof. All right? You have you say no to that guy, Hey, no, I’m keeping my roof. I, you know, I, I like it as is. And you turn him down. Now the next day a hailstorm comes, right? Right? And you have replacement coverage, which, you know, just say on the policy, I’ll take you through it and it damages the roof. Claims adjuster comes out and says, you know what? We have a claim here. We’re gonna take care of this for you. The first check that they give you is the actual cash value check they owe you for the actual cash value of how that roof is today with that 15 oh roof. So they say, Hey, we owe you $3,000 right now if you only have actual cash value, that’s where it ends.
That check right there, you get 3000 bucks. That’s the actual cash value of your roof as of today. And that’s all that you get from the insurance. Now, if you have replacement cost, same example, you get that $3,000 check and they say, now go out and get an estimate from a contractor to replace the roof. And when you go replace it and you spend $10,000 or you’re going to spend $10,000 and you either get it done or you have a signed contract that you’re gonna get it done, we will release the additional $7,000 giving you a full 10 so you can replace the roof and therefore replacement coverage, right? So that’s the journey that you’re on. And there is your risk. If you, you don’t have replacement coverage and you just go with actual cash value or a c v, a lot of people will, you know, that’s how they’ll pronounce it, is you’d only get that first check, you know, the value of the roof today, and you’ll sit there with the adjuster and argue over how much it should to be depreciated, right? But it, it’s gonna be lower, right? Or you can get that full replacement check and actually get that brand new roof put on.
Minus your deductible of course.
Right? So it sounds like replacement cost is by far the better choice. Of course, you’re gonna pay more on your premium in order to have replacement versus actual cash value, but then you’re not gonna have problems or be worrying about where the money’s gonna come from if you do need to replace something later.
Absolutely. I mean, I always recommend replacement costs, but just okay, you know, for your, for your audience that you know has a little bit more familiarity with the space. You know, a c v does have a place in time, right? Buy, buy a, a newer house, right? That, and I’m looking at my business and I would need, you know, that roof and that example fully replaced or it would hurt me as a business. Mm-Hmm. <affirmative>, then I should probably have replacement costs. But let’s just say I buy a real beat up house and I only pay $25,000 for it, cuz I’m gonna remodel it, I’m gonna gut it, I’m gonna, I don’t have as much money into it. I didn’t buy a brand new roof. So if some damage happens until I put a new roof on or I, you know, do the upgrades, I only need that $3,000 check cuz honestly I’m gonna repair the roof and do it on anyways.
I didn’t, I’m not out anything in my business model. Then a c v or actual cash value does have a place I’ll, I’ll pay a little bit less for insurance. I don’t need the replacement cost coverage. So it does have a place in time or a place, you know, in the space, right? That’s why it, you know, there is an offering, but I would say ninety nine, a hundred ninety five at a hundred, whatever the exact number is, you want replacement costs. Cause most likely you paid 150,000 for that place and it has a decent roof and, and you would be, you’d be hurt in your NOI if you had to shell out that $7,000 out of pocket to get
Them your roof. Yeah, yeah, good point. On that note, is there a rule of thumb on how much coverage an investor should carry on their properties? This sounds like an over simplified question, but how does one determine how much coverage they should have or need?
Absolutely. Trusted professional. For us speaking on it, we use replacement cost tools. So we actually use data tools and technology to pull data in every zip code on what things are costing, you know, rebuild costs, cost of labor, cost of materials. So we are using tools to determine what the replacement cost is. I don’t think anybody should just off the hip estimate like, oh, I’m gonna use a hundred dollars a square foot or $80 a square foot. Either a, if it was just a recent build, you know, you might, you, you might know what it costs to to build it and you could use that. If you have a recent estimate on a rebuilt from, you know, appraisal or you know, or you know, contractor or whoever, you know, it gets you an estimate, you could use that. Or I recommend you know relying on a carrier or the broker through a carrier that’s gonna use a replacement tool.
Similar to maybe some people in your industry might have heard of like exact domain or something like that. Like it’s going to determine what the, the cost would be. If, if, you know, if your house burnt down tomorrow, what it would really cost in, you know, Bismarck, North Dakota or whatever, or maybe Bismarck’s in South Dakota, I forget one of the, one of the Dakotas, right? It’s gonna determine what it costs to rebuild that there based off of data that they’re using. So that’s what I recommend there is don’t guess yeah. You know, find an expert one way or another that’s gonna tell you what it actually should be covered for.
Yeah. Somewhat of a similar type of question when it comes to deductibles. Like people always try to minimize the deductible amount, but then, you know, your premium goes up and also vice versa. So again, a rule of thumb, is there a rule of thumb on how much you should pick as a deductible amount or is it just a matter of, I don’t know, budgeting or personal preference? What do you say?
More, more the latter. Again, I’m, I’m, you’ll hear me say this again. I’m always trying to get you into a business decision, right? So what I would do, I, you know, if it was me or what, you know, what we, you know, tell our clients is that you know, your p and l you know what’s going on at the, the location, right? And if I give you a quote and I’m just using an example for a thousand dollars in annual premium, right? And it’s a $5,000 deductible and then a $10,000 deductible is $500, right? You’re saving 500 bucks mm-hmm. <Affirmative> right to go. The difference in those deductibles, right? And I should have probably had some better numbers here, but what you’ll get the concept is you really need to look at it this way is what I’m saving per year times the amount of years I plan to probably hold this, outweigh that.
At any time during that period, I promise you claims do not give you forewarning. They do not let you know in advance that they’re coming. That someone could just knock at your door and say, gimme 5k, gimme 10 k. Cuz that’s really what the deductible is, is fire happens overnight issue and you’re responsible for the first dollar. That’s your deductible of that loss. So a hundred thousand dollars loss, you gotta pay the, basically the first 5,000 i e the insurance company’s only gonna give you $95,000 to cover that. So if your answer is like a the amount I save over the seven years I’m gonna hold is more than the difference in the two deductibles I’m looking at that works. Or b hey, I’m in a really good financial little spot with this location that I’ll take the savings and if I have no claims happen, I’m even better for my investors or myself as the investor, but I’m financially okay that if I have to contribute the deductible at any time, it’s not gonna put my numbers outta whack.
It’s not going to, you know, cause me to have an issue with this risk and therefore I’m going to take the lower premium and that works exactly the opposite. I, it would be disastrous if I had to come up with 10 K right now, I right, this place could only really come up with 2,500. Well then you gotta maybe take the higher premium policy and that’s why I say it’s, it’s a business decision and people should look at it there. That has nothing to do with coverages. It is strictly the deductible is how much can you pay out, you know, in your portion. It’s, it’s, it’s your version of risk, right? Insurance is, is is all about risk, right? Like this is how much money we need to protect you for this. The deductible is, is the, is your risk, how much are you willing to take on of a claim if something happens, right. In exchange for a savings on, on your overall premium. Right? Got it. And that’s really how you should look at it.
So before we talk about OB a little bit here, to wrap up one last question. Short-Term rentals, there’s been kind of a, you know, uptick over the years with increasing interest in short-term rentals, you know, provided they’re in the right locations and whatnot. Is there any difference in the insurance coverages and policies that an investor should be getting for a short-term rental versus a traditional rental?
The simple answer is not as much a difference in coverage as it is. Only certain carriers will allow you to write a policy that is for a short-term rental. So again, if you’re working with a broker or a company, I’ll use us as an example, we’re gonna have certain paper, certain carriers that are okay with short-term rentals and certain ones that are, are not, there might be a little bit more of a price increase if it’s a short term. Cuz a lot of times it’s maybe an endorsement or something that you’re, you know, we’re marking as part of the quote that it’s, you know, a short term rental and instead of a $900 for the year, it’s a thousand dollars for the year. But from a coverage standpoint, you’re still gonna have the same coverages. It’s more of an underwriting or a eligibility type situation as it relates to the, the short term.
More and more carriers are getting okay with it or coming up with an endorsement for it or, you know, expanding into the Airbnb or the VRBO or B R B I always say B R B O, but I think it’s you, whatever. Yeah. They’re, you know, I think they say like verbal, but yeah, more, more more getting comfortable with that, that space, right. Because it’s, you know, most people are airbnbing or short term renting their, their spaces now it’s, it seems less and less of the long term. Yeah. Rentals by the day.
So we’re gonna have a conversation offline later about our company and OB and whatnot. Tell us a little bit about OB and what is OB doing from a tech perspective that it’s different from in other insurance companies. Cuz it’s just, it’s kind of refreshing to see what you guys are doing. I like being able to shop and self-serve rather than call and rely on somebody, but there’s a, there’s a place for that too. But tell us about Obie as an insurance brokerage and how they’re different from a technology perspective.
Absolutely. So, you know, where I kind of started the conversation, you know, here at the end is we are meeting you where you are or where you want to be. So we are using technology where you can go through our site. If you’re looking at a deal at [spp-timestamp time=”3:00″] AM and no broker is probably up and at your call you can go and get a quote. You can go and get a quote and bind a policy when you’re, you know, when you’re actually looking at a deal or you’re looking at analyzing a deal and you can do that through our site and a matter of minutes. So we’re adding technology to give you that ability. We are embedding, like I talked about in other areas, you might see us from your property manager if you’re using like, maybe like an online PropTech type company for your property management, you might eventually go into your portal and see on the right hand side, you know, get a quote from OB and we’re pulling data that’s already in there from that property manager to give you a quote.
And then for those who are, hey, I like the idea of technology, but I still would like a human, I still would like to discuss, we still do have that, right? Like, we’re far from getting rid of that space, we’re bringing technology for us, not because we feel like everybody’s gotta be forced into it or like that’s the only part of the future. We’re bringing it in because I think there’s a lot of people that can help, but we’re, we’re also realizing that there’s a lot of people who still want to talk to somebody or go through things or maybe they want to start out with technology, but they still would feel better to like review, you know, with someone. So we’re still can do both and that’s where really we’re probably gonna stay for a while is that we’re gonna continue to meet you either where you want it to be or in the medium of exchange that you, you know, you you wanna do.
Matt, if someone has policies in place that they’ve recently reviewed or renewed like within the last, you know, zero to six months on annual policies and they want to transition or switch, is that a difficult thing to do? What happens to the existing policies?
Very easy process. What I would say is, if you’re watching this, if you have a rental property, go onto our site, check all your rental properties or check a few of ’em, it’ll take you a matter of minutes. If you are either at a price that you like or you just in general would prefer to be over with our team, I am in all the social medias, you can get ahold of me under my name Matt Suka to you know, talk about it. My team’s available. We will step you through the switch. It’s very easy. You’re just either letting your current broker know that to cancel it on a certain date and you’ll get a prorated refund. Or you’re, if you’re already going through some type of like digital experience, you, you should have a portal let you go in and cancel. But in the one to four unit space at a, I’ll never say anything at a hundred, at a 99% clip, there’s usually no minimum earned or cancellation fees for the most part. So you should be able to cancel any time. So you would start the policy with us on March one or whatever and you would tell them to cancel your other one on March one. Very easy process and would be happy to do any handholding or any help that we, we need to do.
Cool. Well Matt, it’s been a pleasure having you on. I could talk to you for another hour about insurance related questions. <Laugh>, if you’re, appreciate it. So inclined, I know you need to get going. You’ve pretty much answered my last question. How can people follow you or get more information? Why don’t you you know, plug what you need to plug here and let people know how they can reach you in Obie?
Yeah, absolutely. So for quoting or anything in general, obieinsurance.com. OBIE is Oscar, Boy, Indigo Edward, and then insurance spelled out.com. And then my name is Matt Sutika, which I’m, I think it’ll show up right there. S U T I K A as of right now, and to my knowledge, I’m the only Matt Sutika in the innerwebs or maybe live in the world that I know of. If you find another one, actually please screenshot and send to me <laugh>, but I think I’m the only one. So I’m very easy to find on LinkedIn or Facebook or Twitter or wherever you’re, wherever you’re at. The only thing I not on is TikTok cause I still just don’t get it, but my wife does, right, <laugh> and yeah, I’d be happy to answer any questions or get you over to the team or, or help you out with your insurance.
Yeah, and we’ll put all that in the show notes on the website so it’ll, the links will be there. Easy to find you. Matt, thank you so much for coming on. It’s, it’s been very informative and yeah, let’s catch up later offline.
All right, thank you for for having me.
Thank you. Take care.
Well, that is our episode for today and this week. Hopefully you found it helpful. You know, it is insurance, but it is an important part of your investing strategy and it’s a person or organization or a company that you need on your team because insurance is something you have to have and it’s important. That is it for today. If you have any questions about real estate investing or investing in general, just submit them to me. I’ll cover them on an Ask Marco episode. Just go to the website at passiverealestateinvesting.com, click the Ask Marco button, and just fill in the form. Just shoot over your questions. I am a little bit behind, I have to be honest with you. If you are interested in real estate investing or anything that we talk about on this show at any time, just get in touch with one of our investment counselors for a free strategy session or just simply to talk about, you know, whatever is on your mind for five minutes and, you know, we can hopefully point you in the right direction. If you haven’t subscribed to the show, remember to do so. It takes you just a few seconds. Share the show with your friends and family. I’m sure they would appreciate it. Thank you for listening and we will see you all on our next episode.
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