Journey to Multifamily Millions

How Obie is Automating Insurance with Aaron Letzeiser, Ep 86

March 07, 2024 Tim Season 1 Episode 86
How Obie is Automating Insurance with Aaron Letzeiser, Ep 86
Journey to Multifamily Millions
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Journey to Multifamily Millions
How Obie is Automating Insurance with Aaron Letzeiser, Ep 86
Mar 07, 2024 Season 1 Episode 86
Tim

Today's guest is Aaron Letzeiser, Aaron is the Co-Founder & COO of Obie, a venture-backed insurance and risk management technology platform serving over 17 million real estate investors in the United States.

He emphasizes the relevance of replacement prices in a property's coverage, as well as the need to update them on a regular basis to provide adequate coverage. Aaron additionally highlights the importance of property insurers providing risk-reduction recommendations in order to lower or sustain premiums. 

Concluding, He advises investors to verify insurance amounts on property proformas and discusses the possibility for returns in high-rate conditions.


Episode Topics

[01:15]  Meet our guest, Aaron Letzeiser
[02:44] The Birth of Obie
[06:22] The Solution: Obie's Approach
[11:25] The Future of Insurance in Real Estate
[16:27] Common Mistakes in Real Estate Insurance
[19:27] Tips for Real Estate Investors
[31:25] What is one red flag every investor should look out for?
[31:47] What is a myth about the real estate business?
[32:56] Connecting to Aaron 


Notable Quotes

  • "At Obie, we empower real estate investors with clear insights and instant bindable quotes, making insurance a controllable expense." -Aaron Letzeiser 
  • "Accidental landlordship is a valid start in real estate. Clichés exist for a reason—real estate remains recession-resistant as people always need a place to live." -Tim Little 
  • "Frustrations led to Obie—addressing the lack of control in insurance. Customizability is key, especially in large commercial multifamily." -Tim Little 
  • "Commercial real estate evolved, but insurance markets lagged. Small real estate investors need risk advocates who understand their long-term goals, not just an upsell." -Aaron Letzeiser 
  • "At Obie, we filled the gap with instant underwriting for 1-4 unit assets. Technology brings transparency, predictability, and fair pricing to real estate insurance." -Aaron Letzeiser 
  • "In real estate insurance, avoiding investor mistakes is crucial. Understanding property specifics is key to risk management." -Tim Little 
  • "Underestimating replacement costs is the biggest insurance mistake. Investors must update policies to avoid being underfunded in case of a loss." -Aaron Letzeiser 


👉Connect with  Aaron Letzeiser

👉 Connect with Tim

Subscribe, Rate, and leave a review here 🌟
https://podcasts.apple.com/us/podcast/journey-to-multifamily-millions/id1634643497

Show Notes Transcript

Today's guest is Aaron Letzeiser, Aaron is the Co-Founder & COO of Obie, a venture-backed insurance and risk management technology platform serving over 17 million real estate investors in the United States.

He emphasizes the relevance of replacement prices in a property's coverage, as well as the need to update them on a regular basis to provide adequate coverage. Aaron additionally highlights the importance of property insurers providing risk-reduction recommendations in order to lower or sustain premiums. 

Concluding, He advises investors to verify insurance amounts on property proformas and discusses the possibility for returns in high-rate conditions.


Episode Topics

[01:15]  Meet our guest, Aaron Letzeiser
[02:44] The Birth of Obie
[06:22] The Solution: Obie's Approach
[11:25] The Future of Insurance in Real Estate
[16:27] Common Mistakes in Real Estate Insurance
[19:27] Tips for Real Estate Investors
[31:25] What is one red flag every investor should look out for?
[31:47] What is a myth about the real estate business?
[32:56] Connecting to Aaron 


Notable Quotes

  • "At Obie, we empower real estate investors with clear insights and instant bindable quotes, making insurance a controllable expense." -Aaron Letzeiser 
  • "Accidental landlordship is a valid start in real estate. Clichés exist for a reason—real estate remains recession-resistant as people always need a place to live." -Tim Little 
  • "Frustrations led to Obie—addressing the lack of control in insurance. Customizability is key, especially in large commercial multifamily." -Tim Little 
  • "Commercial real estate evolved, but insurance markets lagged. Small real estate investors need risk advocates who understand their long-term goals, not just an upsell." -Aaron Letzeiser 
  • "At Obie, we filled the gap with instant underwriting for 1-4 unit assets. Technology brings transparency, predictability, and fair pricing to real estate insurance." -Aaron Letzeiser 
  • "In real estate insurance, avoiding investor mistakes is crucial. Understanding property specifics is key to risk management." -Tim Little 
  • "Underestimating replacement costs is the biggest insurance mistake. Investors must update policies to avoid being underfunded in case of a loss." -Aaron Letzeiser 


👉Connect with  Aaron Letzeiser

👉 Connect with Tim

Subscribe, Rate, and leave a review here 🌟
https://podcasts.apple.com/us/podcast/journey-to-multifamily-millions/id1634643497

[00:00:00] Aaron Letzeiser: He felt like people didn't always need a place to shop, but they always needed a place to live. and that has continued, I think, to play out a little bit, especially over the last decade. and so watched him build that career, be able to invest alongside him, and really had a similar journey to a lot of the hobbyist or accidental landlords, right? You buy that initial condo. some folks that have turned to real estate as an alternative to the public equities market. so instead of selling that condo, you find a, find a tenant for the property, go buy your first starter home. that really, I think, kick started that journey.

 [00:01:05] Tim Little: Hello, everyone, and welcome to the journey to multifamily millions. I'm your host, founder and CEO of ZANA Investments, Tim Little. And on today's show, we have with us, Aaron Letzeiser. Aaron is the co-founder and CEO of Obie, a venture backed insurance and risk management technology platform serving over 17 million real estate investors in the United States. Insurance is definitely a hot topic right now, especially in my home state of Florida. So I'm excited to get into it, Aaron. Welcome to the show.

[00:01:32] Aaron Letzeiser: Thanks Tim. Thanks for having me.

[00:01:34] Tim Little: Yeah. And it's great to have you. So before we get into Obie and how it can help real estate investors, please tell us how you got started on your real estate journey and how you got to where you are today.

[00:01:43] Aaron Letzeiser: Yeah. So I got bought, I got bit by the real estate investing bug, by my brother actually who co-founded Obie with me. His background was real estate, private equity, right around the turn of the market doing a lot of grocery anchored shopping centers, Some offices, and got to a point, I remember having this conversation with him around like 2011, 2012. We're, He felt like people didn't always need a place to shop, but they always needed a place to live. and that has continued, I think, to play out a little bit, especially over the last decade. and so watched him build that career, be able to invest alongside him, and really had a similar journey to a lot of the hobbyist or accidental landlords, right? You buy that initial condo. some folks that have turned to real estate as an alternative to the public equities market. so instead of selling that condo, you find a, find a tenant for the property, go buy your first starter home. That really, I think, kick started that journey. so continue to invest primarily in the residential space, moving from that condo to a single family rental, up to multi unit buildings, right? Just continuing to grow and stair strap, through my real estate investing journey, which I think is pretty consistent with how I think a lot of people end up falling into this space. it's been a, it's been a fun journey and ultimately that's really what led us. Our own frustrations with the insurance process is really what led us to developing Obie.

[00:02:48] Tim Little: Yeah, and I certainly agree with you that your path is not dissimilar to a lot of people's paths, including my own, right? I was an accidental landlord for a little while. And, I use the term accidental as a qualifier whenever it's not intended to be an investment property, right? If it's just your house and you didn't buy it with cash flow in mind, afterwards, that's what I consider an accidental landlord. did that for a little bit cause I had to, not cause I wanted to. but later I went and, like you, bought a duplex and held on for that. for a little bit and then bought a triplex and saw all the benefits associated with real estate from tax benefits to cash flow to appreciation that really start getting exciting once you get into it and recognize it. And I think the other thing that You spoke of and some people think this is cliche that you know, people are always going to need a place to live I see a lot of people like, you know get down on that because they're like, oh, it's cliche blah blah That's not a good reason to invest cliches are cliches for a reason a lot of times they are true right, Even in down markets, you know That's why we say it's you know recession resistant right because nothing is recession proof But recession resistant because people still need a place To live even when it's apartments, right? They may be living in a B class But maybe they have to go down to a C class, but they're still living in an apartment. Maybe they get in with mom and dad, but that's a different story. So certainly understand those reasons talk to me about some of those frustrations that you experience with the insurance market specifically And how that kind of you know prompted you to start Obie

[00:04:24] Aaron Letzeiser: we were looking at our own P and L. And one of the things that, I think rang really true for us and, frankly rings true for a lot of our clients, both, in, in our current business, as well as previous is that insurance. Especially in the last couple of years, it has become one of the largest line item expenses that people have. But the one they always feel like they have the least amount of control and insight into, right? The word black hole we hear all the time, right? It's as if all these real estate investors know each other because everybody calls it a black hole and you can decide on your property manager. You can send your maintenance person, maybe a landscaper or somebody clear in the snow, right? You have the decision around that and you can play around with it if you want somebody that's a little cheaper, a little bit more expensive. Insurance doesn't necessarily always afford you those options and that, that transparency. And that was the biggest frustration. We wanted to be able to understand what the levers were at our disposal, depending on how our portfolio was built that year or how an asset might be built or how we might want to position an asset for a potential sale. And how do we want to make that look better on a proforma and ensure that we're increasing cash flow and NOI on a proforma basis. And so all of those things were always swirling around in our mind, but One of the things we knew about insurance was that the way that the industry is built even today without Obie is You're going out and you're filling out an application, you're filling out maybe a spreadsheet, you're sending all this information to your broker. And it's not them that, that they're basically just packaging that information up. They're sending it out to these carriers. And that's all well and good. And you get a couple of options that are back, but what we always wanted to know was what does this look like at a thousand dollar deductible? What does the price look like at a 25, 000 deductible? What if I want to add on some of these other, unique coverages that exist there? Every single one of those, because of the way the industry is currently set up. Is some poor underwriter sitting on the receiving end of those emails saying, Hey, I got this real estate investor client. He wants all these 25 options. Can you run all these and send me all the PDFs? Nobody wants to do that. The agent doesn't want to do that. The underwriter doesn't want to do it. And so it really always leaves the real estate investor feeling like they're not the master of their own destiny. That's what we set out to do. We wanted to put them in a position where they felt really empowered to make that decision and have really clear insights. And so that's what we built at Obie. Primarily, starting off in the single family rental space into a small multi unit building, we are now able to provide an instant quote that's bindable in just a couple of minutes, right? You can use an agent if you want to, you can talk to somebody that's at Obie, but we wanted to allow somebody to sit on a couch. On Saturday morning, if they wanted to and be able to get insurance without having to talk to anybody And get to that final checkout page and customize it to their heart's content, right? And they will dynamically see that price change and depending on how their situation is set up for their upcoming year Maybe they want to increase cash flow. Maybe they got plenty of cash flow coming in. They were able to increase rent So they're actually okay with you know with not trying to nickel and dime on the insurance. They want to feel a little bit more protected. That's a decision that they can make And then once they feel like they've been empowered to make that decision, then they can throw in their credit card, then they can sign it and bind it and pay for that policy and move forward. That's the goal of what we set out to do at Obie.

[00:07:13] Tim Little: Yeah, it's really interesting because it reminds me of car insurance, right? We're at the point with car insurance where we could go on our phone and get a quote within seconds just by answering some questions about the types of coverage that we want deductibles that we want. and it seems like that should be easily translatable to other types of insurance. but of course it's really not. it. It sounds like you definitely saw that gap and the frustrations like you were having of just not having any control over that process and the Bringing in the customizability, if that's a word, of that, cause yeah, I have to admit like sometimes insurance, especially with like large commercial multifamily can get pretty dense and complicated and convoluted. And there's sometimes when I didn't even know that, there's certain coverage needed for certain conditions, say you have a heavy value add, right? There's a lot of construction going on the property. I didn't know you needed additional different insurance for that. Compared to just the property itself. And of course, all those expenses start to add up. And if you don't even know to incorporate that into your underwriting, then you're gonna be in a world of hurt once that additional expense comes up.

[00:08:25] Aaron Letzeiser: Yeah. It's so true. We train a lot of our employees here to think like real estate investors, right? So I've had my insurance license for a really long time. I got it back in college to hustle my friends for their car insurance and their renter's insurance. It was good weekend beer money. So I had a sense of this market. But it's such an interesting dead zone, right? Because for so long, commercial real estate, right? Your office, retail, industrial, that was really an area that people were investing pretty heavily in. And then suddenly, in the 2000s, 2010s, people started buying up a significant number of single family rentals, right? Not on an institutional level, even though you had those players, but small mom and pops that were looking for an alternate to the public equities market. And the challenge was that the insurance markets just didn't keep up. So you have. if you're an owner with a duplex, triplex, quadplex, for most carriers, that's still sitting in their personal lines division. They added that on as an upsell, right? They want to get your home and auto and then they'll sell you the duplex policy, right? You happen to also have an RV or a boat or a vacation home. And so it just wasn't given a lot of love there. Whereas getting your home insurance or getting your car insurance that you mentioned, That's something that, that's had a lot of investment over the last, five to 10 years. And then on the opposite side, you have all this insurance, maybe not innovation, but a lot of competitiveness in terms of your large institutional multifamily, right? So everything that was becoming very popular in the 2010s, that's where a lot of investment went into. But then you have this large segment of the population, your accidental landlords, up to really your part time landlords, maybe retired folks that have started moving into the multifamily space. if you don't have a thousand units, you don't have 2000, 5000, 10, 000, right? The really large players don't really have a lot of time for you because they have, they're slammed with all the business on the institutional side. And so we just found such an interesting gap in this market where we said, There is a segment of real estate investors that we can see continuing to grow that no one is really addressing. And for so many of the folks that work at Obie, we really do try and educate them about why this matters, right? What is saving 1, 000, on a cap rate basis going to do the value of that property on pro forma, right? When you're talking to these real estate investors, this is what they care about. It's not just home insurance or auto or something else that somebody might've sold in the past. This is something that the people consider a business and they're holding it for either a long term hold period where the average right now is, about 5. 3 years for a lot of real estate investment assets. What do they care about? What do they care about when they're buying that property? What do they care about when they start selling it? And so how can we be more of a risk advocate and a, an insurance consultant through that experience to make sure that If they do want to talk to somebody and they want to strategize around their insurance that there's somebody here that Understands what it's like to be a real estate investor and understand what's really important to them.

[00:10:57] Tim Little: Yeah, absolutely. I'm curious as to how it actually works, right? Like you talked about the process with a broker where you say, Hey, here's my property. Here's what I'm required to have. Tell me what my options are, etc. And they go and they shop it around basically to the providers. So how does it work with Obie in terms of you being able to get that Quote that you can hold someone to who is the one that's I'm not sure the proper term underwriting it And how does how do you hold them? Accountable. I can't imagine there's a person that's just like looking at all this information really quick and we know how risk averse that the Insurance companies are so how is that happening on the back end?

[00:11:35] Aaron Letzeiser: Yeah, that's it. That's a great question So at Obie We started to develop our own insurance products right with our own carrier partners that are dedicated to this specific space And so you're right there. There's not an underwriter. That's just being really quick. We have invested significantly with our product and engineering team to develop instant underwriting. We're utilizing computers, right? At the end of the day, all an underwriter is doing is when any of your listeners are submitting that spreadsheet, they're going into their own Excel model, much like you're underwriting a property, and they're underwriting your specific asset from an insurance perspective. But all of that is just plugging in data points and getting something out of it. And so that's really all we did. We digitized the underwriting model, right? And so that's how for a one to four unit asset and really anywhere in the country, you can produce an instant quote. as long as it's under, about a million dollars in replacement costs, which most of the one to four unit properties are, you can really pull that quote, right? Unless it's some, again, you're sitting right on the beach and in South Miami. There are a couple of counties, obviously you mentioned Florida, a couple other places that are, that take a little bit more time than instantly, but for 98 percent of the properties, the single family rentals up to a four unit building, we can do those instantly online. And Just a couple of seconds. anything that's over five plus, it just takes us a little bit more time. we're usually doing that internally. We're trying to actually underwrite it, move through that process. Somebody actually needs to look at it if it's a 50, 150, 250 unit deal. We usually want to have eyes on that, but it's really just about creating that efficiency. and it also removes, I think a lot of the bias around. and it allows us as well to give a clear answer then to the people that come to us. The price is the price right? There's no broker that's going to be able to negotiate. We wanted to build a fair and competitive price. That way people know that what they're seeing is actually like what they're going to get, right? It doesn't come down to the relationship your agent has, or somebody might be able to haggle on it a little bit more. We wanted to give you predictable pricing and then allow you to customize those different options at the end of that process. So it's really about building technology into a space that can provide the level of transparency and immediacy that people are, I think at this point, looking for.

[00:13:32] Tim Little: Yeah, and I think you raise a good point, right? underwriting, it, and, whatever. It's all about data. they're looking at what is the status of this, and there's probably some scoring element to that, and all of that can be done by machines. I guess my question would be why aren't insurance behemoths doing this already in order to save themselves both time, man hours, et cetera. Like, why is that not the case? And then the follow on would be, what is different about multifamily other than the scale that requires that human touch?

[00:14:06] Aaron Letzeiser: Yeah. I, we could have, there, there's not enough time in the day to talk through why I think the traditional carriers are, run the way that they do. I think again, it's this interesting blank space where all of your really large carriers have spent so much time on the large institutional class of multifamily. And so they're not really going to come down and say, Hey, we want to start working in the 50 unit space and a hundred unit space. And then we want to build technology around it. Because their bread and butter are the really large programs that they put together. And you're never going to be able to do that instantly. You're just never going to be able to build technology around that. And then on the smaller end, right? Your single family rental is your duplex, your quadplex. Those are still sitting with your personal line carriers. Their focus is on home and auto because they don't need to invest there because they know that, if you buy your primary home and your auto, Tim, there's a higher percentage chance that you're going to buy your investment property insurance with them as well. You buy an RV or a boat or motorcycle umbrella, they're okay with that because they haven't spent a lot of time or money investing into that product development. And so it creates this interesting chasm in the market that just has really gotten ignored. The second part of your question is really around. your larger multifamily, depending on where it's at, the larger the building, the more exposure that somebody has. The more expense might be there if the thing unfortunately burns to the ground, right? which nobody ever wants to have happen, but I've seen it happen, right? That's the purpose of also having insurance. And insurance companies are, I don't want to say happy to pay out the claim. they're okay with paying the claim, but they want to make sure too that they've diversified a lot of that risk. And so the reason that as the multifamily properties get bigger, you want to have somebody look at it is you want to say, all right, what does our concentration risk look like in the same area, right? What does the condition of the property look like? For a lot of our folks, it's, it's multi building properties, right? It's your garden style, three stories, right? Maybe 20 to 30, 40 units per building, maybe less, right? You have multiple buildings on that site. What are the conditions of all of those, right? You replaced a couple of the roofs, but we haven't replaced all the roofs yet. We can use technology to speed that process up, but at least we continue to make those investments at Obie to make that process easier. We also need to make sure that Obie is going to continue to stick around, the year after and the year after that. And so that's where we want to make sure that somebody actually has some eyes onto a lot of those, a lot of those assets, as we continue to try and drive really good pricing into the market.

[00:16:15] Tim Little: Okay, yeah, that makes sense. I wasn't thinking of it from the perspective of the portfolio of the carriers themselves. They need to look at their portfolios and ensure that the risk is balanced. So that makes a whole lot of sense. Alright, going into real estate investors. What are some of the biggest mistakes that you are seeing real estate investors make when it comes to buying insurance? 

[00:17:12] Aaron Letzeiser: The biggest one right now I would say is on replacement cost. So for the last several years, pre-call it 2022, inflation wasn't a big thing. You didn't have the, some of the crazy weather events that have happened now in Hawaii and California and, the winter storm that hit Texas a couple of years ago that nobody was really expecting. And so replacement costs didn't really come into play, right? We had people that might've bought a policy, even the large multifamily owners bought a policy when they bought the place maybe five, six years ago and never actually updated the coverage. it just continued to renew the agent. They continue to use the original application. You've never said anything about it because you probably don't know, you don't know any better. and the problem is that with material costs going up with inflation of lumber and material prices. and I think some of the unpredictability of a lot of the different claim events that have been happening, it's driving insurance carriers to be a lot more aware, and a lot more concerned with how much coverage they're actually putting out and what is being covered on these properties. So there's really no place within the U. S. that you can. substantially rebuild your property for less than 120 a square foot. There are single and multifamily investors that bought a policy three, five, seven years ago that are still at 65 a square foot. They just never updated it, right? They never thought about it. and that's the biggest piece. is that when you update it, what you really need to do, because if you're paying for insurance, you want to actually get something out of it. So it's going to increase your premium, right? Without really having to do anything else, without filing a claim, your premium is going to increase. And it should, if you want to pay for the insurance in the first place, right? Otherwise you're paying for nothing. Because what ends up happening, and it's a tragedy, is that you have the worst happen. You have a total loss that burns to the ground. 95 percent of people have debt and leverage and a loan on these properties, right? And so the bank's gonna look at this the carrier's gonna come back and say hey the limits are underfunded by 30 percent, right? We're not gonna be able to rebuild the entire place. The lender's just gonna say hey, you know what time just cut me a check, right? I just want my check for my portion and I'm gonna move on and so the insured is left with Their portion of whatever equity they had in the property, right? And then just a burned out structure and land because the bank just said, Hey, I don't want to be involved in the rebuild. This sounds complicated. They're going to nickel and dime us because there wasn't enough insurance on here. I just want my check. And that's the biggest thing. if I can impart any piece of advice on your listeners, it's. run the total amount of building coverage you have and divide that by your square footage. And if that's coming anywhere below, 120, 110 a square foot, ask yourself if you believe that's enough to actually rebuild the structure and the condition that it's currently in.

[00:19:40] Tim Little: Yeah. And it's weird because I would never underestimate the greed of an insurance company. So I find it surprising that it wouldn't be part of their nature. processes to, with some level of frequency, whether it be annually or otherwise say, Hey, what do you estimate the property to be worth or, so that one it's in the best interest, like you said, whether we like it or not of the owners so that they're properly insured, but also obviously for the insurance companies so that they get those increased premiums.

[00:20:09] Aaron Letzeiser: Why do you think that's not happening? It's really a couple of things. I would say the first part is. Up until the last couple of years, I don't think a lot of carriers were as attentive to inflation costs as they used to be, right? If they agreed with you, right? There are carriers out there that say, hey, you know what? You put in a replacement cost and the carrier agrees. So no matter what inflation happens, right? no matter the impacts on claims or anything else, like they're on the hook for it, right? You and the carrier have agreed. This is the amount that, you know, that we're going to cover it for. And in the event there's inflation, in the event something crazy happens, carrier's still on the hook. And so I think for the first time, they're actually really paying attention to it. And I think the trickle down effects of that are that your lender is also finally paying attention. The lender is finally looking at it, page 40 or 50 of your loan covenant documents. Arbor is finally paying attention to this, right? Your rep at Bercati or some of the other folks, they're finally paying attention to those limits because they're also getting the brunt of the situations where they're underinsured. And I think the final piece at the carrier level as well is that The person that actually cares about the profitability of your book, right? Meaning the person that actually really wants to make sure that they're driving even more premium through the door is not usually the underwriter. That's usually like your business development rep, right? That's your front end person. The underwriter, if they're looking at it, they're saying, fine, I'll give you a rate at 60 a square foot here. It is right. Cause they know that if something happens, they're not. They're not paying as they don't have a long claims period. They don't have to sit around waiting for labor, with labor shortages or anything else. They don't have to wait to get this property back online. They're not going to pay out loss of rents, because you're waiting to reconstruct the property over an eight to 12 month period. They figure, hey, Tim wants it for 80 a square foot. Here's the quote. and the business development rep is thinking, Hey, this is a cheap premium. It's coming up on renewal. I don't want to shock him with a 20 percent increase because inflation is coming in. It's crazy. Here it is. Here it is. Mr. Broker, please go sell this. let's bind it. and so everybody's really focused on their own individual KPIs, but it's really the investor at the end of the day that gets impacted by that. and that's the biggest thing, right? Make a decision about the type of investor you are when it comes to insurance, right? Do you want a higher deductible, but you're really only going to use it if the, if the worst happens, right? Or do you want a lower deductible because you're going to, you're going to use that insurance, right? You believe insurance is there to be used. Even if you might have subsequent increases the next year, you're willing to stomach that because You believe insurance should be used both of, not either one of those are wrong or right, but we have seen people that have kind of bare bones coverage at a thousand dollar deductible, right? It doesn't make a lot of sense. you're paying for a deductible, meaning you want to use it. But you're really covering nothing, right? And then we see some people with a 50, 000 deductible, on large portfolios, but they want everything covered. And they're like, you have a shingle out of place. like you're not going to pay the 50 grand unless you're going to replace the entire roof on that thing. And so it's like, why do we want to do that? And so the more that we can create specialists in this space and make sure that, you as a real estate investor find, whether it's Obie or anybody else, but find a specialist. That really deals primarily in their insurance practice inside of the real estate investor community, especially habitational. Those are the people that you want to go to because they understand this dynamic and the things that are really important to you.

[00:23:13] Tim Little: Yeah, and I think you're right. Like in terms of being able to get that customization, that's important, depending on the type of deal that you're doing right. If you're doing, Class A. Property that doesn't need any renovation. You're going to have cash flows from the get go Then you won't be as concerned necessarily about you know paying the the deductible up front, but you know Say if you have a value add deal where you know that within year one and year two Those cash flows are going to be slim to none You know, until you get to like your theme. maybe you can, have that lower deductible those first couple of years and then shift things that shift that policy once that cash flow starts to come in.

[00:23:55] Aaron Letzeiser: Yeah. you're exactly right. And you want to be able to get a sense of it. What's important, right? and I think that the two biggest drivers of price for insurance, number one is that property coverage limit, right? So really going back to how much does it cost to replace the whole thing and then deductible is going to be your other one, right? So really making, again, that decision about what type of investor you are. But I think regardless, the second thing that I think people should really focus on in today's insurance market, especially as a real estate investor, depending on where rents are coming in at, some of them are stabilizing, some of them are coming down in some markets is. How do you ensure that your insurance prices are not going to go up by anything more than is outside of your control already? So we can't deal with inflation. We can't deal with the broader insurance market. But don't give insurance carriers a reason to increase your premiums even more or to even potentially drop you, right? if a liberty mutual travelers or a specialty program decide hey, we don't want the renewal, right? the other carrier is going to wonder why right? And so one of the things that you can do When you're working with your tenants or protective measures within your asset that you can take to make sure that any of those claims that might be in your control can't stop a hurricane. But maybe there's some things that you can do to try and limit the potential damage one day of a kitchen fire, right? Or water backup issues inside of your unit, water and fire, the two biggest tenants caused issues in a property. And so what are the things you can do? One of the, one of the big pieces that we always advocate for, there's this thing called fire stops, right? we're a big fan. We, I've got no investment in this company other than I really like it. It's like a magnetic hockey puck and it sticks right above the,above the stove or underneath the vent to the, the, the microwave. And if it gets too hot in that stove, it actually widely disperses a powder that will immediately extinguish a fire. It's like a 20 hockey puck. It lasts for five years, right? You put it up there, the tenants don't even notice it, right? Like that's a great protective measure because kitchen fires are going to cost you 30, 40, 50, 000. You're going to have to make that claim, right? That's what insurance is for, but now you have something on your loss history, right? Now the carrier is going to look at it and say, do we want to keep covering Tim or not? Those are the types of things that you can do. and there are also others. Really? I think new and novel insurance products are going to come out where they might cover up to a certain amount of tenant specific damage, right? So that way you can get a separate policy that is usually a couple of dollars per unit per month. Most of our clients end up just passing it along to their tenants cause there is some tenant coverage there as well. And it's really cheap coverage where the first 50, a hundred, 200, 000 in tenants cause damage will go on this 0 deductible policy that you can use. So that way you don't have to make a claim on your primary coverage that then gets reported as you go through your renewal process. So there's always these different strategies, again, with an insurance specialist that, that really specializes in this space, that can help you, I think, mitigate ways of decreasing or at least maintaining the amount of premium that you're paying on an annual basis.

[00:26:39] Tim Little: Yeah. And that's some really good insight. And it's always going to come down to. the specifics of the property to write, in terms of what recommendations you might have, to drive down those costs and the risk, because that's what insurance is for. It's for risk. so I think that's really important. I hadn't heard about the thing that shoots the dust down to put out fires. We probably should.

[00:26:59] Aaron Letzeiser: Yeah, we hadn't either. It was genius, right? It was, it was, by developed by this company, it's been around for a little while and, we started asking them prices and, you're like, 20, how much it's going to be, how much it's going to cost, how long does it last and yeah, it's 20 per unit and it lasts for five years and, we ordered them for all of our units because I don't want to have to rely on the fact that yes, I showed them where the fire extinguisher is. Yes, it's right underneath the sink. That's two feet away from the stove. One of the other things that I can do here because. Inherently, what I have learned as a real estate investor, which, especially the accidental landlords always learn very quickly, is that tenants will never care for your place the way that you cared for it, right? Especially in the unit that used to be your own primary home. What are the things that you can do? To try and control the outcome of this situation where a tenant might say, Oh, kitchen fire. I'm going to run out, right? I'm not going to try and deal with it. I'm not going to do anything. This is a scary fire. I don't blame them. And they just run out of the unit. And suddenly the place just starts going up in flames. One of the things that I can do as an owner is to try and be proactive with that, and try and mitigate that because I'm more of a, Yeah. I would take a lower deductible type person.

I want to get coverage. I want to sleep well at night knowing that hey, I've done the things that I can do. And I also have insurance there to help support me in the event that something else goes wrong.

[00:28:12] Tim Little: Yeah. And, So we talked about the fire aspect because that's one of the most common issues. We just had a fire at one of our apartments. Luckily, it was somewhat localized to only a couple units and didn't wind up taking the whole building down and no one got hurt. So that's the most important thing. But what about security? Is that something that insurance companies look at and what are the recommendations, when it comes to that? Because part of that is legal liability, but then there's also the insurance liability aspect, whether it's cameras or whatever. I want to hear from your side, what they look at.

[00:28:46] Aaron Letzeiser: Yeah, I would say the biggest things that, you know, on the larger, like multi-family or community, obviously,gated communities, lights. key card access,or at least controlled entry. Those are the biggest things I would say from a safety and security standpoint, the central station burglar alarm, for some of the common areas. Again, this is really dependent on the types of assets as well. You're going to see a lot of the higher end security measures at a class A building. Some of the other things are just automatic locks. controlled access to the building, lighting on the parking lot, deadbolts on the doors, right? potentially units with some type of connected or even local,entry alarm, right? Those are some of the things on the security side. I would say as of the last couple of years, the biggest focus in the multifamily space has actually been around, condition of the property as well. trying to help to advise and consult a lot of these multifamily owners on some of the things that will drive down their premiums. So when can we replace the roof? Is there aluminum wiring, right? Aluminum has become really big, even if it's mitigated, right? For a long time, everybody's been okay with mitigated aluminum. now a lot of insurance carriers are just saying, Hey, we gotta remediate the whole thing. stab lock breakers, right? As opposed to the, your circuit panel, some of these types of items are some of the bigger, the bigger pieces that are going to help to drive down, insurance premiums. And I would say the last thing is you have a lot of novel concepts that are coming out right now, like leak detection, some of the other things, the broader insurance market, because of how long it takes them to make a change, just inherently. Insurance is a risk averse industry. They wait for a lot of data before they make a single change. The joke in insurance is 10 years of policy history and 10 years of claims history to make a single change, right? And so I think a lot of these things will actually be really helpful, but insurance carriers don't know how to underwrite them yet. So they might say, Hey Tim, I love that you have leak detection. That sounds great. Anecdotally, I'm sure that's going to lead to less claims for you and less claims is good for you, but I'm not going to lower your premium as a result yet. and so I think that's going to be the challenge and that's where I think technology companies are going to help force. Insurance companies, I think, will level up, and get to a point where these things can be measured. As the impact comes in, we have clients all the time that send us something and say, Hey, I just installed this great thing. I think it's going to be great. And we have to say, yeah, I think it's going to be great too, but I can't lower your price yet. the actuarials that kill me, if I lower your price, without a lot of data. So I think that's where the market's moving. and I think overall it's beneficial. But I just don't think carriers know what to do with it yet.

[00:31:07] Tim Little: Yeah. It just takes time for that, that data to flesh out enough for them to take it into account. All right. Hey, this has been some really great insight. We do need to move on to the turbo round though. So I'm going to ask you three questions that I ask every guest on the show. And I just asked for a quick, honest answer. Are you ready?

[00:31:24] Aaron Letzeiser: I'm ready.

[00:31:24] Tim Little: right. First question. What is one red flag? Every investor should look out for.

[00:31:30] Aaron Letzeiser: one red flag. what the I'll keep it with insurance. What the seller is paying for insurance. go ask your broker if that's actually real or if that's a fairy tale on that proforma.

[00:31:39] Tim Little: Yep. I agree. just like with everything, the seller tells you they're paying

[00:31:44] Aaron Letzeiser: Yep.

[00:31:45] Tim Little: verify. okay. Second question. What is a myth about this business that you would like to set straight?

[00:31:51] Aaron Letzeiser: Ooh, that you, you can't make money in a high rate environment. I think there are still deals abound. not as many as you might have in a bull market, but even right now, there are, there, there is opportunity out there if you're looking.

[00:32:01] Tim Little: Sure. And we didn't have time to get into, the exponential jump in costs associated with insurance in some locations like Florida, where some properties have seen it double or even triple. luckily we haven't been in that situation with the one property we have. I know it went up by 50%, year to year and that was considered good. so a lot of challenges, but there's always deals out there. you're absolutely right. All right. Final question. What does success look like to you?

[00:32:29] Aaron Letzeiser: Success to me looks like fulfillment in the things that I'm doing. still having fun. I'm still having fun in this business and that, that's what gives me fulfillment. That's what makes me feel successful in my job every day.

[00:32:38] Tim Little: There you go. My wife keeps asking me when I'm going to get out of the army reserves and I just keep telling her when it stops being fun, otherwise, Why bother?

[00:32:46] Aaron Letzeiser: I know, they didn't get to find a new

[00:32:47] Tim Little: Yeah, exactly. All right, Aaron. Hey, this has been awesome. Please tell our listeners how they can get a hold of you. And if there's anything else that you'd like to share with them.

[00:32:56] Aaron Letzeiser: Yeah, you can find us at obieinsurance.com. That's obieinsurance.com. You can also email me directly. I can get you connected with the right person. The email is aaron@obieinsurance. com.

[00:33:06] Tim Little: Great. we'll certainly have all that contact information in the show notes. Aaron, again, I appreciate you coming on and I look forward to continuing to see you do big things on your journey to multifamily millions.

[00:33:18] Aaron Letzeiser: Thanks, Tim.

[00:33:18] Tim Little: Thank you.