1. Specialized Insurance is Key for Investors: Real estate investors need to understand that standard home and auto insurance policies are not designed for investment properties. Specialized insurance coverage is essential to address the unique risks associated with being a landlord, such as loss of rental income and specific peril coverage. Working with an insurance agent who understands the rental market and investment properties can lead to more appropriate and cost-effective solutions for investors.

2. Regular Policy Reviews and Adequate Coverage: Landlords must regularly reassess their insurance policies to ensure they are adequately covered, particularly for property replacement costs in the event of total loss. Insurance policies should be updated to keep pace with inflation and rising construction costs to avoid financial disaster. Educating tenants on fire safety and other preventive measures is also crucial to minimize risks.

3. Managing Insurance as Portfolio Grows: As a real estate portfolio expands, it becomes increasingly important to streamline insurance management. Investors should consider scheduling insurance for multiple units, which simplifies renewal dates, billing, and ensures coverage consistency. Aligning deductible levels with risk tolerance and investment strategy is also highlighted, where higher deductibles can result in increased net operating income for those willing to assume more risk. Renters insurance is also important to protect both tenants and property owners from potential damages.

00:00 - Vikas Gupta (Co-host)

This is the Hacking Real Estate Podcast, season two, episode nine. 

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00:05 - Aaron Letzeiser (Guest)

Make sure you got enough coverage, make sure that your replacement costs can rebuild the property. That is the worst thing that happens to people is when they wake up and realize man, I haven't looked at my insurance in five years. Take out that debt page. Take out the policy. Give it a quick read, make sure you're good with it, make sure you're comfortable with it. That is the biggest piece of advice I can tell people. 

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00:25 - Brandon Hall (Co-host)

Welcome to the Hacking Real Estate Podcast, where we dive into the stories of seasoned, hands-on and tech-savvy real estate investors. We'll learn the strategies and tools they use to maximize returns and minimize hassle, all while navigating the rapidly changing real estate market. I'm your co-host, brandon Hall, and managing partner of Hall CPA, and I'm sitting alongside my co-host, vikas Gupta, ceo of Azibo. With our combined 15 years of experience in real estate investing and entrepreneurship, we're here to help you up your real estate game. Let's get hacking. 

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00:57 - Vikas Gupta (Co-host)

Hi everyone, welcome to today's episode of the Hacking Real Estate Podcast. Our guest today is Aaron Letzizer. Aaron is the co-founder and chief operating officer of Obie, a venture-backed insurance and risk management technology platform serving the 17 million real estate investors in the United States. Prior to founding OB, aaron started and grew successful companies that he's seen to an exit. In addition to his work at Obie, he is an active real estate investor and a venture partner at the San Francisco-based VC Group Pioneer Fund. He graduated from Michigan State and was named to the Forbes 30 under 30 list. Aaron, welcome to the show. 

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01:39 - Aaron Letzeiser (Guest)

Thanks guys, Glad to be here. 

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01:41 - Vikas Gupta (Co-host)

So, in your own words, can you tell us a little bit about your real estate journey? 

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01:47 - Aaron Letzeiser (Guest)

Yeah, I got started investing in real estate my brother, who's now my co-founder at Obie actually, his background was real estate, private equity and right around the turn of the market he cut his teeth in office and retail. And right around 2008, 2009, when everybody else went through their experiences of the downturn, he figured people didn't always need a place to shop for work, but they always needed a place to live, and that's something that I think has always really stuck with me over the course of probably the last eight to 10 years since I've been investing. So we started investing together. He spent a lot of time in the multifamily space. 

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02:23

I sort of dipped my toes in, as probably a lot of your listeners did which is you buy your first condo, you put a lot of sweat equity into that place, you're really proud of that first condo and you decide, hey, like market's not too bad, why don't I put a renter in here when I go? 

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02:39

And I buy a first starter home and then just kind of continue that journey. So that's really where it started for me and I will say that that first rental unit, like most, was probably the most stressful. Right, that's the one where you're trying to figure out how to screen tenants correctly, where to post things, who you're getting through the door, how to build that process. You know how to do the walk flow or the walkthrough and make sure the tenant knows where the fire extinguisher is. I appreciate that on the insurance side. So that's really where it started and then from there continuing to get comfortable, picking up some additional units, primarily around where I lived, felt a little better investing in areas that I knew and then slowly continue to get more comfortable in the space, started investing opportunistically in other emerging markets that Ryan and I felt were pretty attractive. 

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03:27 - Brandon Hall (Co-host)

And where are you at today? 

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03:28 - Aaron Letzeiser (Guest)

So today we've, I would say I would say running Obie has been our primary focus, so we've actually whittled things down, at least for me personally. We're down to probably eight to 10 units at this point, across like the Midwest, and then the Carolinas, a place that I'm still super bullish on. I just I frankly don't have the time to be putting into trying to go out and scour the market for those assets. So we're buying and holding investors, you know, primarily holding on to stuff long term, you know, and getting comfortable with where we think the other markets are going to be at and how we can continue to optimize those assets in the markets that are emerging. 

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04:10 - Vikas Gupta (Co-host)

I know Brandon's a big fan of the Carolinas. 

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04:14 - Aaron Letzeiser (Guest)

Nice. 

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04:16 - Brandon Hall (Co-host)

Yeah, I live in Raleigh, North Carolina, and I have yeah, I've got 25 units in North Carolina, so big North Carolina fan. 

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04:24 - Aaron Letzeiser (Guest)

Yeah, I mean I love everything around that area. I mean, raleigh Durham's obviously grown a lot. You know the Greenville area, ryan, when he first got it started in his multifamily career, he was living in Charleston and there was like a there's a ten unit building in Charleston that, like we back in 20, probably 2011, 2012, we just couldn't get comfortable enough with it. Right, brandon, we're like man, it feels a little too expensive and the thing has like three or four acts in the last like eight years. Right, like it is the one deal that we constantly kick ourselves on. That we're like man. We're just we were too young, too green and like just couldn't get over the mental hump of thinking that it was just a little bit overpriced. But, man, yeah, I love everything about the Carolinas. I think that it's a market that's going to continue to have really nice appreciation over the next couple of years. 

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05:16 - Brandon Hall (Co-host)

Yeah, I bought a property, a three unit property in Hickory, north Carolina, back in 2015 for $91,000. In Hickory, north Carolina is like nothing to write home about. I mean, it's like, you know, tertiary, not much going on, but that property is now it's tripled in value, which is incredible. I've never, never, expected it. So, yeah, north Carolina's had had a pretty good run here, as of late I've been. I've been happy with it. 

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05:45 - Aaron Letzeiser (Guest)

Do you know the? Do you know the half back phrase? 

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05:47 - Ad (Ad)

No. 

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05:48 - Aaron Letzeiser (Guest)

I only heard this. When, you know and Ryan was living down there, but only only from, like, a certain certain communities folks. So you know a lot of folks that were in the north, right, they started to get to an age where their kids are grown up, they're moved out. You know, they want to move down to Florida. They get down to Florida and they're like, wow, I can't do Florida, right, it's too hot. And then they make it halfway back, right, and the Carolinas, right. I don't know, maybe Ryan coined that term, he's going to trade market but, yeah, like half backs, right, they made it halfway back to where they were at and people love it. I mean, everybody that we know that's down there has just really, really enjoyed, really enjoyed the climate. There's a ton to do. You got a ton of research institutions that are down there. Like it is, it is a prime spot for real estate investing, even, even still to this day. 

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06:35 - Brandon Hall (Co-host)

So so in the Raleigh area there's a, there's like a subset of Raleigh called Cary, north Carolina. I don't make this joke, but but some people make the joke of it's the centralized area for relocated Yankees, yeah, yeah. So maybe there's some, maybe there's something to the half back theory that you're talking about there. 

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06:58 - Aaron Letzeiser (Guest)

Nice, nice, that's great. Yeah, no, I, I love it. It's a great market. We still got some stuff in Charlotte, north Carolina, back when, like, the uptown area of Charlotte was like just starting to to really develop. It's great. You got a bunch of like bankers and finance professionals that are never home. So you go into these units and they're like, wow, the thing looks like the day you guys moved in. If you never use the stove, that's great. Right, like that is your. That's the ideal tenant. 

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07:27 - Brandon Hall (Co-host)

So you mentioned, before we got on onto this, like diatribe, you mentioned that as an insurance guy, you like to know that the tenants know where the fire extinguisher is, what's like a common mistake that landlords make when it comes to insurance. Perhaps it's like maybe the top three. I'm sure you have several. So let's, let's, let's walk through some of that. 

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07:51 - Aaron Letzeiser (Guest)

Yeah, I mean, since I already gave you one, I like making sure that the tenants are aware of the safety items inside of your place, right? I don't think hopefully it doesn't come as a shock to any of your listeners. If you're a real estate investor out there and you're listening like you'd be surprised by anything that some of your tenants can do. But both from my own experiences and just as a you know somebody running an insurance company, there are a lot of people that are moving into your houses that are apartments, whatever they might be, your rental properties that have no idea and have never used a fire extinguisher a day in their life, right, and so their immediate reaction is to run out the door instead of grabbing the fire extinguisher. That's like two feet away from them, next to the stove, underneath the sink. Pull the pin, spray it on the fire, right, like, take care of the fire. But I mean there's a lot of people that just they've never done it, they don't know where it's at. I think as landlords we take advantage of the idea that people should have like that common sense, that knowledge base. So that's the first one. I would say on a more like technical basis, you know, double checking your replacement costs on any of your bases. That's the biggest one, I think. Both of those are as a real estate investor and just an insurance person. As inflation costs go up, as prices continue to rise, making sure that the price per square foot that that comes out to is something that you're really comfortable with, that you can rebuild the property, because we don't want to have to happen which I think happens to folks a lot is, you bought your property five years ago, you got your insurance five years ago and it just continues to renew, right With whatever carrier it is. And one day you find out that like wow, I could, I could rebuild that place five or 10 years ago for $85 a square foot, and I definitely can't do that anymore. And the worst, right like the worst case scenario, is that you have that total loss and you know you look at the total amount of the limits that are on there and the bank, who also owns your mortgage, they just say, hey, listen, just just put me a check for my portion, right, this isn't enough to rebuild the home, just give me what I'm owed and they and they walk away, right, so you're getting maybe 30, 40% spending how much equity you have in that place, you get in that percentage of the check and then a burned out piece of land, right that you got to, you got to clear out, you got to remediate, you got to rebuild and there's not enough there, right and like that. That's the worst case scenario for folks. So you know, those are my two biggest things. 

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10:19

Make sure that you're taking active steps to mitigate anything that might end up happening in the property. You don't want to make a claim when you don't have to. You can't can't control the weather, you can't control a tornado coming through, but you can at least try and make sure that the you know, the water or the fire incidents in the property can be taken care of. And then I mean, heck, if you're, if you're paying for the insurance, make sure you got enough of it right. It might hurt your bottom line a little bit for an extra 50, 100 bucks, but there's some other things you can toy around with. You can play around with the deductible, you can get comfortable with your insurance, but make sure whatever you're paying for on that insurance is actually going to cover the bill in the event the entire place burns down. 

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11:38 - Vikas Gupta (Co-host)

So you used a couple of more technical insurance terms there. For those who may not be as familiar, can you tell us a little bit about replacement costs versus what else they may be quoted on, just so they know that when they see two policies and one is two quotes and one is wildly cheaper than the other, what's going on there? 

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11:56 - Aaron Letzeiser (Guest)

Yeah, I mean to be as overly simplistic as possible in the caveat that, like, read the policy doc or talk to your agent, find an agent that really specializes in this space. Replacement cost is the limit and the amount of insurance that you and the carrier agree is the amount that it's going to take to rebuild that property. So if you're looking at it, you're taking that total limit. On your policy documents. It might be labeled as cover J. You want to divide that by the total square footage in the property. If you're seeing anything less than $120 a square foot, you got to ask yourself your own comfort level question Are you an investor that's trying to preserve a little bit more cash flow? You're willing to take that risk this year. That's okay, but there's probably not a single property that you can rebuild in the US that's below reasonably $120 a square foot. That's taking into account some of those extra construction costs and that inflation, some of that remediation that you may have to do to clear out the damage before you actually start repairing the property. 

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12:54

The other one, in a really simplistic way, is actual punishment. Think of that as something happens. Just cut me a check. I'm not involved in the repairs the other things that might actually happen. As simple as it sounds like, you're getting the actual cash value for what you and your insurer agreed upon. That may end up, depending on how you want to structure it, that could be pennies on the dollar for what it might take to rebuild it, but you've made the decision, based on your strategy as a real estate investor, that you're okay with just getting that check. That's something that, as you mentioned, it can have a material impact on the overall price of that. Getting really clear on that and, again, working with an agent that specializes in this space there's a lot of them out there, but it's not always the person that's just doing your home and auto. You really want to understand things from a perspective of a business owner, as a rental investor, and the nuances of that policy. 

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13:51 - Vikas Gupta (Co-host)

Yeah, tell us a little bit more about that, like why I mean you've given us a little bit, but if you could get more specific about like I got an agent. I've been buying insurance from him for 10 years, buying my home, buying my auto. He's taken good care of me, knows me, knows my family. Why shouldn't I go to him for my investment property? 

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14:12 - Aaron Letzeiser (Guest)

Yeah, I mean it's a great question, I would say, and there's nothing wrong with those agents. Usually they do a great job at home and auto and life and umbrellas right, like they're taking care of you as the personal lines insurance that you need. But I think most real estate investors would agree that they're managing a P&L right. You look at that as a business. You look at your costs for insurance very differently than you think about the insurance for your home, right, and so because of that, there are agents that are out there that they do a lot of home and auto and so those are the carriers they have access to right the names that you see paying for super bulk commercials and more often than not it's okay coverage right. It's usually their home product that they've kind of modulated a little bit so it can apply to this circumstance, but it's not always great right, and it also doesn't mean that it's always priced really competitively either. 

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15:04 - Vikas Gupta (Co-host)

What does that mean? Actually it's hard to catch, but what is okay? Coverage, but it's not always great mean beyond limits and deductibles, like. Are there like exclusions? Are there endorsements? Are there specific perils that someone who's more familiar with investment property would make sure? Or, sorry, a carrier that's got a specialized product would make sure they cover? 

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15:25 - Aaron Letzeiser (Guest)

Yeah, I mean it's a great question. I think that there are certainly its coverages, right, and there's endorsements, there's language, there's extensions of that coverage that I think are really specific to the real estate investor community. The things that you really care about right, you know that loss of rental income and the you know the circumstances upon which you can actually collect. On that enhanced water backup coverage, right, you're not in the property and so it doesn't always make sense to get, kind of like the water backup coverage you might get on your homeowner's policy. Where you're there, right, you know where the water shutoff valve is, you're going to take care of it. You want something that, well, you know your tenant looks underneath the sink. It might be a little bit wet, maybe it only drips once every minute, once every two minutes, not a big deal, right that everybody has that kind of tenant story. But over the course of a year or 18 months or two years at least, right, like, you're going to have a pretty big problem. 

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16:19

And I think people that take a very specific approach to building insurance products for real estate investors recognize the types of environments and types of circumstances that come up. So you know, in a lot of those main you know main carrier, your very traditional carrier coverages. They got a ton of stuff in there that you actually don't even necessarily need, right? Jewelry covers for yourself, right. A lot of the home policies now have identity theft protection coverage in them, right, that's the stuff you don't need, but it's driving up your price, and so a lot of the specialized carriers have now moved that coverage into other areas that they can provide you really comprehensive and applicable coverages. But I would say that the broader piece about why you want an agent that works in this space is that those specialized carriers that do things for real estate investors, they really only want to work with agents that are going to send them a good amount of volume, right? Not just like the hey, one or two quotes a month, maybe a bind one, maybe don't bind any of them as an insurance company. We want to work with agents that are going to send a decent amount of volume. We want to build a good relationship with them, because managing that relationship with that agent is the same whether you're binding a hundred policies or none in a single month, and so because of that, those are programs that are very specific to our space and those are programs that really know and understand the rental market right. Those are people that are modeling out what those rental losses might look like on an annual basis and a lot of times it's actually going to result in better than market average pricing right, better than what you'd be getting from. 

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17:49

You know a lot of the traditional carriers that you might use for your. You know your home and auto. That's the benefit at the end of the day. Those are the folks that can really get you into that. And as you start to expand you get into six, seven, eight, nine, 10, 12, 50 units. Those are the folks that can also start putting you into a schedule which would have the same effective dates, same policy dates right. It makes it very easy to start managing your insurance on a large scale. Those are the agents that are going to be able to do that for you. 

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18:16 - Vikas Gupta (Co-host)

Got it Now. That's super helpful and you actually, towards the end there you got to something that I wanted to get to, so why don't I hit it now? So like, how do my insurance needs change and how should I be thinking about insurance as I go from two units to five units, to 10 units, to 20 units? 

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18:33 - Aaron Letzeiser (Guest)

Yeah, run around, probably that like five to seven unit mark. You want to start having that conversation with your agent. It's really a function of a strategy right Around being able to just manage your insurance, right, if any of your listeners are up to that five, seven, 10 units and they're all on different policies, they all have different start and end dates and like, inevitably you got one to two different insurance renewals a month, like that's a headache, right. And if you miss one and then your agent misses it or something got non-renewed, right, like you could be totally screwed in that situation, right, you just didn't even realize that you haven't been covered. And then, of course, that is going to be the unit that you have a claim on, right, because that is just Murphy's law. And so that's the first thing. 

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19:13

I think the second thing is really around. You know comfort level and cash flow, right. At that level you're making a decision about how you want to cover the portfolio as a whole. So each individual property gets their own limits and coverages on a schedule, but the overall policy documents the things that are going to be added in there. That's really uniform across the policies. So a schedule is really. 

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19:36

I have 50 units. They are all going to start. My insurance policy is going to start on January 1st. I've got 12 months of coverage. I can add and remove locations to that schedule and then I have one single bill right. That is the best thing. And then within that you can say you know what I'm the type of investor where I like comprehensive coverage and I want to know that I can use it. So I'm going to go with a thousand dollar deductible right Before you might decide. 

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20:02

I'm somebody that you know I'm okay taking a risk because I really value cash flow. I'm somebody that hasn't had made a claim in years and I think the savings that I get from not paying for a higher deductible or some more comprehensive coverage, that is actually money that I'm going to be able to put in my pocket and I'm going to take the gamble and the risk that I don't have to use it. And if I do have to use it right, then I've got some of that surplus hopefully building up from that, and so that's the benefit of the you know of insurance. At a scale it does actually become easier as you get larger and then it really becomes that decision point. 

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20:37

I can't tell you how many policies we see from folks where you know they've got they've got bare minimum coverage right, that's what they've decided, but they've got a thousand dollar deductible and I'm like those two don't go together, right, if you're doing bare bones coverage, then, like you're betting that the place is going to burn to the ground At that point, at a thousand dollar deductible, right, like you know, you can be making a claim for something that's 5,000, 10,000, 15,000. Most people, when we've done surveys of landlords, think that they might not actually file a claim until something hits 15, 20 to $25,000 in actual damage. And if that's the case, everybody who's doing that should be saving themselves money and go into a 10,000 dollar deductible, right, make that bet because you're going to be able to put more into your pocket. You're going to have a much higher NOI then, as you're operating on a manual basis. 

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21:26 - Vikas Gupta (Co-host)

Got it so. So to tie this off or not tied. To summarize, to make sure I got it right so as, once I hit five to seven units, I can put myself on a schedule. What that does is aligns all of my renewal dates, puts all my properties on one form. I get one bill, I get the same coverage or consistent coverage, and I don't have to deal with the headache of making sure that you know all my coverage is up to date across all my properties that are with seven different carriers and have you know four different renewal dates and then this carrier is dropping me because that's happening in this market and I got to go shop that, that, that massive headache when I get to five, seven, eight properties. That all simplifies. And to go back to your earlier point about you know why a specialized agent right, like again, correct if I'm wrong but some of the more sort of like mainstream personal lines carriers don't even offer the schedule as a product. 

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22:25 - Aaron Letzeiser (Guest)

Exactly Right, and that's and that's primarily due to the fact that they built their rental products off their home product, right, all those carriers they're looking to get home and auto, and then they're like all right, I got the, I got the bundle, let me try and sell them the rental property, the second home, the motorcycle, the RV, the boat, and so most people don't have five, seven, 10 primary homes, right, and so they never built the infrastructure to be able to support that. 

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22:50 - Vikas Gupta (Co-host)

Got it. Tell me about renters insurance, like why should I, as a property owner, care about whether or not my tenants have renters insurance? 

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23:02 - Aaron Letzeiser (Guest)

Yeah, I mean, I would say a couple of reasons. The first is, obviously, in the event that the worst happens and that's really what you're cared about as a rental investor, as a landlord, you want to make sure that your tenant ultimately has some coverage. It makes their life easier. It makes the transition into them finding maybe some alternative housing easier. They get their contents covered. That's the first thing, right At the end of the day, making sure that your tenants are protected. The second thing and this is a good call out for anybody listening is you want to make sure that the insurance that is going to be extended onto that property and onto that tenant is also something that covers the damage that they might also cause on the property. 

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23:48

So one of the things that's become very popular over the last five, six years is you have these platforms that make it very easy for people to go out and sign leases, manage these assets, and insurance companies, especially on the rental side, have tried to keep up. You've had the lemonade to the world and some of the others. You want to make sure that there's insurance that doesn't necessarily exclude the damage that that tenant causes, and I think a lot of the rental carriers have started to, I think, align themselves with that idea. But there are still some legacy carriers that are out there that really aren't going to cover that. So you as an owner, you as a landlord, you want to make sure that you have that coverage, that that's the type of coverage that you're requiring inside your lease agreements. 

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24:31

Though, in the event that there is that water damage issue, in the event that there is that small kitchen fire, it's the tenant's insurance that's ultimately going to make you whole and you don't have to make a claim on your primary insurance as well. Those are the big things. The third thing is really the liability on there as well. Right, tenant has a friend over, a friend trips and falls in the society that we live in, and you know you can't put it past anybody that you know they're not just going to sue everybody. The law firm that they find is just going to name everybody you, the landlord, maybe the property manager, the tenant, anybody that was there making sure that that tenant has insurance for some of the incidents that they may cause and contribute to. That's going to help contribute, to continue to try and provide some protection to your involvement, to that, or, at least you know some protection against trying to pull yourself off of that lawsuit when you don't need to be there. 

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25:23 - Vikas Gupta (Co-host)

Got it so so. So, if I'm hearing correctly, it's not enough for me to just have a generic like renters insurance is required clause in the lease, but I should actually be specifying specific coverage. Is that the renters insurance policy should cover? 

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25:42 - Aaron Letzeiser (Guest)

Yeah, I mean, that's really best practices. Today, most of the most of the renters policies that exist out there, they have started moving in this direction. Right, you have something called like a tenant damage waiver, tenant damage liability policy, that that that is getting endorsed into these, these renters policies. And if you don't and you don't want to make your tenants kind of purchase it in that way, or you have tenants that just don't comply, right, like they're just never sending proof, it's a, it's a challenge. 

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26:10

A lot of resident benefits packages these days, a lot of insurance providers that are out there now, do actually offer a very inexpensive tenant damage product. Right, you, as the landlord, again, what you care about is your property and making sure that any damage they cause is really going to be something that they're going to bear the cost on. And so there's very inexpensive policies. Obie offers policies, several others do that, you know, for $100,000 in coverage with a, you know, zero to $250 deductible. It's about eight bucks a month, right, and that's something that you know. For those, those tenants that don't actually comply with that, you can pass that cost to one of them and then at least the interest in the things that you care about are going to be protected, you know, for for eight bucks a month. You can't, can't, beat that. 

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26:55 - Vikas Gupta (Co-host)

So that to make sure I understand how that works. So if I don't require renters or I can't get compliance, I can go purchase this policy from you or from someone else and and then just roll that into my rents. 

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27:11 - Aaron Letzeiser (Guest)

A hundred bucks a year that really has no deductible and that gives again. It goes back to that, that piece of mind and that, that cash flow strategy. It's one of those items that that I think can really continue to provide that level of protection. And then you also don't end up having to go and make a claim on your primary insurance right? Going back to one of the earlier things I said, it helps you avoid making that claim on the insurance that everybody cares about. It's the thing that bank requires you to have. Make sure that you're doing the things that you can to keep that price as low as possible. 

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27:40 - Vikas Gupta (Co-host)

Got it so switching gears for a second. I'd love to get your read as an expert, on what's going on with the insurance market. So, like I live in California, every, every week, I see headlines of so-and-so insurers pulling out of the market. Obviously, florida has been a nightmare for insurance for a long time now. But, like, what's going on and what can I do to protect myself, especially if I'm seeing 10, 20, 30, 40% year on year rate increases? Or I'm just going to drop? 

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28:12 - Aaron Letzeiser (Guest)

Yeah, I mean, it's a. It's a great question and it's a. It is a really tough insurance market for certain geographies in the US. I think the challenge is that the markets that have been most attracted to real estate investors are also the ones that have been getting the probably the largest beating by the insurance market, and the reason being is, you know, it's really a perfect storm, no pun intended of like a confluence of events, right, you have some weather events that are occurring. You have things like the Texas winter storm that happened a couple of years ago that nobody predicted. You've got inflation on material costs. So, going back to, we talked about replacement costs. You and the carryover agreed this is this is how much it's going to cost for the carry to help you rebuild that entire property. Well, if lumber costs start going up 5, 10, 15%, right, the remediation of those properties, labor delays right, just in terms of, like, rebuilding those assets and getting people into queue for that, carriers paying out loss of rents and business income loss. 

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29:08

And then, beyond that, the last thing that I think most people don't know about is most of the insurance capacity comes from Europe and comes from the UK. Right, it comes from Munich, rio and Switzerland, names like Woods of London, and as the exchange rate and the FX markets for the euro against the dollar or the pound against the dollar. Some of these players, in the beginning of 2023, were looking at their balance sheet and saying, wow, with nothing else I just mentioned the inflation, the claims, the weather impact just because of the exchange right and the currency, they've got five to 10% less capacity than they thought they were going to have. And so all of that's really resulted in a couple of things. Most carriers, as people know, have been pulling out of Florida. It's a really tough market, one because of the weather, but two because Florida has over 80% of the annual claims litigation cases in the country. Right. So one state right. Nobody's going to be surprised as Florida I say that with love, but it's Florida right. The litigation. The state legislature's trying to deal with that. 

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30:11

But you have issues like assignment of benefits, where it was a great idea, I think, in theory, but if you have one shingle that's knocked out of place after a hurricane, a roofer and this has been happening a ton over the last five to 10 years roofers would come to your door and say, hey, I'm going to replace your entire roof. I'm going to push it out to your insurance company. Sign right here and I'll take it over. Right, you don't have to pay a thing. And then that roofing company goes to the carriers they know exactly how to work that system. And they say, hey, I replaced brandage roof. Right, I need to get paid for that. Right, here's the damage, here's the exact spot in the policy contract. Right, they became experts and good for them, right? Like that's the capitalist society, they know exactly how to build their business. So that loophole is starting to get closed. 

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30:58

And then California is very similar with their own challenges. You have a state where the state I think very well-intentioned limited how much somebody could increase premiums by on an annual basis, right? So, if you're a traveler, is your state farm farmers progressive nationwide, all these groups that have been pulling out over the last six months? They're like, hey, mr Insurance Commissioner, I got to raise rate by 10%, otherwise I'm going out of business. And he's like, well, you know, this is what the law says, you can't go over this amount. 

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31:27

And so a lot of those carriers say, hey, listen, I'm out. Right, we'll come back in a couple of years. We'll refile our rates. It'll be more expensive at that point, but I can't continue to stick around in the state and I think the unintended consequence there is. You know it's people like you now that are really getting hurt by that right. You have less choice in the market, so it's really finicky right. It's a really it's a confluence of events all at the exact same time, but at the end of the day it's a consumer that loses. You know, california and Florida are both going to end up having to create their own state run and in many cases they have state run insurance carriers and that's a path that I think you know nobody a consumer or the insurance market wants to go down. 

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32:10 - Vikas Gupta (Co-host)

So is there anything I can do to protect myself? Like, if I'm in invest, like like obviously right, if I'm getting into the market I can decide. And I've talked to some folks who are like you know what, like I'm not ever going to invest in any of these areas because I just can't predict the insurance cost. So let's say I'm sitting on 10 assets and I'm seeing insurance just start to like take big chunks out of my profit margins. Like what can I do? 

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32:35 - Aaron Letzeiser (Guest)

Yeah, yeah, I would say that the best thing that you can do we talked I would touch on this a little bit earlier but control the things that you can control. You can't control the wildfires. You can't control the carriers moving out of the state. You can't control weather events that might happen. You can control to the best of your ability the two biggest things that happen inside of your property fire loss, which is a lot of time, kitchen fires or candles that are left unattended, and water issues, water backup issues, the inevitable things somebody threw into the toilet and got through the toilets, backing up those items. That you can just try and it's difficult too. But even similar to showing tenants where the fire extinguisher is, showing the tenants where the water shut off valve is, there's a lot of people that are just never even on their toilet, turn the valve to the right in the back of it, like, oh, that's what that thing does. As real estate investors most of the investors that I know, probably most of the listeners we try and fix a lot of things ourselves. I know that that valve is going to turn off the water, but a lot of people just don't know. If you look at the average age of the renter and just life experience and not having owned a home probably in the past. For a lot of these folks it's just not something that they've ever come across. So those small items are really impactful. 

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33:52

Two things that I would also add, and we have no interest in these, but we have seen them be effective. The first one is called a fire blanket. You can buy them on Amazon. They're like 10 bucks. It's like a lead-based blanket right, and a lot of people put this underneath the sink right next to the fire extinguisher. You take it out and it's like a five-by-five foot blanket. You can throw that over top of your stove. If there's a fire, it should help to either put that fire out or contain that fire. The second item is something called a fire stop right, this is a magnet. It looks like a hockey puck right, and it's a magnetic cylinder that actually connects to the metal vent above your stove or the underside of the microwave. If that's over the stove and in the event that that thing feels enough heat from a fire, it will actually disperse the powder right Right over top of it. 

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34:46

You've seen really excellent success putting out fires that otherwise would have completely destroyed the kitchen, potentially the home. And if it's an apartment building or it's in a duplex, quadplex, right that water from the fire department, you're out several units at that point, those small items, $20, $30 per unit, the fire stops good for like four or five years. That is really really great investment to try and control the things that you can control. And all of that is in an effort, even that tenant damage policy that we talked about earlier. All of that is in an effort to make sure that when you have to file a claim, it's because it's really worth it. Right, something burned down, something's really damaged. Otherwise, try and minimize the claims that you ultimately have because that's going to keep you as a competitive insurance prospect for the carriers that still remain in the state. 

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35:40 - Vikas Gupta (Co-host)

Yeah, I, when I was much, much younger and renting and didn't know anything, there was like a little drip below the kitchen sink and whatever. It's like a small drip and the reason I didn't talk to my landlord was actually not because I didn't like. It was like I don't want to be that problem tenant, like I don't want to call them for every little thing. And then it was like a year later she was like you should have just called me. Like now I got to replace the cabinet. 

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36:07 - Aaron Letzeiser (Guest)

That's good. I've had a tenant call me because the light bulb has been out and I'm like, let me send you the YouTube video. Right, and I've seen that work. You know, I think about this over time, right, you know, maybe it's out there, but I haven't seen it working in this space or even on the insurance side. Like there was a market on YouTube for, like the landlord you know the landlord repair geek right, here are all of the top 50, the top 100 things that tenants call about and really easy, really instructional videos that you can be like oh yeah, your light bulb's out. 

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36:43

I would have thought that was common sense. But let me send you the video, right, I'm not coming out, I can Amazon your light bulb, right? Thank God for Amazon these days. I can send you the light bulb, you can watch the video, twist it left, twist it right, see if it works for you. Right, there is a, there is a market for that. I just have not seen it yet. But if somebody did that, I would be. I would be using that all day long for some of the emails that we get. 

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37:09 - Vikas Gupta (Co-host)

Yeah, well, there are now some third party like maintenance management, de-escalation services, where, instead of you getting the call right, their call center gets the call and they'll actually be like you know what. Like, here's the YouTube video. I'm not going to send out an electrician to replace your light bulb, do you? We're coming up on time, but gosh, this is like. I have so many follow up questions so I'm going to try and ask, try and fit a few, a few in here before we have to wrap up Do you screen tenants differently as an insurance person? Like some of these things about, like you know, educating your tenants? How about educating them? But do you actually screen them differently? 

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37:53 - Aaron Letzeiser (Guest)

I think I would like to think that I do. But I mean, we, you know, we have had a tenant that was extremely highly educated, an investment banker, like a lot of really good life experience. Probably one of the most like professional tenants we've ever had would call us about the craziest stuff, right, and so you think that you do right. I think the only thing that you can really gut check is we're big about meeting the tenants in person where we can, if they're you know, if they're in the city where we have the rental. Otherwise, we have some people that we trust, right. We've got like long-term door people at some of the condo buildings we own units at, or some other people that they feel like they're a pretty good judge of character and the track record's pretty good. 

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38:36

Is that like? Is that personal person responsible? Right, more so than anything else? How many can you pay the bills? Right, but do you get a sense that they're gonna be responsive? Do you get a sense? 

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38:50

Much like I think like job interviews I don't know about you because at a Zibo, but like the way sometimes people follow up after a job interview, the way that they actually interact during that hiring process. I do the same thing. How quickly did that person respond to me? Did I send them a question about setting up a time to meet? Right, it's the same type of thing. Go with your gut on that, even if you gotta take like an extra week, two weeks of vacancy, right, it is worth it sometimes to find that tenant that's gonna pay off for you at Spades. How do they interact during that process? And I've even run into landlords that will ask some additional questions that seem very benign, right, that are just kind of, and they just see how people respond and how quickly they respond and what's the tone of that email and that interaction? That's the only thing that you can try and use as a proxy about how somebody's really gonna take care of your property. 

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39:48 - Vikas Gupta (Co-host)

Got it, so you're not asking people do you like candles or not? 

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39:58 - Aaron Letzeiser (Guest)

No, no, I'm not doing that. I mean we do tell people that we do insurance for real estate investors. So it comes up as like one of those moments that hopefully sticks in their head right, when I'm like, hey, here's the fire extinguisher Not trying to insult you, but like here's the pin. Right, you press the thing, it works right. Fire's not gonna burn the place down really quickly, stay calm, it's all good, I'm in insurance. This is kind of what this looks like. It could be bad for everybody, right? Hopefully that you know we try and make that fun and like the humor sticks with them. But no, we're not specifically asking about their candle habit. 

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40:41 - Vikas Gupta (Co-host)

One more question before we try and wrap things up, if you don't mind Do you do any proactive, preventative maintenance that your typical landlord may not? And as an example, like I've heard of one person I talk to, I'm sure many people do this, but one person I talk to he invests in single family homes and he has someone go out and snake the cleanouts once a year Just to make sure that, like because again, because you know he's not gonna necessarily know immediately if there's a problem, and he wants to prevent that water damage. 

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41:20 - Aaron Letzeiser (Guest)

So I like that one that one hasn't come to mind. I would say we do a real deep cleaning of like the oven, right, like I'm just like I'm allergic to stoves in ovens. Being in the insurance industry now, I'm like tenants and fire is just. You know, I gotta get people to like it's expensive. But, man, if the value added like nice apartment buildings went to like an induction cooktop or something like feeling a little bit, I'm feeling a little bit better about that, at least there's no open flame. So that's the big one. We always do that in between because you just I mean the amount of like crud and grease and stuff that ultimately has dripped on it at hand, like in the event that there's a fire inside of your oven, don't help it along by giving it some kindling. 

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42:05

The second thing is we bought on Amazon. It was cheap. I mean definitely cheaper than if I had this done. We bought like an optical 4K camera, right, and it's got probably like 20 feet. It's a little bit rigid, but like you can move it through. We do that through like the dryer vents and some of the other vents in the house upon like a tenant turnover. 

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42:27

I've seen tenants that like, for whatever reason, just dry their stuff all the time, right, whatever that is. Or I mean we live in the Midwest. We got some rentals up here. Like we had a tenant that had like really furry blankets and because it was cold or for whatever reason I don't know, saving on heat, like she would put them into the dryer just to heat up the blanket and then like cover herself in the blanket. But the amount of like debris from those blankets and she clear out like the lint trap and everything but like it was incredible, right. And like that's another place that like you can end up having a fire. 

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42:59

It's good for vented maintenance, but spend the 7,500 bucks on Amazon. You will definitely use it for other items. I have used it all the time but it's like you know throw it through the vent, see what it looks like, make sure that all the piping and everything looks good, and you can start to feel a little bit more comfortable with the condition of the house, especially if it's a property that might have had renovations before you bought it. Those people that don't do, you know. I think like one of the good benefits of like dryer, vent cleaning and some of the other things that exist out there juries out on whether or not it's super effective, just in general. But I think after renovation, especially when properties get turned over, whoever did the fix and flip didn't want the added cost. There is so much debris inside of your vents. Getting that cleared out is always a good idea. Great. 

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43:48 - Vikas Gupta (Co-host)

Well, awesome tips. I feel like we could keep going, but unfortunately we have to wrap things up. So before we go into our three closing questions, you've said a little bit, but give us the one to two minute Obie pitch and tell us where people can find you. 

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44:06 - Aaron Letzeiser (Guest)

Yeah, yeah. So, like I said, started the company with my brother, ryan. You know we just got, we got frustrated with our insurance process. I had had my insurance license for a while. I got it in college to hustle my friends for their renters insurance and their auto insurance a good 10, 15 years ago. It was good beer money on the weekend, but we just we knew the process was broken and at the same time, especially on the single and small multifamily markets, you know there was this gap in carriers that really wanted to spend in there. So that's really what Obie became. 

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44:34

We're an insurance technology company that's solely focused on the residential real estate investor, whether it's a single unit, accident on a landlord condo unit like my first one, or you know folks that have a portfolio of a thousand 5,000 homes we build technology that provides an instantly bindable rate, either through you or your, through your agent that might want to use this as well. But the biggest piece was providing that visibility, putting the owner in the driver seat to become the master of their own destiny. I want you to sit there and say I want to know exactly what the price might change too, if I go down to a thousand dollars. I'm told do I want to have this coverage or remove it? Right, there are. There used to be. 

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45:10

10 years ago, when Ryan and I were getting insurance, we'd always go back to our agent and be like, hey, can we try these other 50 combinations? Right, we just want to see how the cash flow looks. I might want a little bit more coverage if it's actually cheap and that poor agent's like, no, I can't do this. Not because I don't want to help you, but, like my, my carriers are going to kill me Cause that's a manual process. There's an actual person back there sitting there in front of an Excel spreadsheet running all those models and then sending them out. So that was the biggest piece. We wanted to put landlords in the driver seat and I think we've been. We've been able to do that. We put about $25 billion worth of coverages out last year and we're on track to continue to double and continue to try and, I think, flip the narrative insurance on its head for real estate investors. 

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45:51 - Vikas Gupta (Co-host)

Great, and where can people find you? 

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45:54 - Aaron Letzeiser (Guest)

They can find us at Obieinsurancecom. Obieinsurancecom. 

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45:59 - Vikas Gupta (Co-host)

Fantastic, all right, are you ready for our three closing questions? 

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46:02 - Aaron Letzeiser (Guest)

I am let's do it. 

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46:03 - Vikas Gupta (Co-host)

All right, Number one what is your favorite book? And it does not have to be real estate related. 

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46:08 - Aaron Letzeiser (Guest)

Favorite book, I would say most recent, most recent favorite book has been Never Split the Difference. Chris Foss, good book, good for folks, I think just in business in general, but I think also in real estate. Really interesting, I think. Tips and strategies that he's saying Hopefully I have a chance to hear him talk. He's out on there, out on the speaking circuit. 

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46:29 - Vikas Gupta (Co-host)

All right. Question number two what is more important to you in real estate investing Cash flow or appreciation? I'm a cash flow person. 

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46:38 - Aaron Letzeiser (Guest)

Primarily, I like to know that I'm getting paid on it. That's where I get my return. If I get a small appreciation on the property, fine. But if I can get a return on the cash that I've been putting into that property and then what I can do with that cash that I get, that's better for me, Great. I like the definitive answer. 

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46:59 - Vikas Gupta (Co-host)

We get people who try and have it both ways. 

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47:01 - Aaron Letzeiser (Guest)

Yeah, Can't have your cake needed too Well in the past, depending on what time you got in the past 15 years have been pretty good. Yeah, that is true, that is true and, depending on the market, if you're investing from like 2010 through basically 2020, 2021, you can definitely have your cake needed too. Yeah. 

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47:27 - Vikas Gupta (Co-host)

All right. Final question Is there any other piece of information that you can use to help you? Is there any other piece of advice or insight you'd like to leave our audience with? 

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47:36 - Aaron Letzeiser (Guest)

I would say the first thing I said on here right, make sure you got enough coverage, make sure that your replacement costs can rebuild the property. That is the worst thing that happens to people is when they wake up and realize, man, I haven't looked at my insurance in five years. Take out that deck page, take out the policy, give it a quick read, make sure you're good with it, make sure you're comfortable with it. That is the biggest piece of advice I can tell people. 

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47:58 - Vikas Gupta (Co-host)

All right. Well, thank you so much. I hope everyone else is leaving this as much more informed as I am about insurance. Thank you for your time and your insight, Aaron. 

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48:09 - Aaron Letzeiser (Guest)

Thanks so much.