JF1113: Protect Your Income With Rental Income Protection with Sky Mikesell
When a tenant stops paying, won’t leave, and trashes your property, RentSure can come to the rescue. For a low monthly fee, they deal with the eviction, and pay you your missing rent for 90 days – plenty of time to turn the unit over. They also offer malicious damage protection in case they cause excessive damage. Tune in to hear more details about how RentSure can help you protect your income and properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Sky Mikesell Real Estate Background:
-CEO of Nationwide RentSure, a rental income protection company
-Invested in 8 states over last 20 years For 10 years he ran a turn-key investment firm
-Grew portfolio to 19 single family homes before transitioning into turnkey property
-Bought first real estate property at 19 after saving money for 2 years and works as plumbers assistant $6/hr
-Based in Charlotte, North Carolina
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Sky Mikesell. How are you doing, Sky?
Sky Mikesell: Hey, Joe. How are you? Thank so much for having me.
Joe Fairless: My pleasure, nice to have you on the show. I’m doing well, and looking forward to diving in. A little bit about Sky – he is the CEO of Nationwide RentSure, which is a rental income protection company. He has invested in eight states over the last 20 years. He has grown a portfolio to 19 single-family homes before transitioning into turnkey property. Based in Charlotte, North Carolina… With that being said, Sky, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Sky Mikesell: Absolutely, thanks again. I’ll dive right in and give you my quick background. I actually started on the West Coast; I’m from Portland, Oregon, originally and I am now in based in Charlotte, North Carolina, but I started out investing as a 19 year old… That was a long 20 years ago. I was making six dollars an hour as a plumber’s laborer – not a real plumber, but just the helper… And I started buying real estate. I had saved enough to buy my first piece of real estate, a year later I bought my first rental property, and I’ve pretty much grown since then. About 2005 I liquidated my portfolio on the West Coast, knowing something bad was coming. The writing was on the wall, so we got out.
We searched the country over and researched where we were gonna go, and ultimately ended up settling on Charlotte, so here we are… I started a turnkey operation shortly after arriving, and we were one of the first few turnkey operations in the country back then. We were doing what turnkey operations do – we were buying, renovating, leasing, selling… We did quite a few transactions over that 10-year span that we ran that operation, and we decided to transition out of that as 40-50 turnkey providers came into the marketplace. We really shifted our focus in the last three years into rental income protection.
We looked hard, and I said “All of my clients over the years have bought good properties from me. We renovated them well, but a few things always hurt them”, and it was never anything that we did, but it was the things that we could not prevent – it was the unexpected maintenance and the unexpected vacancy, or unexpected eviction, in most cases.
Unfortunately, with those cases, that’s what really is a cashflow killer. It’s a cashflow killer for me as an investor, most likely you as an investor, and most of our [unintelligible [00:03:34].19], so a few years ago we shifted our focus into the rental income protection business, and we launched a rental income protection company here in the US, the first one of its kind in the US, and as of now, as far as I know, the only one that’s up and running and doing it.
Joe Fairless: I’ve heard about companies like this, but maybe I just dreamt it, or something, or maybe it isn’t exactly what you’re doing, so tell us about the company and the business model.
Sky Mikesell: Sure. Basically, rental income protection — all these years that we’ve been in real estate, I think all of us are raised as these landlords to just accept this fact that “You know what? Evicting a tenant and losing that rent is just a cost of doing business.” That’s a mantra that all of us have said. Well, the fact is it does not have to be this accepted belief.
In Australia they’ve had rental income protection for well over 25 years. Over 80% of the landlords in Australia have rental income protection. In the UK, in Germany it’s well over 60%. In the US we just haven’t had it up to this point. What rental income protection really is in its simplest form is if the tenant defaults and stops paying rent, then rental income protection generally will step in, pay for the eviction, do the eviction for the landlord, they will go ahead and start paying the landlord the rent that they’re no longer getting from the tenant… And in our case, we actually cover malicious damage caused by the tenant, in addition to everything else. So all of those things kind of encompass rental income protection.
Overseas there’s different iterations of it, but for our program here in the states, that is exactly what we handle.
Joe Fairless: How do you make money?
Sky Mikesell: That’s a great question. There’s 48 million rental units in the United States, so there’s not a shortage of market for us to have. Our critical mass number is not a huge number for us to get there. The cost is relatively affordable compared to what it is covering. I’ll just cut to the chase – we’re hovering right around $500-$600 on the starting tier. We will run from $600 to $900 in rent for the starting tier, and it steps up from there. Obviously, the more the rent, the more the cost of the membership.
Joe Fairless: And is that a monthly or annual?
Sky Mikesell: We got it set up so landlords can pay each month.
Joe Fairless: Got it. So the minimum to have that insurance – $500/month?
Sky Mikesell: That’s the starting, yeah. $528 is the lowest threshold we’ve got, and that’s up to $900 in rent. So it covers the lower-priced [unintelligible [00:06:04].07] in most cities here in South, South-East, Midwest.
Joe Fairless: Now, that $528 is what I pay as a landlord for this insurance?
Sky Mikesell: Yeah, it’s a good question. The way we’re set up is we are set up as a membership-based organization. What that means is we are backed by an A+ insurer that’s actually owned by Lloyds. Our membership organization is backed by insurance; we have gone through the regulatory process in all 50 states, we’re 100% financially-backed and legally protected. The way the membership organization works is you sign up as a member, and part of your membership comes the benefits of rental income protection, comes eviction protection, the cost of the eviction and malicious damage protection. Those things are all part of the membership, so for that membership you’re buying, per unit, you’re looking at $528, depending on the price point, and that’s on an annual basis.
Joe Fairless: That’s annual or monthly basis?
Sky Mikesell: That’s the annual cost, and it can be broken down per month.
Joe Fairless: Oh, that’s what I was missing. So the $528 is annual, not monthly.
Sky Mikesell: Yeah.
Joe Fairless: Okay, I misheard you. Now that makes sense. It’s a lot clearer now. So $528 is the minimum to get in, and that would cover you for one rental property. Does that depend on how much the rent is of that rental property?
Sky Mikesell: Yeah, that’s exactly right. On that first tier, at $528, your rent can come in anywhere from $600 all the way up to $900 in rent. Then it’s the next step up from $901 to $1,200, and it continues to step up from there.
Joe Fairless: Got it. Okay, cool. So for $44/month I am guaranteed income for 12 months, or for the lifetime of the lease? How does that work?
Sky Mikesell: That’s exactly the way it works. If one of your tenants defaults, we step in, we pay for the eviction, we do the eviction, and then rent starts up. So within 60 days you get a personalized rent check, and that is for the previous two months – so from the time the tenant defaulted. So you’re covered all the way up to 11 months on the rental income protection. It’s one or the other.
This is the month of June right now, so let’s say in June the tenant defaults, and let’s say it takes RentSure until the month of September to get them out. So you will have received your income from June, July, August and September. Let’s say 15th September rolls around, the tenant has been removed, you’ve been granted possession of the property. At that point, our system will pay you an additional 90 days worth of rents. That’s October, November, December rent. So you get three additional months. That’s 90 days.
That’s kind of a headstart to say “Go get it cleaned up, get it ready, re-rent it…”, and I don’t know too many property managers in the U.S. that can’t rent out their properties in 90 days. In small towns, bad neighborhoods maybe, but everywhere else, 90 days or less is pretty reasonable for getting it rent-ready and back on the market and re-rent it, obviously. So that’s what happens during the rental income protection process.
Now, if the tenant was to maliciously damage the property, you can go on and file another demand on our website as part of your membership, saying “Look, it wasn’t just normal wear and tear, it was malicious. Fist holes in the wall… They beat up my property pretty good, and I’d like to file malicious damage demand.” At that point, we protect up to $10,000 in malicious damage caused by the tenant.
Joe Fairless: How do you qualify a landlord and the tenant in order for them to be in this program? Because there’s a lot of ways to scam this.
Sky Mikesell: Of course there is. Anything that has any sort of protection benefits like this I think there’s always gonna be the people that are smarter and more conniving than we are, and they’re gonna figure out a way. We’ve got some pretty good checks and balances in place.
Look, what we didn’t wanna do is we didn’t want to be the failing bottleneck for the landlords and the property managers, meaning we did not want the landlords and property managers to have to come to us and say “Hey, I’ve got this tenant and we’d like to know what you think of her. Will you approve her?” No, we put all the power and the control into the property managers, in the landlords’ hands as to how they wanna do it.
Our criteria is so simple – we are expecting the tenant to make two and a half times the gross rent. Most property managers, as you know, are screening for three times gross rent. We’re looking for no evictions and no judgments in the last three years. We’re looking for a simple rental agreement that’s approved by the state for wherever they’re at, and then we’re looking for the fact that the tenant actually paid first month’s rent when they moved in, and they weren’t in default the second they arrived. This is a pretty low barrier to entry.
Credit score – I don’t care what the credit score is, it makes no difference to us. Data supports that tenants’ credit scores has nothing to do with their follow-through or their ability to pay rent. This may come as a shock to some of your Best Ever listeners, but the fact is that tenants’ credit score has nothing to do with whether they’re gonna pay rent.
You know what else doesn’t matter? Whether a tenant pays a true deposit on not has no bearing on whether or not they’re gonna continue to pay the rent. Sounds crazy, but we wouldn’t be in business if we didn’t have the data to support that, so that’s where we’re at.
Joe Fairless: How large units do you do? I imagine you don’t get into apartment communities, but that might be an incorrect assumption.
Sky Mikesell: We do get into apartment communities. There’s very minor variations with apartment communities. Actually, there’s only one, and I’ll tell you exactly what it is. With a single-family home we will cover a maximum of $100,000 in lost rent, and as you know – we can do the math on that together – it’s pretty unlikely for us to hit that. Possibly California, possibly New York, but to date we’ve never hit that number.
For apartment communities, one address, it’s capped at $500,000 per domicile address. If you have ten units in an art building, you would have to have a membership on each one of them, but we cap you at $500,000 in rental income protection.
Joe Fairless: How long has Nationwide RentSure been around?
Sky Mikesell: We have been in North America for going on two years now. We’ve had a Canadian operation just right on the other side of the border, right in Toronto, for over two years, and the US operation has been in full effect for about a year now. We’ve got a combination of multifamily owners, turnkey operators, do-it-yourself landlords, we’ve got property managers utilizing us… We don’t know too many investors that are not in need of some sort of rental income protection.
Most of your Best Ever listeners, ranging from the private do-it-yourself landlords to property managers — the property managers are basically looking to reduce their workload and increase their income. That’s what rental income protection does for them. They no longer have to go to Court for the property manager, and they get to stabilize the property management income that they no longer would have if the tenants had stopped paying. So now the income continues to come in, they continue to get their management fee, and everybody keeps moving forward; the owner is happy.
Even guys like you, Joe, who are trying to get the highest return possible for your syndications — obviously, you’re trying to predict what that return is going to be, and the only thing that really throws that proforma off would be maintenance and vacancy, would you agree?
Joe Fairless: Pretty much, yeah.
Sky Mikesell: Pretty much. I mean, we’ve always got some variables. We probably don’t have time in this 30-minute podcast to go in all the variables, but we’ll call those the two big ones. So this solves at least the eviction fees. Of course, we do cover abandonment, as well. The protection for abandonment has a few different variations, but [unintelligible [00:13:46].25] the same way.
I really do feel like this is a fit for everyone. We don’t see anyone in the real estate sector — I’ve talked to one landlord so far (do-it-yourself landlord) who managed about 20 unit and he said “I haven’t had an eviction for 12 years.” That’s okay, well you probably —
Joe Fairless: Raise your rent.
Sky Mikesell: Yeah. [laughs] Raise your rent, and you probably don’t need Nationwide RentSure, because clearly you’re better at this business than the rest of us are.
Joe Fairless: Why Canada? You’re not Canadian, are you?
Sky Mikesell: No, I’m an Oregonian by blood. So it started in Canada; this project originated in Toronto. They wanted to beta-test it in Toronto, just because it’s a much smaller market than the US. The US is a very complex market, which is why no one has come here up to this point. We refer to the US as 50 different countries; there are 50 states, 2,200 jurisdictions, all with different rules for Court, different eviction — landlord/tenant law has a lot of similarities…
For example, in Texas if a judge does not like where your signature is on the eviction form, he can move your signature to the other side of the page and does not need to notify anybody of such change. So when you start thinking about having to file eviction in quantity electronically and over a large scale such as we’re doing, judges moving signatures really creates a problem. Having to solve that has been the biggest reason why rental income protection has not been in the States up until now.
Joe Fairless: What’s been the biggest challenge that you’ve had growing the company?
Sky Mikesell: I hate to put this so bluntly, but I personally believe that the biggest challenge that we’ve had is the gotcha factor, the “too good to be true” factor. I hear it on the phone, and I heard it when I used to sell turnkey property… “This seems too good to be true.” I’m like, “Well, what’s wrong with that? Do you not expect that things could happen to you? You sound like a good person, why can’t good things not happen to you?” So it’s not a too good to be true scenario, it’s not a gotcha scenario, and I think because it’s not familiar here in the US, that’s the first obstacle to overcome.
I will tell you, the folks that have probably most widely accepted it are the turnkey providers and multifamily folks, because they already allocate money for this type of expense in their proforma; they’re calling it vacancy or eviction. But a lot of do-it-yourself landlords and smaller investors that are using professional property management that own ten or less properties – they’re rarely making this allocation, despite — you’re a good counsel on this podcast, and this probably could counsel numerous other resources saying to allocate for these expenses… They’re not. So it was a lot easier to convince the turnkey providers, the multifamily folks, because it made sense to them because they already had this number in the proforma anyway.
Joe Fairless: What is your best real estate investing advice ever?
Sky Mikesell: My best advice would be to protect your rental income. I’ve owned a lot of property in the last 20 years, and as you know, lost rent never gets found. Once you lose that rental income, it’s gone. You’re unlikely to ever recover it. You can’t immediately raise the rent high enough to recover one month worth of rent, no less the average of five months worth of rent losses that it takes to get somebody out and get the unit re-rented. So it’s just a distant prospect that you’ll ever get that rent loss recovered, unless you maybe sell the property at some near point down the road. So my best advice is protect your rental income.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Sky Mikesell: Let’s give it a shot.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Sky, what’s the best ever book you’ve read?
Sky Mikesell: Best ever book I’ve read is a book called “It’s Not About The Money” by Bob Proctor.
Joe Fairless: Best ever deal you’ve done as an investor?
Sky Mikesell: Okay, this is not gonna be a lightning response…
Joe Fairless: That’s fine.
Sky Mikesell: Best ever deal I’ve done… Okay, I’ll give you a very strange response on this one. And honestly, I’ve had hundreds of real estate deals that I’ve made a lot of money on over the years. Many of them were structured in a very cool and creative fashion that allowed me to earn that money, but honestly, the deal that I’m probably the most proud of – and this might sound really strange and probably not the response you’re looking for, but in 2012 I sold one of my companies, and in that transaction I made some blaring mistakes… Joe, within six months of that transaction I went from 30 employees and a massive real estate portfolio to pretty much losing almost everything. I went into debt… So you’re saying “This is great, Sky, but where’s the best part of this deal? Is this the best that you’ve ever done?” Here’s the best deal I’ve ever done – I found myself in this crazy place… Not a lot of money left, no income, not a lot of assets left, and I just picked up the phone and I started working out a plan with every single one of my lenders.
I made a choice. I had people encouraging me to give up, to file bankruptcy. Some of them were investors and clients, some of them were family and friends, but I made a choice not to give up, but to work harder, to rebuild and to honor all of my debt… But I had to start by picking up the phone and working through it with every single person, and it was honestly some of the toughest negotiations I’ve ever faced in my entire real estate career… And I got through it. I’m here, I’ve rebuilt — I started rebuilding the portfolio and we’re quite strong, and three and a half short years. So that’s been my best deal so far.
Joe Fairless: On that note, what’s a mistake on a transaction that you can pinpoint maybe specifically?
Sky Mikesell: Any mistakes made on transactions are always due diligence and your gut instinct. One of them is verifiable, and the other one is deep down… And you know, even when sometimes the due diligence makes sense, the gut instinct is telling you something different. So those are two big checkpoints on every deal – I always do my homework.
Joe Fairless: And can you give a specific example?
Sky Mikesell: Well, in that specific example the numbers looked great, but the gut was telling me that the partner on the other side had other plans for that transaction, so… They had already made plans to move around me on that particular deal, and they were quite successful in doing that. Of course, Joe, my wife warned me that it was gonna happen; she didn’t trust him… Gosh, I hate it when she’s right!
Joe Fairless: What si the best ever way you like to give back?
Sky Mikesell: I support various Christian Ministries and I support Special Olympics, because of their courage. My brother has Down Syndrome so I support Special Olympics for almost twenty years now.
Joe Fairless: How can the Best Ever listeners get in touch with you?
Sky Mikesell: Probably the easiest way is my website – it has everything I’m involved in. SkyMikesell.com.
Joe Fairless: Cool. And then also NationwideRentSure.com would be another place?
Sky Mikesell: Nationwide RentSure has everything about the rental income protection that you ever need to know. I’m happy to talk on the phone, or you can call direct.
Joe Fairless: Sweet. Well, normally I don’t spend a lot of time talking about someone’s business, just because I wanna make sure we’re adding value and not like a promotional thing, but in your case it was unique because it’s a different business model, so it’s important for us to dig in there and talk about it, and I’m grateful that we did, and I’m grateful that we talked through the cost implications, from what it would cost as a member to participate, as well as the benefits of participating, which seem really good
Sky, thank you for being on the show, thanks for talking through the business plan, thanks for talking through the lessons learned along the way. I hope you have a best ever day, and we’ll talk to you soon.
Sky Mikesell: Thanks, Joe. Keep up the good work!