JF1791: We’re Discussing Insurance For Investors With An Insurance Broker with Jake Stacy
Jake is an insurance broker, as well as an investor himself. He and Joe will discuss insurance for real estate investors and also cover Jake’s best advice from his own real estate investing experience. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“If the crime scores go up, premiums go up” – Jake Stacy
Jake Stacy Real Estate Background:
- Insurance broker specializing in insurance for multifamily and commercial real estate
- Over the last 3 years, his team has grown the business at 86%, 96%, and 114% to become an 8 figure insurance agency.
- Also invests in real estate on the side
- Based in Seattle, WA
- Say hi to him at https://www.riceinsurance.com/
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Joe Fairless: Best Ever listeners, how are you doing? 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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Jake Stacy. How are you doing, Jake?
Jake Stacy: I’m doing well, Joe. Thanks for having me.
Joe Fairless: Well, my pleasure. Nice to have you on the show. A little bit about Jake – he is he insurance broker specializing in insurance for multifamily and commercial real estate. Over the last three years his team has grown the business 86%, 96% and 114% to become an eight-figure insurance agency. He also invests in real estate on the side. Based in Seattle, Washington. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jake Stacy: Sure thing, thanks Joe. Yeah, you got that right, we are an insurance broker specializing in multifamily, commercial real estate, and we work with everyone from single complex owners, developers, property management companies, large REITs, larger portfolios on a nationwide basis.
We actually started working in this space probably about in October 15 years ago. We built out a very specialized program; it’s pretty unique compared to the traditional way that insurance has typically been handled. At this point we’ve grown it 86%, 96% and 114% over the last three years, which is definitely unique compared to the average growth of an insurance agency covering around between 3% and 5%… And this has all been off the back of our real estate program. And currently, I’d estimate we probably insure maybe 100,000 units nationwide.
We saw the old way that insurance was handled – it’d take three months to get a quote, [unintelligible [00:03:34].10] 20 questions about the properties, about the business in general… So we actually used a program that houses property information that we can access with just the address of the property, which creates a really seamless process for our clients. So we’re able to turn things around really quickly for them, and we’ve actually partnered with a number of carriers as well in order to get the best prices in the market.
So that’s my [unintelligible [00:03:53].17] just working in the multifamily commercial insurance, and then on the side I actually just recently started doing real estate investing on my own. Obviously, a lot of real estate investors are my clients, so just loving that space, I was like “I should do this, too. I see what you guys are doing and I wanna be involved in that, too.”
So I actually started real estate investing on the side, and my wife and I recently bought a three-bedroom house and we’re kind of house-hacking right now. We bought a three-bedroom house with an 1,100 square foot basement, with its own entrance; it’s one of those walk-out [unintelligible [00:04:18].03] So we’re currently finishing that. It was a pretty sweet deal, both from the income potential that it will have and the market that we’re in. There’s less than a 1% vacancy on rental properties… And the rents continue to rise. And there’s also a pretty significant equity potential on the property as well. We’ve got a pretty sweet deal on it.
So yeah, that’s what we’re doing on the side. I’ve actually recently just kind of gone all-in into real estate investing and I’ve actually secured a couple partners that wanna work with me. A couple from a financial standpoint, and then one guy actually recently approached me and was like “Hey, I wanna do all your rehab work. I grew up flipping houses with my dad, and I’ve got a little money set aside, so I wanna partner with you, hopefully invest with you, and then I’d like to just do the work for you.” I think that’ll be a pretty symbiotic relationship as well.
That’s a little bit about myself. [unintelligible [00:05:00].13]
Joe Fairless: You’re a busy man.
Jake Stacy: Indeed. Very busy. I wouldn’t have it any other way. I like being busy.
Joe Fairless: Let’s talk about the specialized program that you have from the insurance brokerage standpoint. Is that essentially just a database that you have, and someone gives you their property address, and your database has the information that you need, so it cuts out a lot of the back and forth?
Jake Stacy: Yeah, exactly. Typically, how it was historically done was the insurance broker would send their client an application, and it’d be anywhere between probably 5-10 pages of asking details about the property specs – year built, square footage, vacancy, rents, everything like that. So actually over the last 15 years we used a program that not only has public property information, but we also buy a lot of information. So yeah, exactly, with just the address I can pull all the underwriting information that I would need. Everything from crime score, construction type, tenants for commercial buildings, average rents for that area, pictures, the recent sales, the entity that owns the property… Everything like that. That really cuts out a lot of back-and-forth, which is really helpful for our clients. I’m sure you’re controlling like 500 million of — I’m sure you’re busy, you probably don’t have time to go back and forth on every single property you own, just to get the insurance done for it.
So that’s one thing that’s really catapulted our growth – taking all the work off our clients’ hands and just putting it on our team. We’ve got a pretty robust team that just mines for the data that we need for the property, and trying to find portfolios that we think would be a good fit for our program. Then we reach out to those portfolios respectively.
Joe Fairless: What aspects of looking at ensuring a property influence the premium that is going to be offered to that property and the property owner?
Jake Stacy: A lot of people think it’s just straightforward on how the premiums are derived, but the factors that go into the premiums are so multi-faceted. It’s everything from construction type, to number of stories, the number of units per building, if there’s a sprinkler system in that building or not… Honestly, just even where the property is located, the neighborhood, what the crime scores are in that neighborhood…
For example, I’ve got a client right now who’s got a property about two miles from the Las Vegas strip. Their renewal has gone up maybe 30% just because the crime scores in that area have increased. Nothing else has changed, we’ve insured the property for years, but just because the crime score goes up, the premium jumps up.
So there’s a lot of factors that go into it, but the number one factors that affect the premium are gonna be the construction type, and just in general where the property is located. Obviously, a property in Texas is gonna be a lot more to insure than a property in California, just based on the exposures in those different states. In Texas you’ve got the wind & hail, you’ve got some hurricane exposure on the coast, but California, especially central California – you don’t have those types of exposure. So it’s very multi-faceted, it’s pretty complex to get into actually what drives the premium, but the number one thing would definitely be where the property is located and then just the property specifics – how big is the property, what’s it made of, how new is it (that’s another big factor).
Joe Fairless: What’s a story of a property that was challenging to get insured? Can you talk to us about an example?
Jake Stacy: Yeah, it seems harder and harder — in general, the market as a whole is getting tighter. Not yet from a pricing standpoint – prices are still pretty soft – but underwriting guidelines are tightening up a lot, so it’s getting increasingly difficult to insure properties that are older than 1980-1990. When you get older than 1980 especially, it’s very difficult to place the insurance for them.
I had a client in Southern California just buy — one was 1953 and one was 1950. It was a small pizzeria, and one small apartment complex… And that was very difficult, because the property didn’t look great from the outside, but it was a well-performing property, and had never had any claims, or anything like that. It was updated fairly well, but just because of the age of the building, it was difficult to [unintelligible [00:08:47].26] We’ve got a pretty close feel on the marketplace as a whole, so we know how to direct those properties to the correct carrier, and typically those carriers – we write so much business with them that they’re able to give us good prices, considering the aspects of those properties.
So that’s one recent example I was going through last week – a client’s 1950’s property; it didn’t look great on the outside, but had good bones, and ended up going through with the purchase, and we had to find a pretty competitive rate for him [unintelligible [00:09:11].10]
Joe Fairless: Older than 1980… A lot of the Best Ever listeners I imagine are thinking “Oh… That’s like 90% of the properties where I live.” Especially in the Midwest… In Texas not so much; a lot of stuff is new. But in the Midwest and the North-East you’ve got properties built in the 1800’s and early 1900’s… Maybe not large multifamily ones, but still, you’ve got a lot of properties that age. So I don’t even know what the question is; that’s just an observation. Any thoughts on that?
Jake Stacy: Yeah, it’s something that becomes very difficult to navigate with our clients, because by and large, most of the properties are older than 1980, probably nationwide on an average basis.
One thing that you have to take into consideration for the Best Ever listeners that are looking to buy those properties is “Has the property been updated?” The big things are if the roof more than 30 years old, an insurance company is not gonna want [unintelligible [00:10:04].27] Has the wiring been updated? Does it have the copper or aluminum wiring, the knob and tube? And the electrical panels that it has – does it have the Federal Pacific ones? Those were faulty from the start. So those are the big things that they’re gonna look at.
If the property has been updated and it’s older than 1980, you’re okay. But you definitely wanna pay attention to the update information that maybe the potential seller has on file, or if it’s gone through a major rehab.
Joe Fairless: Very helpful, thank you for elaborating on that.
Jake Stacy: I will add too, it does depend on if somebody is a single complex owner or if they have a significant portfolio, with more properties that we have, that we’re trying to market for the insurance coverage. If there’s a portfolio that has ten properties versus one, we’re able to get a lot more creative and have a lot more purchasing power in the market. There are carriers that will make exceptions. If we’ve got a portfolio where everything’s newer than 2000, and then there’s one 1975 complex in there, they’ll make an exception for that, and get a good rate for that one complex… So don’t be discouraged about the insurance for an older property; it can be done.
Joe Fairless: When you take a look at the types of costs of insurance – let’s go with 50+ unit properties. I know 50+ could be 6000 or 1,000, so I know that’s a large range, and if you need to define it more, then let me know, but we’ll go with that for now until you say otherwise. 50+ unit properties – when you take a look at the price to insure those types of properties, and look at it geographically (different regions) are there certain regions that are twice as much as other regions? Can you just speak a little bit about that?
Jake Stacy: Yeah, I can. For example, here’s something from my personal experience. One of my largest clients is up here in Seattle, and all they buy is probably 10-15 buildings, 350+ unit properties, and our insurance there is probably half the cost as it would be for the same building in Colorado or Texas, or even the Midwest states, just because of the different weather, especially.
So just looking at from Seattle to Dallas-Fort Worth is gonna be probably double the cost for insurance, per unit basis. And then you also see similar from California to Texas as well. And then one of my colleagues – he actually insures only properties in Florida, and Florida is definitely by and large probably one of the most expensive states, especially because almost everything is on the coast. So that’s another state that’s gonna be twice as much than probably Texas. Again, it’s all about just the exposure that properties have; especially in Texas you’ve got the wind & hail, and in Florida you’ve got the hurricanes. In California at this point prices are going up given the fires that recently happened, so… I’m not sure if that really answers your question, but that’s just one example that I’ve seen – Seattle to Texas is almost double the cost.
Joe Fairless: Wow, that’s really helpful. So Seattle to Texas – double the cost; and then Seattle to Florida is approximately — and I know we’re using rough numbers, but four times the cost.
Jake Stacy: Yeah. It’s almost all weather-driven nearly.
Joe Fairless: Anything that stands out to you about the North-East? We have a lot of North-East investors who listen to this show, as well as a lot of California investors.
Jake Stacy: North-East is relatively straightforward. There we deal with a lot of older properties, but the number one thing that we look for there – at least that we see most often as driving the price – [unintelligible [00:13:16].17] pretty severe freezing that happens, and that can cause a lot of pipes to burst… So carriers often are looking for plumbing updates that have been done to those properties. But by and large, the North-East is gonna be — I wouldn’t say it’s outrageously expensive, but it is gonna be more expensive than a North-West or a West Coast property, just given that and the age. And on average, the crime scores in the North-East are a lot higher as well.
I just recently helped a guy — he had 5,500 in like 16 different states, and they had a lot of stuff in Rhode Island, Connecticut, New York… Not New York City, but out in the rural New York. And up there his per-unit was a lot more expensive than it was for the rest of their portfolio, given — I was able to see all the data on their crime scores. Crime scores are almost double up in those areas, as well as the freezing that happens. So North-East definitely that’s something that’s driving the premiums quite a bit.
Joe Fairless: When you insure your properties, what are some things as an insurance broker you’re gonna make sure you include on your properties?
Jake Stacy: That’s a good question, I like that question. The first thing I wanna look for is you wanna make sure that the replacement cost for your building is actually what it would cost to replace the building in the event of a total loss, and that you don’t have co-insurance on it either. The industry uses just standard — for example, for California we give an estimate of about $150/sq.ft. to replace the building, but there’s some states where $150/sq.ft. you’re not even gonna be able to build half the building. So that’s one thing to pay attention to – the number one line item typically you see when you’re looking at your policy is the actual building limit. Break that down to a per-square-foot basis, so you can actually see what it would cost… Because that’s what a lot of developers use, too; it’s “How much per square foot is it gonna cost me to rebuild this property?” That’s the number one thing that for sure you should look for.
And then you wanna look at the co-insurance, which is pretty much just gonna be a penalty for under-insuring your property. Typically it’s 80%-90%, or it’s just waived. You always want it to be waived. So those are the two first things that I look for.
I also look for sewer drain and backup, especially on big rental properties. If you have a lot of tenants, there’s a lot of people using the facility, so you wanna make sure that if you do have a sewer backup situation, that you have ample coverage for it, because typically it can cause hundreds or thousands of dollars of damage throughout different units. And some carriers have a benchmark of only $10,000 of coverage; I always will sell $100,000 of coverage on that. So that’s another thing I look for.
Those are probably the big three property aspects that I look for. Then you obviously wanna make sure your deductibles are something you’re comfortable with. We have some pretty risk-averse investors that we work with, that are okay having lower premiums, but higher deductibles, and then we have some people that want the lowest deductible possible and they’re okay paying for it. And especially in states where you have those big weather exposures like wind and hail storms and tornados, you wanna make sure that your wind & hail deductible is something that you’re comfortable with.
Typically, it’s gonna be offered on a percentage basis, and you wanna look for if it’s gonna be a percentage basis per location, per occurrence, if it’s gonna be for every storm, if it’s gonna be for every building… And those are often percentage bases. So you wanna look at the deductible as well, just to make sure it’s something that you’re comfortable with. And even do a calculation; say “Okay, I’ve got a ten million dollar building and I’ve got a 5% deductible. Okay, is that even gonna offer me any coverage if I lose half of my building to one storm?” So that’s something that you wanna look for.
Then on the liability side it’s pretty run-of-the-mill. You wanna just make sure that you have two million aggregate, one million/occurrence. And if you want an umbrella, that’s something that you should definitely look at, too. And again, that’s just something that’s all about your comfort zone, how much you wanna go above and beyond with the excess liability coverage.
So those are probably a few of the main things that I would keep an eye out for.
Joe Fairless: Very helpful. Thank you for that. Based on your experience as an insurance broker, what is your best real estate investing advice ever?
Jake Stacy: Best ever real estate investing advice – like I said, I just got into the real estate investing space and there’s a lot of wantrepreneurs out there; there’s a lot of people that talk about wanting to be a real estate investor, and stuff, but there’s a lot of people that just don’t do anything. And I could have sat here forever, saying “Oh, I wanna invest, I wanna invest…”, but my wife and I decided “Let’s just do it. Let’s just buy something and start working on it.” So that’s how we ended up [unintelligible [00:17:12].02] We just decided to do something. So my piece of advice is just do something.
If you have a property worth buying, take the risk, just do it. It’s gonna be scary, it’s gonna be easy to talk yourself out of it, but just go for it, and even if it crashes and burns, you learn from it.
And then the second thing that I would say is just network. When my wife and I started to actually network and talk to people and actually put words to our ideas and achieving financial success with real estate, we were able to make all these partnerships with people that knew what we wanted and were willing to help us get there. So number one, just do it; number two, you’ve gotta network, you’ve gotta meet people. You’ve just gotta have a close-knit network that you can bounce ideas off of, find people to help you out.
A real life example that happened to me recently – we actually just met someone who wanted to give us 50% off all of our interior drywall, trim work and cabinets, just because I went up to him at a real estate investor meeting that I recently went to, and I told them about what we wanted to do. He was like “I’m actually a dealer for all these different things. Do you want 50% off?” I’m like “Yeah, that sounds great.”
Just the fact that we were able to network and meet someone, we were able to increase the profitability and margins that we can achieve on this one property that we’re doing right now. And then you always wanna make sure that you network with a realtor. Luckily, my twin brother is actually a realtor, so we’re able to see what’s going on on and off the market probably more closely than another person… But just do something and talk to people about it.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Jake Stacy: I am ready.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever way you’ve grown your business, outside of just the database that you have access to? Because I believe the database is something that will help you make it easier to convert leads; but if you’re growing your business the way you’ve talked about, it’s more than just about conversion, it’s about getting in front of more people, so… Best ever way you’ve done that?
Jake Stacy: That’s right. Cold calling. Hands down.
Joe Fairless: Best ever transaction you’ve been a part of?
Jake Stacy: I had a client through a syndication deal purchase over 400 units for about 97 million dollars here in Seattle. That was a fun transaction to be a part of.
Joe Fairless: Best ever tips you have for cold calling?
Jake Stacy: Be comfortable, and be very clear and concise the message you wanna get across.
Joe Fairless: What’s a mistake you’ve made on a deal, or maybe on a cold call even?
Jake Stacy: Talking too much.
Joe Fairless: Best ever way you like to give back to the community.
Jake Stacy: I love to volunteer my time, with high school kids especially.
Joe Fairless: So that’s all the questions for the Lightning Round. I do wanna circle back on the cold call thing… So let’s say you call me up; what do you say to me?
Jake Stacy: First of all, I try to keep my calls very short, and I try to have a claim that I can drop pretty instantly… Saying “Hey Joe, Rice Insurance. I wanted to increase the profitability of your assets while offering protection at the same time. Do you have five minutes to hear about a program that we use that I think could be beneficial for you?”
Joe Fairless: And how do you increase the — oh, because it’s lower insurance, so you decrease the expenses?
Jake Stacy: Exactly, yeah. And for some people, that value pitch is “Hey, I can save you time.”
Joe Fairless: Okay. How do you determine which way to go with on the pitch?
Jake Stacy: It’s through a series of questions, like determining what’s valuable to them. Is it the financial impact, or is it the time? A lot of people we work with it’s mostly the time. And honestly, for most people it’s a combination of the both. People aren’t gonna switch insurance for no savings, typically. Those things have to be achieved.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?
Jake Stacy: Check out our website, RiceInsurance.com. And always feel free to send me an email, email@example.com as well.
Joe Fairless: I learned a lot and enjoyed our conversation. Congrats on the growth, and thank you for talking to us about insurance, and things to keep in mind when we’re insuring a property – make sure your replacement cost is actually what it would cost to replace the property; think about it from a per-square-foot basis. Have no co-insurance; you want that to be waived. You want to make sure you have sewer drain, and backup coverage; you like to have at least 100k. Make sure you’re comfortable with the deductible, and also from the liability side have 2 million aggregate, 1 million per occurrence. Obviously, those variables might change based on the property and your comfort level as an investor, but generally speaking, that’s what you look for.
Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Jake Stacy: Thank you, Joe.