Jeremy Goodrich is the owner of Shine Insurance, which helps real estate investors protect their assets with the right insurance policy. A teacher at heart, he simplifies insurance by providing his clients with step-by-step guidance, shooting them ballparks, reviewing their policies, and making insurance work for their bottom line. He drops by in our podcast to reveal the biggest mistake that real estate investors make in using insurance and how to resolve it.
[00:01] – [02:52] Opening Segment
- Let’s get to know Jeremy Goodrich
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- From school to real estate
- The truth about managing risks in real estate
[02:53] – [12:10] Biggest Insurance Mistake in Real Estate
- The benefits of having an insurance policy for properties
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- “Passing” the risk to somebody else
- The key elements of how insurance really works
- Jeremy reveals the biggest insurance mistake that investors make
[12:11] – [20:36] Outlook on Insurance in the Real Estate Space
- What it means to be a “hard” or “soft” market in the insurance space
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- Status of insurance in multifamily
- The factors that underwriters need to consider
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- The biggest red flag investors should watch out for
- Jeremy shares his thoughts about public adjusters
[20:37] – [21:48] Closing Segment
- Reach out to Jeremy
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- See links below
- Final words
Tweetable Quotes
“You have to find service providers that you trust you believe in and you know, are good at what they do. And then you stick with them. And then you build a relationship.” – Jeremy Goodrich
“The biggest mistake is not establishing that relationship and just going for the cheapest price and then going from complex to complex and having a different advisor for every complex, and just picking the cheapest price.” – Jeremy Goodrich
“If the insurance company is doing you right, there’s no reason to hand 20 or 30% of the money you’re going to get anyway over to someone else.” – Jeremy Goodrich
Transcript
Jeremy Goodrich [00:00]
I think that the biggest thing you can do to succeed and the thing I see, you know, the difference between folks who are running family offices, and folks who are newer investors is this one thing. And that is you have to find service providers that you trust you believe in and you know, are good at what they do. And then you stick with them. And then you build a relationship.
Intro [00:23]
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson [00:34]
Jeremy Goodrich helps commercial real estate investors manage risk to get clarity around their strategy as the owner of Shine Insurance and the host of the REI Clarity Podcast. Jeremy, welcome to the show.
Jeremy Goodrich [00:45]
Sam, so good to be here. That was a mouthful of things to say, and you said it beautiful. Thanks for having me on the show.
Sam Wilson [00:51]
Oh, thank you. Thank you. I appreciate that. Hey, man, the pleasure is mine. Same three questions I asked every guest who comes on the show. Can you very quickly in 90 seconds or less tell us where you started, where you are now, and how you got there?
Jeremy Goodrich [01:02]
Absolutely. It all started in the elementary classroom. For me, I was an elementary school teacher for 13 years. And I loved it. And it was awesome. And then I met my wife as a part of that. And she’s a third-generation insurance agent. We took those two things and really put them together and started our own thing, said what happens if we just take something that’s kind of feels gross, feels awful people don’t understand, people don’t get, and we just make it like, you know, we’re teaching you, we’re educating you. We’re making it work in that way. And we’ve been doing that for the last eight years. It’s always been around real estate. I started working with first-time home buyers and teaching them that home buying process. That’s really what grew our YouTube channel to about 15 to 16,000 subscribers right now. And now I work specifically with commercial real estate investors across the country.
Sam Wilson [01:46]
That’s interesting. You know, in your bio, there are the words you said manage risk. I mean, I get it, yeah, we buy insurance, just in case, things go wrong. But what does that mean to be proactively managing risk?
Jeremy Goodrich [01:59]
Well, I think we, you know, as real estate investors, risk is the biggest thing we do. I mean, maybe in life in general, but you know, specifically in real estate, we’re taking risks. When you pick up 200 unit apartment complex, as $20 million. You know, there’s a lot of risk involved, there’s the financial risk, there’s the personal risk to your own journey, there’s the physical risks of people being injured, work your own, you know, team members, or people who live there, and then, you know, filing lawsuits against you, or whatever, there’s a bunch of risks. And if we worried about all the risks all the time, we wouldn’t do anything we wouldn’t get in our car, we wouldn’t light a fire in our fireplace, you know, we would do nothing. And so I think what I’m really trying to help commercial real estate investors with is, hey, you take a lot of risks. Let’s look at those. And let’s figure out how we could mitigate some of the risk that’s there or pass some of that risk on other people. So if something bad does happen, it’s not you that gets nailed on.
Sam Wilson [02:53]
Pass some of the risks on, what does that mean?
Jeremy Goodrich [02:57]
Well, insurance is a perfect example for that, right? So you could say, well, I don’t have $20 million to replace this comple if it were to go down in a fire, or I don’t have $10 million if something serious happens to someone, and they hire personal injury attorneys or something like that. But lenders are gonna expect me to be able to deal with that. So how do I handle that? Well, I pick up an insurance policy, and I say, hey, look, I’m going to pass this risk on to you, if something bad happens, you’re going to take care of that. Now, maybe I keep some of that risk with a $10,000 deductible or something like that. But I’m passing on a bunch of that risk to someone else, I’m going to pay, you know, 5% or 7% of the money that’s coming in my gross income from this property to be able to pass that risk on. But ultimately, I wouldn’t be able to do this deal if I didn’t do it anyway. So that’s one example of passing risk on. Another one is the contracts we make, right? When you say to someone, hey, if you’re going to live in this property, you’re going to pay this amount of money, and you need to stay for at least a year, or you’ll have to pay some penalties for leaving, well, that’s passing on the risk of constantly having people come in and out of the door, right? Or if we ask contractors, to have their own insurance policy, there’s all sorts of things in the weeds of the contracts that we use, both with our tenants in the contracts we use with our investors, and the contract we use with our contractors that really pass the risk on as well. So those that’s two examples.
Sam Wilson [04:17]
Yeah, no, that’s, that’s great. I wouldn’t be able to, you know, articulate that quite so well. You know, one of the things that we’re seeing right now, I saw somebody post this actually on LinkedIn the other day, they showed wildfires out last a complex burning, and they’re like, man, you know, what comments that were going around were something to the effect of how they’re seeing some of these commercial assets underinsured. And I sat there and I looked at that, and I just had the question. I’m like, how do you buy a 30 or 50 or $100 million complex and uninsured it? Can you give us some insight? I mean, you’ve got lenders, you’ve got you guys, as the agents looking at it. You got I mean, you got a lot of really smart people saying, “Yeah, that’s sufficient.” How does that happen?
Jeremy Goodrich [04:55]
Yeah, it happens all the time. And there’s a couple of levels to it. I mean, you know, If you have a lender, you’re right, that’s one of the stopgaps. But we’re always battling. Like when we’re in that position of buying a property, we’re looking at the NOI, we’re underwriting the property, not based on some bad thing that’s going to happen like a wildfire or hurricane or whatever a year down the road, we’re underwriting it, not really thinking about that stuff. When we put insurance in our, you know overviews, we just put a number in there. And I think that because of that, because we have insurance as this idea of a commodity, we’re just purchasing something, it’s like suntan lotion, I’m just going to buy a bottle of suntan lotion. But if you buy the wrong bottle of suntan lotion, if you buy a $2 bottle of suntan lotion, there’s a two-gallon bottle, the chances are you’re going to get a sunburn, you know, and I think insurance is the same thing. So it’s the type of thing that we can’t look at the quality, we can’t look at that shelf in that store and say what do I think is the best suntan lotion here. And so we oftentimes buy the cheapest one because it’s the only thing we understand. And there’s just so many spaces where we can make mistakes under insuring buildings or we can you know, insurance companies put things like ACV coverage on a policy or they put coinsurance clauses on a policy or they’re a non-admitted company. And then a wildfire takes out a bunch of stuff. And they don’t end up following through with what they’re supposed to. I just use a bunch of obviously inside terms there. But that’s the problem, right? Your listeners are sitting there going, man, you just said four things. And I don’t know what they are. Right? And they’re key elements of how an insurance policy works.
Sam Wilson [06:33]
Why don’t you break those down for us then?
Jeremy Goodrich [06:35]
Yeah, so you know, ACV coverage is basically in a claim scenario. They’re going to depreciate for the age of the thing. So let’s say you have 150-unit complex, and you know, you got 19 buildings, and you got to replace all the roofs because of a huge hailstorm. That could be two or $3 million, right. But those roofs were 20 years old, right. And so if you have ACV coverage, they’re going to depreciate and essentially pay out what it would cost to go get a 20-year-old roof, which obviously is completely impossible, you can’t go buy a 20-year-old roof. But essentially, that’s what ACV coverage is going to do, payout for you. So you think you have a certain amount of coverage, and you just simply don’t have it. You know the coinsurance clause penalizes you for under insurance. So in a claim scenario, they’re going to look at how much you should have insured that complex for and how much you did insurance for. And let’s say you only insured it for 60%, of what you should have insured it for, well, if you’ve got a $100,000 claim, they’re only gonna pay you 60% of what they would have paid for that. So they actually penalize you based on underinsuring. So not only are you underinsured, but you’re also getting penalized on top of that, for underinsuring. And I’ve seen scenarios where people have 50, $60,000 claims and get a five, $6,000 payout. And that’s why that happens because there’s lots of little nerdy elements inside of an insurance policy that if you’re not careful, get included when they shouldn’t.
Sam Wilson [08:01]
What was, you mentioned the word non admitted company? What was that?
Jeremy Goodrich [08:05]
Oh, yeah. So you know, there are companies have to say to a state, so insurance is very state-based. And if an insurance company wants to offer insurance in that state, I live in Indiana. So if someone wants to offer insurance in Indiana, they have two options. Either they can become admitted as a company in Indiana, which means they follow the rules of insurance in Indiana. And they’re also backed by government standards similar to FICA, similar to banking, you know, how bank, your bank account is backed by I don’t think FICA Is there anything I said there, but that’s some, FDIC. Thank you, you know, backed by the government. So if you’re admitted, you are backed by the government got back by the rules of the state, it just makes it more likely that in a claim situation, that claim gets paid. If a company is non-admitted, it’s a little bit more wild west, if something bad happens like a big hurricane in Louisiana right now, multiple insurance companies are collapsing because of ITA. And some of those were admitted. Some of them weren’t. Those that were admitted, the state is sending those policyholders to other insurance companies and actually requiring other insurance companies to pay the claim in the same way that company would have. Right? So that claim is still getting paid, even though that company collapsed. That’s an example of why admitted companies matter. Now in a state like Louisiana, Texas, Florida, a lot of times you don’t have an admitted option because there simply aren’t enough insurance companies offering insurance in those three states and you have to go not admitted. But if you can go admitted, you should.
Sam Wilson [09:45]
Yeah, I mean, I’ve never even heard of that. So how in the world would as commercial syndicators or real estate in or whatever we’re doing commercial, how even know like, hey, is this an admitted company like you just don’t see that stamp on the, you know the binding policy, right. But it or not, like I don’t know?
Jeremy Goodrich [10:01]
Well, I think it comes back to the biggest mistake. Like if someone’s listening to this episode, and so far, it’s just bad news. It’s just like, oh, man, it’s exactly what I thought, you know, insurance sucks, right? And it’s just a pain. And I, you know, I’m not gonna remember any of this, how am I gonna know. And I think that the biggest thing you can do to succeed, and the thing I see, you know, the difference between folks who are running family offices, and folks who are newer investors, is this one thing. And that is you have to find service providers that you trust you believe in and you know, are good at what they do. And then you stick with them. And then you build a relationship. And I think we understand that with lawyers, we understand that with property managers, we understand that with financial advisors, but we struggle to understand that with insurance advisors, and ultimately, it does come down to unless you want to get your insurance license, you’re not going to know all this stuff. I mean, if you, you know, as a listener, if you wrote down the things I just mentioned, ask your insurance advisor about those elements. Do I have an ACV Coverage? Do I have a coinsurance clause? Is this an admitted company? Great questions to ask. But ultimately, the biggest mistake is not establishing that relationship and just going for the cheapest price and then going from complex to complex and having a different advisor for every complex, and just picking the the cheapest price. That’s how you get burned by these types of coverages.
Sam Wilson [11:22]
Yeah, that’s a valid point. I’m not sure why that is that we tend to stick with our attorneys, we tend to stick with other professional services, but then for some reason we kind of relegate insurance to who can give me the best price. And when can we get it close? And okay, off we go.
Jeremy Goodrich [11:38]
You know, we’re trained to do that. I mean, Superbowl commercials teach us to do that, you know, we’re just taught that insurance is a commodity by the marketing that insurance companies, there’s some pretty darn funny marketing. I mean, I like a lot of insurance marketing out there. But it does tend to teach us that insurance is a commodity.
Sam Wilson [11:54]
One of the things we heard, you know, 8, 10 months ago, was it especially in the commercial markets, there’s been a hardening of the market. Where are we the, recording this, today is January 11. So this will probably go live sometime in February or January 11 of 2022. But where are we in the market right now?
Jeremy Goodrich [12:11]
It depends on the commercial asset. I mean, we’re definitely still in a hard market, we’re continuing to see a hard market, I think it’s softening a little bit. And for those who say, Well, what’s hard and soft mean, I mean, essentially hard means an insurance company can ask for more money and get away with increasing premium year after year after year, without a lot of repercussions because no other insurance companies are having their price go down. Right. And that’s a lot of factors are a part of that. But when you’re in a hard market, for me, a retail insurance advisor talking to you as a syndicator, or operator of a complex, I’m having to say, look, there’s been another 12% increase in your insurance premium, we’re still seeing that we’re seeing it soften a little bit, where we’re seeing it harden the most is multifamily. I mean, multifamily insurance is just getting killed. And I think a big part of it is that there are a lot of losses, multifamily insurance as a whole in the United States has not made a profit for about 14 quarters now. So insurance companies are losing money on apartment complexes. And you know, so that’s a reality. That is what it is, you know, if you’re in retail, if you’re in industrial, if you’re in other places, you should be seeing better prices. If you’re in self-storage, self-storage insurance prices are insanely low. And so it certainly depends on where you’re at. But multifamily, companies that I that used to say yes, to me, are saying no, that, you know, they’re getting out of multifamily properties, and it’s just a real battle to find good companies with good prices.
Sam Wilson [13:41]
Yeah, and that’s, I mean, that’s just a reality. So for anybody who’s underwriting deals right now, I mean, you know, underwrite it, and then build in, you know, premiums on top of that, with annual increases that are probably a lot more than you want even put in your spreadsheet, I would imagine.
Jeremy Goodrich [13:54]
Yeah, I think a solid 10%. You know, I think putting 10% in there is not so bad. And that’s what I see a lot of people do, and, and we’d like to expect that to be. I mean, I don’t like a 10% increase, frankly. But you know, a lot of our companies have flat renewals, especially in the Midwest. I mean, again, we’re saying it’s a hard market. And that’s kind of true, but it just depends a lot. I’m having real struggles in Florida, Louisiana, and Texas right now. But I can get a pretty darn cheap price in the Midwest. You know, that’s the reality of how insurance companies work.
Sam Wilson [14:24]
Right? Absolutely. Give us some examples or some stories that you know, personally, things that people did, right, where you said, “Hey, this was something unique. We planned it properly, and the insurance came in and worked.” You got anything like that, and you’re kind of repertoire of events that have happened?
Jeremy Goodrich [14:39]
Yeah, absolutely. I mean, this is a, you know, a family office example. A great insurance company, been taking care of them for a long time, had a third-floor office building, about 10 floors. A Midwestern office building, burst pipe, third floor Saturday evening, nobody’s there through Sunday. I think someone sees water flowing out of the front door of the building Monday or maybe on Sunday, something like that. I mean, we’re talking about a multi-million dollar water claim because of one burst pipe. And this is actually what I see more than anything else is insurance company comes in. There’s a collaboration between the contractors who are cleaning up the water damage, the contractors who are real rebuilding the scenario, the owner, who is operating the property managers, who are navigating all of it, and the insurance company, who ultimately is footing the majority of the bill, all working together, takes a long time, there’s plenty of things that didn’t go perfect, like, you know, any type of project that you do. But ultimately, at the end, the conversation with that investor was just like, “Hey, we made it through, it sucks. But everything happened the way it was supposed to happen. And I felt like insurance did what I was paying them to do if they ever had to.” And I would say 70 to 80% of the stories I hear are those stories, and certainly my clients, I’d like to think it’s much higher than that. But the stories that I think are, I try and tell are the ones that are more, hey, here’s what you did wrong because you didn’t you know, find a good advisor and make sure that your policy was actually right.
Sam Wilson [16:15]
Yeah, absolutely. Jeremy, I got a question for you. And when it comes to public adjusters, I know that there are individuals out there that will basically become an intermediary between you and correct me if I’m wrong here, ‘cause I might misunderstand this whole way. This all works. Yeah, you’ve got your adjuster that is, you know, assigned by the insurance company. And then you’ve got the insurance company, but maybe you as the owner of the landlord say, hey, the insurance company adjuster didn’t give me what he was supposed to give me. So they hire their own public adjuster. That just sounds like a really potentially toxic way to get what get done what you need done. Am I wrong? Tell me the pros and cons of hiring a public adjuster?
Jeremy Goodrich [16:53]
Yeah. So here’s my thought. I mean, when you think about public adjusters because we don’t know what they do as much I like to connect it with something we know a lot better. And that is personal injury attorneys. So when you are in an accident, you see all the act, the ads and things of that nature, “hey, we can get you all this money.” A public adjuster is doing the exact same thing. Now, is there a time for a personal injury attorney 100%? I know lots of stories. There’s a story recently someone was hit by a car, the insurance company was trying not to pay for their, even medical bills, let alone all the effects that had on their life. does that person need to go hire a personal injury attorney? Yes, absolutely a good quality person, no injury attorney who’s going to help them navigate that situation. Public Adjusters are the exact same thing. Public adjusters will come out they’ll get on your podcast and they’ll say you should hire a public adjuster every single time no matter what if you have a claim, hire us first. What you’re doing when you do that is handing over 30% of your claim, right from the jump. I just had someone who wasn’t one of my clients, but had seen me on social media and reached out and said, “Here’s the situation I’m in I had a total loss on a property. It was a $300,000 house, and I hired a public adjuster immediately, that insurance company paid out that individual’s policy limits the highest that they could payout within two weeks of the claim having been started, it was so clear that they had a total loss and need to be paid out.” The insurance company is going to pay out what they can payout. And the public adjuster in that situation took 20 or 30% of that claim, and the person is left with that much less to address the situation. So do I think public adjusters are bad all the time? I do not. Especially if there’s a big commercial claim that’s going to be a big process. These folks will come in and they’ll help you walk through the process. There’s a couple things you need to realize though. All the money flows through their bank account. So you sign a document at the very beginning, where you’re no longer allowed to talk to the claims adjuster, your insurance advisor is no longer allowed to be involved. As soon as a public adjuster is hired, I’ve got a bag out, I’m no longer allowed to help my client for free, which is what I do. And then all the money from the insurance company flows through the public adjuster’s bank account, and you kind of have to trust them for what comes through on the other end. There are a lot of bad public adjusters, there’s a lot of bad insurance. You know, there’s a lot of bad in any kind of industry. So I’m not trying to slam the industry as a whole. I just think there’s so many people that are really taking advantage of investors of insurance companies. And I think the biggest red flag for me is if someone is a public adjuster, and they’re a contractor, so not only are they taking the money from the insurance company, but then they’re doing the work as well. There’s so much bad that can happen in that space. So if you’ve got my advice is, if you’ve got a claim, start walking through it on your own. Now if you’ve got a huge claim, maybe you hire a public adjuster, you know if you’ve got huge properties you’re someone who knows you have a sense you can figure that out. But let the insurance company has have the opportunity to do you, right. And if the insurance company is doing you, right, there’s no reason to hand 20 or 30% of the money you’re going to get anyway, over to someone else. Maybe you’ll have a public adjuster on, and they’ll have very different story. But I just see so many claims go sideways, because people hire public adjusters, and now there’s no communication and the money isn’t flowing, and no one knows what’s going on. And it’s stretched out and stretched out and stretched out, because the only motivation for a public adjuster is to get more money out of the insurance company, no matter how they do it. And usually, that means making things take a whole lot longer than they would have otherwise.
Sam Wilson [20:37]
Wow. Okay, thank you, for breaking that down for us. Jeremy, if our listeners want to get in touch with you or learn more about you, what is the best way to do that?
Jeremy Goodrich [20:47]
Yeah, so I’ve created a resource that I think is super valuable for underwriting insurance. If you are wondering what you should put in your underwriting for the insurance piece, check us out at Shineinsurance.com/ballpark. You answer nine questions and we’ll immediately give you a ballpark number for insurance that you can put into your spreadsheets and have a sense that’s better than whatever that coach told you. If a coach told you, put 250 a door, please don’t do it. Go to shine insurance.com/ballpark. See what’s an actual number that makes sense for your underwriting. We can get that to you right away.
Sam Wilson [21:19]
Awesome. Jeremy, thank you for your time today. I do appreciate it.
Jeremy Goodrich [21:22]
It’s my pleasure. Sam, it’s great chatting with you.
Sam Wilson [21:24]
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.
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Email jeremy@shineinsurance.com to reach out to Jeremy or follow him on LinkedIn. Check out Shine Insurance to protect your real estate portfolio and increase your ROS (Return on Sleep)!
Check out https://www.shineinsurance.com/ballpark/ to get a ballpark figure for your insurance!
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