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There are four common mistakes people make in insurance, and you have to know them to avoid falling down the wrong path! Jeremy Goodrich, the host of the most-watched insurance agency channel on YouTube, shares his knowledge and insights on real estate investment, specifically regarding insurance. He’s been on the journey with hundreds of commercial real estate investors, helping them manage risk and get clarity around their strategy. Jeremy also shares essential factors to consider, like protection, which is crucial for pitching a deal to potential investors. He also emphasizes how your service providers are key members of your team. Listen to dive deep into this important information!
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4 Insurance Mistakes And How To Avoid Them With Jeremy Goodrich
In our episode, we have Jeremy Goodrich. He owns Shine Insurance. Before that, he was an elementary school teacher helping countless kids fall in love with Art, Math, Science and Writing. After thirteen years of teaching, he decided it was time to change the way people feel about insurance. He carried the heart of an educator over and he has been making insurance simple for first-time homebuyers and real estate investors ever since. He’s also the host of a multifamily real estate podcast and YouTube’s number one most watched independent insurance agency channel.
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Jeremy, welcome to the show.
I’m super excited to be here. As you know, I love your investing strategy and what you all have been doing with NextLevelIncome.com and everything else. I’m excited to dig in with you.
We’re going to talk about one of my favorite topics, insurance, which a lot of people may cringe when they hear that. We are going to make it fun. I got off of another show and we talked all about cash value life insurance. We talked about it in relation to investing. That’s what I want to talk about, but before we do that, I had a great time on your show. If anyone didn’t catch that, share a little bit of your background with the audience in how you ended up where you are now.
I spent most of my adult life as an elementary school teacher for thirteen years in a 3rd and 4th-grade classroom teaching Math, Reading, Writing, and how to play hockey. My favorite thing to teach was how to play street hockey. Close to the end of when I was a teacher, I met my wife and now business partner, who’s a third-generation insurance agent. She was working at her dad’s agency. He ultimately sold his agency and she felt like that wasn’t where she wanted to be anymore.
I was pretty done with teaching and so we came together and said, “What if we start our own agency, do insurance differently, change the way people feel about insurance, and try to provide smart insurance and simple processes?” I rolled into the insurance world with zero background in sales or business ownership. I did have a lawn mowing business from the age of twelve. When I was a teacher, I would roll in my truck and trailer with my mowers on the back and teach all day, and then mow all afternoon. I did have some experience being a business owner. We started Shine and I dug into how I can add value to people’s lives.
I was doing home and auto insurance and I immediately connected with first-time homebuyers. They were asking me about insurance, but they were also asking me about how to find a good realtor, a good lender, what in the heck is a title company, an appraisal or an inspection. All these questions were coming up and I didn’t know the answers, but I wanted to provide them with those. I’m a teacher by heart, so I want to answer questions. I started asking realtors, lenders and title companies, and recording it in videos and posting it to YouTube. That started to snowball.
We now have about 15,000 subscribers on our YouTube channel. Real estate became the heart of my story in connection with insurance. It started with the first-time homebuyers and then it moved into first-time residential investors, 1 to 4 family investors, and for the last couple of years, I’m 100% connected with commercial real estate investors.
During that time, I’ve had a few podcasts and I’ve always created podcasts that serve the community that I’m a part of. That’s how REI Clarity was created, which was the show you came on. The intention is to help real estate investors grow their portfolios, have a successful journey, and find that financial freedom that we’re all looking for.
I love your website. You have all this information on there. It’s unlike any other insurance website that I’ve personally seen. A lot of the audience know I worked for State Farm when I was getting started in my career, so I’m familiar with the insurance business for sure. I love talking about insurance. I think it’s an interesting topic for a lot of different reasons. Why don’t people like to talk about insurance?
There are a couple of reasons. One is nobody likes to talk about bad things that happen. Inherently, when we’re talking about protecting our money, our portfolio and ourselves, what are we protecting ourselves from? We have to consider those things and wonder about those things. All of them are potentially catastrophic and have major pain points. I think insurance asks us to connect with a pain point which is something we don’t naturally do as humans. I think that’s the first thing.
The second thing is insurance has such a bad name. People see insurance as maybe something I have to do, my lender, the BMB, or whoever makes me have. There’s this concept that protecting yourself through passing the risk to someone else is somewhat forced upon you. There are so many stories of when claims don’t get covered. Those bad things happen. You paid all this money in and suddenly, the insurance company doesn’t do what it said it would do.
There are a lot of reasons for that as well, but when we put all three of those things together, I think a lot of people just say, “This piece of the puzzle, I don’t want to understand and I don’t want to dig into. I think it sucks so I’m going to push it to the side,” and think it’s bad. There are a lot of legitimate reasons for that, but with a little bit of understanding, you can parse that, find an understanding and maybe even a little bit of excitement about it.
I have a different story with insurance. My father died when I was five and he accidentally had an extra policy. That policy helped me pay for college. It helped me come out of school with no debt. In addition to going to a school, I got in-state tuition in addition to working through school and getting scholarships. It wasn’t a ton of money but it was enough so I have a little bit of a different story with respect to that. One of the other things I’d like to say is no one ever said, “I have too much insurance.” Especially with life insurance, there’s never enough.
You lost your dad. I’m sure that you would hand that money back in a second if you could have a couple more weeks with him, but that happened and that’s awful. I have a similar story. I lost two children. Mine is more around health insurance. They spent lots of time in hospitals over the course of years. Millions of dollars in medical costs would have completely sunk me except for my health insurance, so that’s another insurance example of bailing me out, personally.
Some folks who are reading are like, “I want to stop this conversation already because I have to think about real things.” The reality is these are real moments in our lives that we’ve experienced and insurance helped us a little bit not to get rid of the pain or take away the reality, but to address the financial situation that otherwise would have been a lot worse.
That’s why I want to have this conversation. I talked about it in my book which is make, keep and grow. Make more money, keep more money and ultimately, grow your money. If you don’t keep your money, whether you lose it through taxes, proper entity planning, a liability, or you lose it because of lack of insurance, you can never grow your money. That’s why this is so important. The thing is you don’t have to think about it every single day. You can do some proper planning and you may never have to think about it ever again. Let’s hone in on real estate now. Let’s talk about something that the audience loves to talk about. Why is insurance so important in real estate?
It comes back to that keep piece of your description. One of our human instincts is to hold onto the things we already have. If I say to you, “Would you rather have a brand-new Maserati or not have the car that you have now at all?” You would say, “I don’t need something new. I would rather hold onto the thing that I already have.” When it comes to real estate, what are we doing when we talk about insurance and risk management in general? We’re protecting our money and the properties that are ultimately an asset that can become money. It matters because of the way that it protects us.
When I talk with investors about their real estate, I try and talk from a broader risk management perspective. Let’s talk about your strategies around risk management. Insurance is one piece of those, but LLCs, tax strategies, safety measures on your property, the way that you do CapEx projects, and things of that nature are all elements of risk management. Ultimately, these are going to help you to make more money and to protect the money that you have. If you are investing in multifamily or office, whoever the tenant is will feel happier and make them feel like they are in a more elevated space and therefore, be more willing to pay more rent. I think it all comes together in a holistic way, and insurance is one piece of that risk management puzzle.
I love the way you brought those two together. You’ve worked with residential as well as commercial properties. Talk about some of the differences because most people understand, “I can open my drawer here and pull out my State Farm policy and look at our residential policies,” but commercial policies are quite different. Talk a little bit about that. For somebody that owns their house but maybe they are in apartment syndication, what’s the difference between a 200-unit apartment, how is that insured, and how does the company see it versus your typical home?
Insurance Mistakes: Insurance helps us. It doesn’t get rid of the pain nor take away the reality, but it addresses the financial situation that otherwise would’ve been a lot worse.
As far as the basic coverages that exist in insurance policies, many of them are not that different. You have four primary coverages. One is coverage for the building. If it’s your own home, that’s the building. If it’s a 200-unit apartment complex, it’s the building. We want to make sure we cover that properly. The second one is the stuff inside the building. If you are covering your own home, all the stuff inside your home is yours, so your insurance policies should protect that. You want to make sure that if the entire place burns down, you can replace the piano, the couch, the bed or the clothes.
In an apartment complex, it’s a little bit different. If you imagine picking that complex up, turning it upside down and shaking it, most of the stuff that falls out of that apartment complex is not yours as a property owner. You don’t have a lot of responsibility for the belongings inside that complex. In fact, I think you should always require a renter’s policy as part of your lease agreement. That’s coverage number two for an apartment complex. You don’t need to worry about that so much. Unless you have an office, then you want to cover this stuff in your office.
The third coverage is a loss of income. If you have a 200-unit complex and the whole thing goes down, that’s a pretty catastrophic idea, but then you can’t make money off of that property for the time it takes to rebuild the property. Your insurance policy should have coverage for that lost income. That is specific to commercial insurance. You don’t lose any income if your own house burns down. There are variations of that for your own home in an insurance policy, but we’re in the real estate world so I’ll move on from that.
The last one is liability coverage, so coverage for bad things that happened to other people because of you or your properties. On the home side, those are lots of things. You are riding a bike and you cause a car accident, or someone comes over to your house and they are injured in your backyard. I have so many examples of this. Someone had a party and there were a bunch of kids in the backyard and a kid hurt himself but not terrible.
It’s an injury that required some stitches at the hospital and it was maybe a $2,000 situation. The health insurance said, “Where did this happen? Over at this other person’s house? We’re going to go after their home insurance for that.” That is liability coverage that is ultimately paid out. It’s not a big deal. Of course, there are bigger and much more catastrophic stories.
I don’t believe in telling super scary stories and scaring people, but there really is stuff that happens that’s bigger. Of those four coverages, building coverage, personal property or business, personal property coverage, loss of income and general liability align in many ways across homeowners and commercial policies. They are just set up for the different uses of that given property.
As an investor and also as an operator, we’ve had two fires. The fire burned the entire building down. That’s in one of our properties in Charleston. The fire burned a unit down in another property. We’ve also had a hurricane that blew off and damaged the roof on about twenty units out of a little over the 200-unit property during that period. We’ve seen that. We turned the remains of that one building into a park. It made more sense to take the insurance proceeds in that case. In the other cases, we fully utilized that insurance. Investors are maybe surprised to hear this, but fires aren’t that uncommon in apartment buildings.
I’ve got one I’m working on. It’s about a 110-unit complex and multiple buildings. In the last few years, it had one fire that took out an entire building and unfortunately, someone passed away in that fire. There was another fire in another building, and then a wind and hail claim. That was a $400,000 claim, so the payout from the insurance company on that property is about $2 million total.
If you look at multifamily in specific across the country, insurance companies have lost money for the last thirteen quarters in a row, so a few years now on multifamily insurance. There is a reason why the insurance is so expensive and it still isn’t covering the total losses that insurance companies are experiencing.
It’s super important for a business. One of the bigger reasons I had you on is because you are also an investor. You understand this market. How does being an investor in these sorts of properties make you better at what you do?
I’m a passive investor now. I’m not an active investor in any deals, mostly because I have so much coming through as an insurance advisor. I see OMs every day and I do deals constantly. How I’m treated by investors tells me a lot about what they will be as an operator of a property. I have what you might call inside knowledge on some of the things that would make a good deal or not. I get involved as a passive investor. Most of the time, I’m the insurance agent on the passive investment with the passive investor, so I know that the property is properly protected.
I have the answer to a lot of the questions that we’re talking about in this conversation, but I think that the biggest insight I would have for anyone is two things. One is considering protection a key element of how you pitch a deal to potential investors or passive investors. When you are building your slide deck, how are you managing risk? Put that in your deck and say, “This is how I am protecting your investment and making sure that there won’t be a cap call, and that I won’t have to close this thing down because something bad happened. Here are the ways that I’m managing risks.” That would be one of my biggest insights. Think about risk management holistically.
The second is to think about your service providers as key members of your team, whether those are your lawyers, your accountants, certainly your property managers, your brokers, but also your insurance advisor. I think that tends to be the one where we’re very tempted to be like, “I’ll get four quotes and I’ll look at them. Whatever is the cheapest one, I’ll choose that one.” You wouldn’t do that with leases, with property managers or with your accountant. We need to treat our insurance advisors the same way.
You need people on the team that you have relationships with. They understand your business. It’s not just multifamily. It’s specific areas within multifamily. From an investor perspective, you look at a couple of different deals. I’ve heard this and people are like, “I wouldn’t invest in Florida because of hurricanes.” From an insurance perspective, how would you respond to somebody that said that?
It’s fair to figure this cost into your assessment of whether it’s a profitable deal. That’s one of the mistakes we make in a place like Florida. I would add an equally high risk of flood zone almost anywhere in the country.
Let’s say you’re in or close to a flood zone, but I just said Florida because some people are like, “Florida has hurricanes.”
Florida is an interesting insurance market altogether because the entire state of Florida is considered a high-risk coastal. The litigation law in Florida is different from any other state in very strange and interesting ways, which tend to make liability claims pay out a lot more.
I really stepped in it with this example, didn’t I?
That’s what we should be thinking about. People invest in Florida and it’s great. You just have to know that your insurance is going to be a larger number. Instead of 4% of the gross revenue, it’s going to be 6%, as long as the deal still pencils with that higher insurance cost. It’s similar to property taxes in a bigger city or somewhere that has higher costs.
The mistake I see people make a lot is they use the seller’s numbers for insurance, plug those into their underwriting, get deep into due diligence before they actually contact someone, and find out that it’s in a flood zone. The seller didn’t have to have flood insurance because they didn’t have any lending going on. As the buyer, you will need flood insurance, so now the insurance, instead of being $400 a door, it’s going to be $800 a door. That made a huge dent in your NOI. It’s more about knowing that line item and making sure you are right about that line item.
Insurance Mistakes: When we talk about insurance and risk management in general, we’re protecting our money and the properties that are ultimately an asset that can become money.
You had a little webinar here that I was looking at on your website. You talk about four insurance mistakes. We started talking about mistakes and we might have covered some already. Can you go through those four insurance mistakes that investors or people make and how can we avoid them?
Bidding For Insurance
Yeah and I’ll do it real quick, then you can tell me what you’d like to hear more. I think the first mistake that I see clients make is bidding for insurance. They are going out to four brokers and saying, “You give me a quote.” The way it works behind the curtain is it doesn’t work to your benefit. It’s not like you are doing that with a contractor where they are figuring it all out on their own and there are no barriers.
When you ask multiple people to go out, they end up cross-contaminating the companies that they are looking to try and get insurance for you from. When those company underwriters see that there are multiple agents coming to them, they say, “This operator doesn’t know what they are doing. They are not going to stick with us for very long. It’s a bad look.” Insurance companies, especially on the larger commercial side, are looking at the story. That directly affects whether they offer coverage or not, and what price they offer coverage at.
Using The Seller’s Numbers Without Any Insight
It’s similar to commercial lending, where personal lending is a little bit more regimented. On the commercial side, they’ve got some movement and potential to change the numbers if it works and makes sense. It’s the same thing on commercial insurance. When they see some of that cross-contamination, they’re like, “Forget it. I’m not going to do it,” or “I’ll throw out a high number if they want insurance for me.” It’s going to be much higher and that’s what we don’t want. Mistake number one is bidding it out. Mistake number two is using the seller’s numbers. I already explained why that’s a problem.
I have never seen that being an issue.
It’s a huge issue. The seller has 10,000 units and you are picking up a 100-unit building for the first time. The number is going to be drastically different per unit. The seller didn’t have to have a loan but you do have to have a loan. That is drastically different. The seller was willing to carry a $100,000 deductible and you are not able to do that. That’s a drastically different price. The second example is using the seller’s numbers without any insight.
Not Giving Your Insurance Agent Enough Information
The third example is not giving your insurance agent enough information. Here’s an example. I had someone on my show who described to me that they had picked up a single-family property and they were going to flip it. They called their insurance agent and said, “Add so-and-so property to my schedule.” The insurance agent says, “Great,” and added it. They had a contractor out there that was drilling into the wall that created smoke and smolder. Everybody left for lunch. Long story short, the entire house burned down.
They turned in the claim and the house had been put on to the schedule of properties as an annual tenant-occupied building. In other words, there’s someone living in that house. This was a clearly vacant property that had no one living in this house. In the end, the claim was denied. In this case, it wasn’t the end of the world. This owner had multiple properties. They lost $190,000 but it didn’t kill them. That’s the third one.
Don’t Speak Insurance
The last one is, “I don’t speak insurance.” If you’re reading this and you’re like, “Every time I talk to my insurance agent, they speak in total Greek. I feel dumber after I get off the phone than when I got on the telephone,” that is not a you-problem. That is a them-problem. You don’t have to know every word of the lease that you put out. You don’t have to know every word of the property management agreement or contract that you have. You have a lawyer for a reason.
You have to trust people on some level but you do have to speak the language a little bit, and you have to expect that your service team and the people around you can speak your language as well. There is a lot of nerdy insurance ease. You’ll notice that I didn’t use it at any point in this conversation because that’s not who I’m talking to.
When I finish a conversation with you and turn around and talk to an underwriter at an insurance company, I change my language. It’s like an interpreter who speaks both English and Spanish. I think that’s the capacity that a good agent should have. You have to believe that you can speak insurance a little bit. Those are the four biggest mistakes that I see investors make all the time.
I think those are fantastic. You see it in taxes, in insurance and improper assumptions of having a conversation talking about being an engineer, and how that relates to being an investor. People make the wrong assumptions. You’ve got to understand these things. These are very simple things that you can use over and over again if you understand what Jeremy went through.
If you could say there is one thing that real estate investors can do to better protect themselves, is there something that they can do now like call their insurance agent, or something that they can apply in every deal aside from those four things? What would you say is something actionable people can go out and do?
One very easy thing to do is make sure that your buildings are insured to value. If you want to get in the weeds, there’s a deeper weed of thing. All you have to do is go to your insurance policy, pull it out and see what those insured values are. Think about the square footage of the property that’s insured. Be insured to at least $120 a square foot. It depends on the area, the part of the country, and the building materials.
If you’ve got an A-class property, you are going to need a higher number than if you’ve got a C-class property. If you really want to know, ask a contractor, “What would it cost to rebuild this building?” Make sure the number that you have on your insurance policy is not the market value. The market value is so much less important when it comes to an insurance policy than the replacement cost value of the building. Go to your policy now and look at that number. Think about what it would cost to replace that and consider fixing that if it’s problematic.
My insurance company gave me a higher replacement cost than my appraiser. I was like, “You missed a bedroom. What are you doing here?” That’s a true story. The guy missed a bedroom and the bank was like, “We’re fine with it.” I was like, “Of course you are. You guys are charging me more money.” I finally got the VP on the fund and he’s like, “This is a bad appraisal. We’ll redo it.” I was like, “Okay,” then he goes, “Give us 2 to 3 months to redo your loan.” I was like, “2 to 3 months?” We ended up going with that appraisal that missed a bedroom. It was pretty humorous.
Humorous in a “Let’s get this fixed” way. There are a lot of things that make me laugh but I don’t necessarily love them.
One of my favorite Simpsons quotes is, “It was funny. It was just not ha-ha funny.” I want you to share how people can find out more information at your terrific website but first if you could go back to your 25-year-old self and give yourself one piece of advice, what would it be?
When I was 21, I thought to myself, “When I’m 25, I’ll have it all figured out.” I did not have that all figured out. Twenty-five was the beginning of a decade that I lost some kids. It took about a decade to experience that, so I would probably warn my 25-year-old self about that particular experience. On the topic of real estate, business ownership, entrepreneurship and insurance, I would say there’s no finish line. That’s the biggest thing that we struggle with, as a young person. It’s like, “I just have to make a map and then work towards a finish line, and then when I get to the finish line, it’s going to feel good.”
Over the course of decades, you keep thinking, “At some point, I’m going to get to that finish line.” What I would tell my 25-year-old self that I didn’t know then that I do know now is it’s a journey. It’s about the journey. Many people say it better than I did, but the idea that it’s about the journey more than the destination is the biggest piece of advice I would give myself.
Insurance Mistakes: You don’t have to know every word of the lease that you put out. You don’t have to know every word of the property manager, agreement, or contract that you have.
That’s great advice. It’s like you try to run to the edge of the Earth and then you realize it’s round and just keep going around. There’s always somewhere else you could go. I love your website and all the educational resources. If people want to learn more, see your YouTube channel, or listen to your podcast, what’s the best way to see all that to get all the information and get in touch with you?
ShineInsurance.com is our website. We have a program called the Shine Shield program where we put together some of the things that I talked about this and give you the capacity to talk about your risk mitigation. Even saying you are a part of the Shine Shield program is a way to tell your investors that you are taking care of your properties. You can find all that at ShineInsurance.com and then the REI Clarity Podcast is at REIClarity.com.
Shamelessly, I will say that’s a great podcast and you’ve had some great guests on there too. Speaking of which, you’ve been a phenomenal guest. Thank you so much for shedding some light on the topic of insurance, some humor, and also some great actionable items that everyone that invests can use.
It’s my pleasure to come on. I appreciate the opportunity to share.
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I hope you found this episode valuable. I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Check out NextLevelIncome.com/Coaching to get a free copy of my book, audiobook, and much more. I’ll send you a copy of my book and cover all the shipping costs as a thank you for tuning in to the show. Also, please like, share and take 90 seconds to give us a rating on Apple Podcasts.
Important Links:
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Apple Podcasts – The Next Level Income Show
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YouTube – Shine Insurance
About Jeremy Goodrich
Jeremy’s been on the journey with hundreds of commercial real estate investors helping them manage risk and get clarity around their strategy.
As the host of the most-watched insurance agency channel on Youtube, Jeremy shares stories & answers questions in a way that actually makes sense and is interesting. His appearance on your show will change the way you are your listeners feel about insurance.
He will change the way you listeners feel about insurance.
Jeremy will answer these questions and any others you’d like your listeners to understand better. He’ll explain why 4 out of 5 investors aren’t properly protected and how to fix that. Jeremy speaks the language of real estate investors. It will be an insightful conversation about a topic all of your listeners need clear insights around but don’t know what to ask.
Tagged: commercial properties, policies, liability claims, real estate investors, insurance claims, insurance agents, Group 3
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