On this episode of the InvestFourMore Real Estate Podcast, I interview Darrin Gross. Darrin is a commercial insurance broker, rental property owner and podcaster as well. Darrin started out as a traditional insurance agent, but saw the potential with real estate investing after working with several real estate investors. Darrin started investing in properties himself and then moved his focus from traditional insurance to real estate investor insurance.
Why can it be hard to get insurance on rental properties and flips?
Darrin talks about why it can be tough for some real estate investors to get insurance. Usually it is not tough to get insurance on a couple of rental properties, but most insurance companies do not like to insure more than four properties and many do not like to insure flips at all. Traditional insurance agents are no trained to deal in investment properties, because most consumers will never flip a house or own a rental property. It is not surprising that many insurance agents do not have great insurance options for real estate investors.
How can you get insurance on multiple rentals?
It may be tough to get insurance on real estate investments, but not impossible. Darrin tells us that getting insurance on a few rentals is usually not very difficult. When you need insurance on many rental properties it can be much tougher. You may have to look for commercial insurance polices. With a commercial insurance property you can put multiple rental properties on the same policy. Not only can putting multiple properties on the same policy make the accounting easier, but it may also be cheaper than having individual policies.
How can you get insurance on fix and flips?
If you can find insurance on fix and flips, Darrin says that many times you will be getting a builders policy. With a builders policy you will get asset coverage, but in some cases you may not have any liability insurance. So if someone gets hurt in your property you may not have any coverage from your insurance! You need to make sure you know exactly what your policy does and does not cover. With one of my recent flips we had the copper stolen out of the home. This was not covered because my policy did not cover theft! If you have a policy that does not cover liability you may want to consider getting a general liability insurance policy to cover your personal or company’s liability.
Darrin Gross can help you get insurance on your fix and flips and make sure you have the right coverage in place. I can tell you that I am going to look in-depth at my costs for insurance on my flips and make sure that I have the proper coverage in place. Darrin also has a great program for investors who are doing ten or more flips a year.
What else can you do to protect yourself with insurance?
Darrin stresses that you need to make sure the people you hire to work on your property are insured. It is even better if the contractors will add you or your company as an additionally insured on to their policy. That means if the contractor does something wrong and someone decides to sue the contractor and the home owner. The contractors insurance policy would defend the home owner as well as the contractor.
When you own rental properties or flips you have to make sure you have the proper insurance in place and you are not paying too much. If you are interested in talking with Darrin about your business you can sign up for his free flipping insurance report here. If you listen to the episode he even gives out his cell phone or reach him on www.jdarringross.com.
Reminder: I am having a live rental property webinar today (Wednesday)! Be sure to sign up here.
If you liked this episode, be sure to leave us a review!
Transcript coming soon
[0:00:14] MF: Welcome to the InvestFourMore Real Estate Podcast. My name is Mark Ferguson and I am your host. I am a house flipper. I flip 10 to 15 houses a year, I own 13 rental properties with a goal to buy 100 by 2023. I’m also a real estate agent. I’ve been licensed since ’01, I run a team of nine and we sell close to 200 houses a year.
So on this show, we’d like to interview house flippers, landlords and the best real estate agents in the business. So stay tuned for some great shows, if you want more information on my rentals, on the numbers, on how I buy properties, check out investfourmore.com.
[0:00:57] MF: Hello everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore real estate podcast. I’m very excited. This week, I have a great guest, Darrin Gross who is a commercial property insurance broker, he’s also an investor himself and even has his own podcast show. Darrin, really happy to have you on the show, thank you for joining us.
[0:01:21] DG: It’s great to be here Mark, thanks for having me.
[0:01:23] MF: Yeah, I’m very excited because I have not talked about insurance on the podcast yet and through my own personal experience, I know it can be difficult getting insurance on flips, even rental properties sometimes, and most traditional agents don’t exactly know a lot about getting insurance on flips, they outsource those to other companies and you don’t always know what you’re getting with those policies because they’re not familiar with them. I’m glad you’re here to kind of set us straight and let us know what different products there are for flippers and how they can improve their business.
[0:01:56] DG: Yeah, we can certainly talk about that, we’ll try and keep it interesting.
[0:02:00] MF: All right, sounds good. Very cool, well yeah, before we get too in depth on the insurance side, you are an investor yourself, you’ve been an insurance agent for quite a while, tell me about your history, how you first got started in the real estate field.
[0:02:15] DG: Sure. I got started in insurance back around 1990 and about 1993 I went to work for an independent insurance brokerage and one of my first customers was a guy that I could swear he stayed up too late watching those TV shows, “I’ll show you how to buy a property with no money down,” and he was calling me up just about every other week or so, telling me about a new property.
I’d go out and try and point my polaroid camera in a way that would hide all of the issues that the house had, whether it be a tree growing through the chimney or broken windows or whatever. Take a picture so that I could add the coverage with the insurance company. A while went along and I kept hearing a story and he was telling me how he was making this much here and that much there and this much here.
I kept thinking, “I got to get in to this, this is crazy, this guy is making a hundred here, a hundred there every month, it adds up after a while.” Along the way I heard him say that he was looking to add another property that he wanted. What he needed was $10,000 to go do this other deal. That was kind of in the back of my mind and we were standing at one of this properties and I finally thought, “I got to do this.”
And he goes, “You want to get in? I’ll sell you this property right here.” This was a non-conventional duplex, it was definitely rough, it was not anything pretty but he was telling me the numbers and how it all worked. He offered it to me and I can’t remember exactly but I’d say it was 120, $125,000, I can’t remember this like 1994 maybe 95. Anyway I went home and I think it was a holiday weekend because I remember just sitting at the coffee table, had the yellow legal tab and I was just — this was back before I even had any kind of a mortgage calculator, I had all the — if you’re charging this much, this is the factor most applied by to get your payment.
So I’m running my calculator, my yellow tab and I’m going on and on. I can’t make the numbers work. Finally it dawned on me that what he wanted and what he needed was $10,000 and I had a line of credit that I hadn’t used that had that much and more available to me. I kind of backed in to it and I said, “Well shoot, if I give him this much down, the $10,000 that he needs and I offer him a price,” and I want to say I offered him $90,000 or there about, “the numbers worked.”
And I offered it to him, and he goes, “Yeah sure, let’s do it.”
So I gave him my $10,000, not my $10,000, I gave him the 10,000 for my line of credit, he took the, carried the note on the property and I became a landlord and I was scared to death, like I said it was a rough property, I was racing to the bank every month to pay the payment against the line of credit and to pay him and I learned about a management company, they got paid first and I just was like a very educational time in my life and that was how I started and just to kind of give you the full wrap up on the thing.
Seven months later, a contractor customer of mine who wanted to get in to investments, I told him about this property I had and I offered it to him at again like 125,000 or whatever, maybe 135, I don’t remember. He goes damn, let me buy it. I called up the seller I bought it from, he agreed to carry the paper for this guy as a second because we found the lender that would pay off the first and I think in a matter of seven months I made like $25,000 which to me was just like, “Are you kidding me?” I was hooked and I’ve been investing ever since.
[0:06:18] MF: That’s a pretty good success story for your first deal. That doesn’t happen too often. Yeah, it sounds like you learned a lot on the fly really without knowing a whole lot about what you’re doing at that time, which many times is the best way to learn if you ask me but…
[0:06:33] DG: Well I refer to it as I was baptized by fire and got plenty more stories with other properties as well but that was my first one.
[0:06:42] MF: Very cool. How did your investing progress? Did you keep buying rental properties, did you do some flips at all? How did you keep staying in the business?
[0:06:52] DG: Sure. I’ve always had kind of more of a long term view, I’ve always viewed, looked at it as kind of my pension plan, kind of retirement plan. My wife and I, our goal has always been to acquire and hold, get them paid off as quickly as possible which we’re reevaluating now, we’re looking at possibly leveraging up and getting into some bigger properties. But we sold that first one and I didn’t even think to do a 1031 exchange at the time which past is past, can’t go back and change it now but shortly thereafter, had another opportunity presented to me and it’s kind of like one of those things where if you drive a red car, you notice everybody else is driving a red car kind of thing.
I was hooked on the whole rental investment or investment property conversation and just a whole mindset and I was talking to another friend who had had an option on a property that he wasn’t able to exercise and the option came up, I stepped in and took that one over. Still have that property, slowly but surely we have acquired some additional properties, we try to think some. I’ve paid full retail on some of them which was just a horrible mistake at first, time is fixed there, rent’s continued to increase and the properties appreciated.
We started out with the one we added three more in an area that was kind of close to each other, in fact, one of those was a house we used to live in, we converted into a rental. I’ve added a couple of more and I think that the thing that I have learned that was really a game changer for me was the learning the numbers upfront and knowing exactly my cost, exactly what the rents were going to be and exactly, if I was going to make money or not on the back end.
Now, we have cash flowing properties, cash in the bank, we’re waiting to make our next move and it’s very rewarding. That’s not the way it was in the beginning. The beginning was buying things and bleeding upfront and just thinking it was kind of making up on volume or over time. It did over time, it did workout but it was not the way that we do it now, we make certain we’re cash positive from day one.
[0:09:20] MF: Right, no that makes sense and I really preach that a lot on my blog is, it’s not as easy as many people think to buy a property that doesn’t cash flow. Usually your expenses are higher, your vacancies are more and you don’t realize how much money is going to be sunk into it and it’s not a lot of fun writing a check every month for a property that’s supposed to make you money. Cash flow is definitely the way to go.
[0:09:44] DG: Yeah, like I said, it’s a game changer, it’s probably been, coming up on 10 years since we’ve seen the light and just absolutely positive cash flowing properties. It’s a big — it’s a life changer. When you have properties you have to pay every month to keep, you start to wonder, “Why the hell am I doing this?” As opposed to properties that are paying every month and you’re seeing significantly positive deposits in your account ever month, it’s night and day.
Anybody I talked to I always, there’s a tool I came across and I’m happy to pass along and to your listeners, I’d be happy to pass along as well. It’s basically a four page spreadsheet that does everything from your source of funding, the use of funds, your expenses, your incomes, has a mortgage calculator so you could tell if you went with a lower rate or if you could afford a higher rate and it’s magical when you have the numbers and you can actually make money from day one.
[0:10:55] MF: Yeah, it’s a great feeling and I would definitely, I’ll include that in my write up for this podcast so listeners can get a hold of that. It sounds like when you were an agent, you were around a lot of investors, I’m sure that helps you as far as networking and knowing people in the business, was that a big positive when you first started out?
[0:11:16] DG: Yeah it was, again I think if you’re attracted to this kind of thing and I was, I networked with a lot of mortgage brokers and that led to a lot of investors and then continued to progress. I found people that were able to attract money, I’ve got some customers that have been customers for 20 plus years that have figured out how to make money in any market with respects to real estate and its shown me that real estate is — well the game may change because whether the market collapses or interest rates change or whatever. But the fact remains that there’s always an opportunity, you may just have to change and tack and change of course a little bit but there’s an opportunity.
[0:12:07] MF: Yeah, for sure. I completely agree. I’ve been flipping houses with my father and then with myself later, on since 2001. We’ve been through some different markets and it’s all about buying right. If you can get a property cheap enough, you can make money on it in any market and I’m a strong believer in that. It sounds like you start out as a kind of a traditional insurance agent but over the years, you’ve kind of morphed into more of an agent that specializes in investment properties and working with investors, is that right?
[0:12:37] DG: Absolutely. You know what I identified with was what I was passionate about and that was real estate. I feel like when I talk with an investor, I know where they’re coming from, I know what their expectations are and I’ve learned a lot. I learned a lot about how to go about doing my own investing and stuff. I’ve always looked at the investor’s lifestyle as the one that I wanted from a standpoint of a guy that’s not grinding against the clock kind of thing because he’s working for the man or however you want to say it.
He’s got a remarkable amount of freedom, I’ve got customers that vacation for months at a time down in some southern zip code where the sun shines and the temperature’s 85 degrees. That’s always been appealing to me. So yeah, I’ve gravitated towards that, I’ve made it my focus to work with.
Anybody dealing from real estate, I always kind of draw a line from left to right, from lenders and primarily hard money lenders would be kind of a niche that I work with. I deal with some developers, people that are developing properties, whether it be commercial or subdivision kind of thing. Also work with your investors that are doing, whether it be landlord or the flips but that’s kind of the line I try to play on.
[0:14:02] MF: Very nice. I’m curious being from both sides of it, as a traditional agent in the beginning, I don’t know exactly what kind of policies you wrote but most agents are writing many different policies, for houses, cars, properties, what challenges were they working with real estate investors with those rental properties or flips because I know I’ve had a lot of challenges myself working with insurance companies, because it’s not an easy property to insure?
[0:14:30] DG: Sure, I think that most agents start off and the company’s kind of don’t really provide a lot of training, it’s kind of like go talk to all the people you know and so, you start with your immediate circle which is your family. Might branch out to your friends, your church or country club, whatever your network is.
Consequently, most of those people have at least a car, they might be renting if you’re starting out young, if they own a house then that’s when they need insurance more for property. That’s kind of where everybody kind of starts and I think I always refer to it as kind of hunting with a vacuum cleaner because you don’t really have a focus other than the fact that you need more business, right?
You’ll end up with a bunch of odd ball stuff, you got a guy that has a taxidermist, astronaut, a witch doctor and none of these things have anything in common, right? You can’t find more of those. You’re just literally, you might do a bowling alley one day, you might do a rental policy one day, a renter policy might do a moped policy. It works and a lot of people have made very long storied careers out of doing that. What I recognize and I came from a much higher premium concentration market.
When I first got into insurance, I was working for a company that all we did was auto dealerships. Your Ford, Chevy, Toyota dealerships. Premiums for those things, I think that was the smallest one ever sold like $20,000 a year. It was not uncommon to sell something north of a hundred, hundred plus thousand dollars a year. When I came in to the agent side, I was looking at things that were like $250 a year, I was going, “Holy molly, how am I going to make this work?”
The thing is, you start on, you just kind of grind and you just know that you got to do sales, sales, sales, sales. Home and auto are easy, the companies want it, it’s good business for the insurance companies, it’s stuff that usually sticks around for a while but for me, I do it and I have customers that I’ve had for a long time but it’s not been my focus.
As an independent agent, I think the percentage and it’s been a while since I like this, I know it’s north of 80% of all business insurance is placed through independent agents. I looked at this as, “Hey, the strengths of where I’m at are working with businesses, business that I’m attracted to is real estate oriented business, let’s do that.”
[0:17:07] MF: Right. That makes sense. As you’ve developed into your real estate insurance agent, how have you changed your business to work with the flippers, with the landlords because it can, it is kind of a rare niche to find agents who are familiar with that side of the business?
[0:17:25] DG: Well, I think what we’re talking about right now is just marketing and it’s a process, one thing that I realize now is that marketing is a skill that’s not widely understood, again if you start off and they tell you just go talk to everybody you know, that’s not exactly marketing, that’s, “Here’s my card, I’ll call you.” What I’ve tried to do and I think the internet’s changing the game considerably, I mean, the fact that we’re doing a podcast, I wouldn’t have thought to do this 10 years ago.
I guess the point is I recognize there’s a need for this, I’ve continued to talk to people that have that need, provided solution for those people that have that need and it’s kind of grown just on more of a networking from those people, they referred me on and on. Like I said, recently is when I’ve really started trying to market myself as that person that does this even though I was doing it all along.
I was doing a lot of cold calling, I’d find people, I’d be able to find out that who was it that owned a particular property and call out to them and most people, insurance is not a sexy topic, the fact that we’re talking about it is okay, I’m excited to be here but it’s usually like the last thing that people want to talk about. Investors, they want to talk about the deal, they want to talk about the money they’re going to make, they want to talk about the next deal.
That’s what gets them exited. The insurance is something they have to have if they’re borrowing money okay? It’s not until somebody actually starts to accumulate some assets that they get concerned about losing those assets. That’s a much more inviting conversation about insurance than “it’s something I have to have”. And clearly, customers of mine that have acquired a portfolio of properties, their concerns are dramatically different than the guy that’s got a home or an auto or is doing his first flip.
[0:19:32] MF: Right. That makes sense. For a landlord who owns, like myself I’ve got 16 rental properties now. What should their major concern be with insurance? Is it smart to use your local insurance agent who handles all your other business when you’ve got rental properties? What are the differences between a rental property policy and a regular personal residence property that you live in?
[0:19:57] DG: Sure. On a personal policy, it’s going to give you the structure, your contents which a rental policy doesn’t include. It’s going to give you personal liability for both at your home and away from your home, your auto policy is obviously it’s going to follow the auto. The landlord situation is dramatically different from a homeowner policy. It’s the operations at the home are essentially the same, somebody’s living there, there’s going to be some minor coming and going of guest and or people to do repairs so that the exposure is relatively the same and that’s why it’s an easy transition for somebody that has a home and auto to call their agents and say, “Hey, I bought a rental house okay?”
Most companies that do home and auto insurance will do anywhere from four to I think some companies will do up to 10 single family rental homes for you. It’s usually once you kind of breach, there’s some sort of a water line where the insurance companies start to look at like, “Hey, wait a minute, this is more than a passive thing, this is a business,” okay.
Maybe you start owning your properties in an LLC as supposed to owning them, it’s just you Mark as an individual okay? At that point, that’s when a commercial policy is usually a better solution is what I’ve found. You can get some economies of scale, you can get higher limits, you can provide some additional levels of protection as opposed to just having that one policy for that one house.
The other things too is, it become a nightmare. You’ve probably notice this but insurance billing is one of the least detailed things that anybody has every put together. When you open your mail and you get a bill from the insurance company, I mean I even have to look at it and try and think, “What the heck, what is this for?” It’s just not very detail oriented. If you have a schedule of properties and you have an LLC that you’re operating, you can have anniversary date for that property.
What we provide for all of our investor clients is a breakdown, telling how much of that premium is associated with each property so when we got to do your taxes, you can allot for the premium breakdown for each property. But It’s a much more kind of a business way about to do things than have like you said, 16 properties and 16 policies. Life’s kind of short, it’s much easier and much more manageable to do on a larger scale through a single commercial policy.
[0:22:40] MF: Very cool. I do have 16 different policies on my properties right now. I may be talking to you later after on the show to figure that out. And the biggest challenge I have is with flipping. I know many traditional agents, they won’t even ensure a flip, they’re just like, “No, we don’t do that,” and then the few I’ve found who do, do it kind of outsource it to other companies who specialize in that. What are the tricks with getting insurance on flips and why are insurance companies so hesitant to ensure them?
[0:23:11] DG: Sure, I think one of the things that you have to kind of understand about insurance is it’s a contract right? You can interpret a contact right? That’s what lawsuits are usually about as an interpretation disagreement kind of thing. If you start with “what is your intent?” If you’re buying a property put in a rental, going the traditional route of a landlord policy is a perfectly good way. Even if you have to do a little bit of work on them?
Most companies will allow for a little bit of, you’re going to put some paint and some floor coverings in and maybe do some minor sprucing up so you can get some higher rents right Because even at a flip, when you have a vacancy, you probably got to go in and paint and patch and carpets and what have you, right? The difference is, it all comes down to what is your intent? The insurance company underwriter, it’s their job to make sure they’re not putting something or putting some coverage on to our risk that they don’t intend to, okay?
The reason why that — I don’t want to get too deep on insurance talk, but actuarily their rates for a rental property are reflective of a rental exposure, they don’t anticipate you going in and monkeying with the envelope of the building, doing additions, a long vacancy because you’ve got a lot of work to do, all of the contracting construction work you may need to do with a flip okay? That’s kind of the line is again, I start with what’s your intent, okay?
If we all agree that the flip is something you’re looking to make a fast — you’re looking to make some money and you’re hoping to do it fast okay? You’re not going to be putting a renter in there and you’re going to be selling the property. The insurance company does not want that on the landlord policy. What we do is we navigate that path with our customers.
Most flippers that I’m aware of have run in to the builder’s policy. The builder’s risk policy is what covers the structure, there’s no liability attached to this, it’s strictly the structure and it will cover the additions or the updates you’re going to do. Let’s say you bought a property, the stress property, you bought it for a hundred, you’re going to put this easy mass, you’re going to put 50 into it, you’re going to sell it for 200 and hopefully in 120 to 180 days you’re going to be able to sell that.
You’re going to make your money 40 to $50,000 after you sell the thing. From again the hundred, in that $100,000 includes the land, whatever we decide the structure is worth, plus whatever you’re doing for the additions, there’s a value that that represents that you would be out if you had a loss, okay?
The builder’s risk policy covers all that from the beginning value to the end value. It also, it has a function that recognizes the percentage of those improvements you’ve put into it. It will cover even like materials, it has a possibility to say to cover materials that you’ve purchased that have not yet been delivered. It’s just a much more appropriate coverage policy for the structure risk. Now one of the things that I think a lot of flipping investors don’t recognize in the beginning is their liability and I’m curious, you’ve done, you do flips. Tell me what your experience has been with your insurance?
[0:27:07] MF: To be honest, I don’t know exactly what my coverage is so I didn’t realize it, as far as liability goes. I do have experience with a property where we had the coppers stolen out of it recently because there’s a vacant house. We called up the insurance company and they said, “We don’t cover theft in your policy.” I had no idea that that wasn’t covered, they just cover vandalism or other losses but they don’t cover theft. That was my recent experience but luckily I’ve had no liability issues come up where someone got hurt or something happened to the property up to this point.
[0:27:42] DG: Right. That’s a huge exposure there, when you deal with the vacancy issue, a property that’s vacant for more than 60 days loses all sorts of coverage. Especially like on a landlord policy. They recognize that a vacant property is an attractive nuisance like you described. Somebody coming in and ripping out all the copper. That’s why again, even if you had just a regular landlord policy and it was vacant for 60 days, chances are that theft of building as once the copper’s been installed, it’s considered part of the building is not going to be covered or your coverage would be reduced based on just the standard policy.
Kind of continuing on this conversation, we have the structure when you buy it, maybe if you’re borrowing some hard money, you need to provide proof to the lender that you’ve got coverage but that’s where a lot of people’s mindset kind of stops is that, “Okay, I got to provide that proof of coverage to the lender so we can get this work done.” The liability issue is one that I try and make sure all of my customers understand because the last thing I want to do is have the phone call and, “Hey Mark, how are you doing? I got a lawsuit, somebody tripped and fell,” and, “You did what?” That’s not a good conversation. As a professional just on working with investors, I make certain that they understand the risk.
One of the first things that I try and educate all my customers on is to make sure if you are working with licensed and insured contractors, that you have some sort of a contract that requires them to provide you at the very least, proof that they have insurance and ideally you get an additional insured endorsement which basically says that anything that they do that causes you a problem and you get sued because of their actions, their policy will defend you, it will take care of the problem they cause.
That’s like the starting point, make certain you are getting proof of coverage and ideally your named as an additional insured by the contractors you’re working with. In flips, a lot of times I know that people are working with maybe handyman guys or maybe some casual labor or how do you keep the expenses as low as possible, right? If you’re working with in volume and I’ve got customers that do upwards of 50 flips a month.
If you’re dealing any kind of volume, you need to make sure you have policies and procedures in place and operate like a business rather than exposing all of that, the assets that you’re accumulating, you’re creating a lot of exposure the more volume you do. The first thing I do is I always encourage people to understand and if they don’t have a contract, get a contract with the contractors you’re working with. Then also make sure they get the certificates and they’re listed as an additional insured.
The next thing that I always like to make people aware of is at the very least, make certain you have some sort of a premise liability again for the trip and fall stuff. This is not a very costly thing, it’s something that would cover you should anybody trip or fall or get hurt at the property okay? Same as a landlord policy if somebody gets hurt on your property and you get sued, you would be better off to have a liability policy and insurance company standing behind you rather than having to face the judge and say, “Well, that’s all I got, they take your cash, they take your equity and your home, they take your — all that they can and you’re left with basically, “now you’re the renter” kind of situation.
That’s kind of a next step that I encourage people to at least as a bare minimum protect yourself, get a premise liability. The best solution that I recommend my customers and again, I can’t say that everybody follows it because I think a lot of people kind of weigh their risk and decide well, I feel I’m okay but if you’re doing anything with the envelope of the building, if you’re having roofs put on, you’re putting new windows in, you’re putting the siding in or on.
Maybe you’re doing some bump outs, some expansion or whatever, you’re changing the configuration of the building, I highly, highly, highly recommend that you have a full commercial general liability policy that includes your products and completed operations because the last thing you want is that house you just sold, you sold it in the summer time, the fall comes, the rains come and the roof is leaking into the house, it’s damaging all the dry wall and you’ve got somebody screaming at you and suing you right?
This is a true story, I had a customer here recently who hired a subcontractor who he got the certificate of insurance from and the guy had limits that would look to be adequate, turns out the subcontractor’s policy excluded roofing. This is what he’s marketing himself to do, this is what we hired him to do, he did it, we paid him, we got a certificate, we were listed as an additional insured and lo and behold, his policy excluded roofing. Fortunately, my customer had a commercial general liability policy that covered him for the acts of people he hired and that is the real world of real estate investing and flipping.
[0:33:56] MF: Great information. One thing I’ve run into when I have my flip policies is I noticed they’re very expensive. I’m curious what your take is on, say comparing the same property as a rental property versus a flip property that would cover most of the things you talked about, what are the price differences that you see as an agent between the two policies.
[0:34:20] DG: They can be double but there’s a couple of ways you can mitigate that. When you’re doing your flips and you’re seeing these price increases and let me ask you, does that sound about right for the cost comparison? Is it double?
[0:34:37] MF: No, I’d say it’s more, I would say it’s probably triple, sometimes even a little more than that on some of my flips I’m doing.
[0:34:45] DG: Okay, well and keep in mind, regionally, depending on where you’re located, the rates are going to vary. I know I’ve got customers to do stuff down and some of the gulf wind states, that’s a whole different animal. Out here in the Pacific Northwest where rain is kind of our biggest issue, I’d say double is probably a multiple I’d be comfortable with. If you’re in a more hazard zone for wind and hail et cetera, it could be substantially more but I lost my train of thought there. We were talking about?
[0:35:20] MF: The cost of flipping versus a rental property policy.
[0:35:25] DG: Right. Are you buying an annual policy or are you buying a short term policy?
[0:35:31] MF: I believe it’s the short term policy that’s renewed, it’s either every six months I think? Maybe it’s even less than that.
[0:35:40] DG: What’s the average time that it takes you to do a flip Mark?
[0:35:43] MF: I don’t like to talk about that, it makes me mad. That’s something I’ve been working on, but between six and eight months has been what it’s been taking us but we’re working on reducing that time.
[0:35:56] DG: Okay, I think your experience is what I find is that people usually have, it’s kind of the eye is bigger than the plate kind of a thing, they can do it faster. I’ve had customers that will say, “We’re going to have it done in 120 days guaranteed.” And I’ll say, “Are you sure? Because I can sell you an annual policy upfront cost you more but it will be in place for the full year and if it takes you that six, eight, nine, 10 months to get the property sold, you’re done, you don’t have to renew your policy okay?”
If you buy a three or four month policy and you get to the end of that and you’re not done, that second policy is going to cost you again comparable to what you paid for the first one and if you need more than that, the underwriter’s starting to think, does this guy know what he’s doing all right? I encourage people that if you don’t have your timeline set and you don’t have your contractor selected and you don’t have your processes figured out just yet, buy the annual policy okay? Because yeah, it’s money upfront, it’s expensive but you won’t be calling me and be upset that you got to extend the policy and creating a possible solution.
For my customers that have it really figured out, they acquire the property, they got the crews out there the next day, they’re in their demo mode, they’re in their build back mode and they’re on their way and in 90 to a 120 days it’s going to be sold. I found a really slick program and it’s an excellent alternative, actually I call them high speed flip operations or even hard money lenders in that it’s a web portal to where you can log in 24/7 and you can add a property just put the address, put in the value you want to cover it for, you can add liability if you need it for premise liability, I want to be very clear about that, your products include operations, but for the trip and fall kind of thing.
And your expense is pro-rated for as long as you have it. If you’re able to get in and do it for 90 days, you’re only going to pay a quarter of an annual premium, all right? The rates are a little bit higher when you compare this program to like an annual program but because you’re able to do it quick flip, you can control your cost and keep them under control. It’s been a great solution, I’ve got a number of customers that are on it and they continue to refer me customers based on how well it works. I guess where I’m going with this is if you have your systems figured out and you know that step one, two, three, let’s get this things sold and you’re able to get in and out of them 90 to 120 days, it’s a really good solution.
[0:38:56] MF: Very cool, that’s really interesting stuff and I’m definitely going to be talking to you after this podcast about my properties too because it’s tough to get different policies with some of the agents I’ve been dealing with, there’s some properties that, “We won’t even insure that because of the condition it’s in.” Do you run in to that too where you have problems insuring properties because they’re in such bad condition or do your policies account for that?
[0:39:20] DG: Typically not. I’ve had some pretty rough properties over the years. I would say if you’re trying to go through a traditional landlord policy, that would not be out of the norm that you might have somebody reject a property. But a builder’s risk policy just for starting, I mean heck, it’s the same policy they use for building brand new homes. When you start off with just a bare lot and you’re going to have it completed home within six months.
[0:39:50] MF: Okay, good to know. And then on the rental property side, I have noticed my policies, the insurance company really wants to make sure they’re in good condition before they will ensure those properties. Do you see that same thing as well with those commercial policies where they need to see pictures of the roof about all the systems or are they more lenient on those policies too?
[0:40:15] DG: Well, your traditional companies are investing a lot more money in their field underwriting I think is probably universal. I think the companies that recognize that they’ve taken on some risk that they wouldn’t because they haven’t put the money into inspecting their what it is that they’re insuring. Yeah, we are finding the insurance companies are getting out and I think typically it’s 30 to 60 days that they have to tell you, “Hey we’re off this, this is not acceptable.”
But again, if you’re starting with a more of a commercial policy, if you’re a landlord and you’re buying properties and you’re keeping them and you established a relationship with the carrier and it’s understood how you operate. I find that most carriers are able to give some leeway to understand it within X number of weeks, you’ll have the property up to speed as you have on these other that you already currently own.
But yeah, I guess to answer your question, definitely they’re spending on inspecting properties and if you’re trying to go through a landlord type policy and you’re trying to insure rough stuff, you’re probably going to get turned away.
[0:41:30] MF: Okay, good information. I’ve learned a lot. So as far as somebody who is currently in vesting, they’ve got some rental properties, maybe they’re doing a few flips. What’s your advice? Should they talk to you, contact you just to have you look at their situation, see if you can help them out and make sure they’re properly insured?
[0:41:51] DG: I welcome anybody that wants to reach out to me, I’m happy to talk and if it makes sense, do everything we can to help them. If somebody’s just got a one or two properties kind of thing, I would encourage them to stay with a relationship they’ve got in place, if you’ve got a home and auto agent that you work with and you’re buying a rental property, I certainly wouldn’t go to any great lengths, I would call that person first. If you don’t like what you’re hearing then by all means give me a call.
But I’m not a big, big fan of — or I guess I should say this, I’m a big fan of a relationship. So that’s where I would first start but what happens and this is where I think that I’m a good fit for this is that a lot of people outgrow that, okay? Once you go past four rentals, maybe 10 rentals, you need more of a commercial solution, commercial insurance solution and that’s where I feel like I’m able to help customers most.
Likewise with flips. If you’re doing one with your brother in law and you’re going to take six months to a year to do it and it’s a house that was next door to his house or his aunt Mable’s house, you guys took over, you can probably handle that with your local agent. But if you’re serious about doing volume flips and you’re struggling to find somebody that knows what they’re talking about, I can help you there.
I wouldn’t turn away anybody else like the aunt Mable situation. I certainly welcome the opportunity but again, I’m going to encourage you to reach out to your local agent that you currently work with and have a relationship with first.
[0:43:34] MF: That makes perfect sense and I completely agree. Whether it’s insurance, lending, real estate agents, relationships are so important in this business. Very cool. Well I think those are all the questions I had for you. Do you have anything else you want to add before we sign off here?
[0:43:51] DG: Just two things that come to mind here quick. I just want to make another plug there for, not a plug but just point. If there are any hard money lenders out there that are concerned about how their portfolio is exposed with the flips they’re lending on and stuff, that high speed solution I mentioned where you can log on 24/7, it’s really slick and it’s a great way to protect your portfolio and your investors.
The other thing that came to mind, I mentioned to you and please let your people know and I’ll send you the link but there’s a link I prepared that has basically what we’ve talked about. How to contain your risk and the difference between a landlord exposure and a flipping exposure kind of spell out the different levels of coverage and I also, I’ve got a sample contract and some sample certificates that you can look at. When you do request these certificates from your contractors, you’ll know what you’re looking at. So there you go.
[0:44:51] MF: Okay, great. What’s the best way to get a hold of you? I will post a link to that on my website and links to get a hold of you as well but if someone wants to talk to you, is it email, going to your website, how should they get in touch with you?
[0:45:03] DG: Probably the best way right off the bat is just email. [email protected]. My cellphone, I’ve got that on 24/7, 503-504-7619.
[0:45:24] MF: Wow, you’re the first person who has given their cellphone out on my podcast. Hopefully that doesn’t backfire.
[0:45:30] DG: All right, maybe I’ll have to change my number.
[0:45:34] MF: Right! Very cool. Awesome. Hey Darrin, I really appreciate you being on the show, great information, I was taking notes the entire time for it to make sure that my policies are in check. I think I could definitely improve some things I’m doing as well insurance wise. I really appreciate it, great to hear your story and how you’re helping people out and yeah, I hope you have a great rest of the week.
[0:45:55] DG: All right Mark, thanks.
[0:45:56] MF: All right, talk to you soon.