Flashback Friday episodes are carefully chosen so the listeners can gain perspective on today’s real estate market. It contains essential details about the changes and the overall state of the economy regarding the real estate/housing markets. In this episode, Jason Hartman interviews Reichen Kuhl, CEO and Founder LeaseLock. Reichen explains how LeaseLock works and also shares miscellaneous information about LeaseLock as a business.
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This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company solution for real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth show, Episode 818 818. Thank you so much for joining me today. This is your host, Jason Hartman. And Happy Easter to our listeners in 164 countries worldwide. Thank you so much for joining me today. And Gosh, today we are going to talk about yet another interesting and innovative service that is here to help us with our investments. And that is lease lock. This is basically lease performance insurance. It’s not really, really inexpensive, but guess what, you don’t pay for it. Your tenant does. And at first when I first heard about this company and its service and the way its product work, I thought, you know, why would a tenant pay for that? Why would they spend the money for that insurance? And then I kind of realized, you know, we commonly pay for For someone else’s insurance, this is what we do in the world of mortgages, not from not just one angle, but from two angles. We pay for it in terms of private mortgage insurance or MMI, which is the insurance you get on an FHA loan or PMI, that you get on conventional loans. And we also pay for title insurance. So it is fairly common for one party to pay for a another party’s insurance. And in this sense, the tenant is paying for the insurance that ensures the landlord that they will have performance in terms of their rents. So you’ll hear more about that in just a moment. But first, I want to help you gain a little perspective. So let me grab something. Yes, a couple of papers here are off the hot off the presses hot off the printer. Alright, so the year is 2017. And if you are a face For loyal listener to the show, I want to tell you first of all how much I appreciate you. But secondly, I want to tell you how smart you are, because you are listening to the flashback Friday episodes. And when you listen to the flashback Friday episodes, you gain perspective. I was talking with one of our clients Dan the other day, great guy. He was talking about the flashback Friday episodes and the idea of perspective. So Daniel, thank you so much for bringing that up. And I just want to talk about it. Before we get to our guests today, with our listeners a little bit because here is the perspective remember, I got in to the real estate business way back when at the ripe young age of 19 years old, in my first year of college, it was just two weeks before my 20th birthday. And I got into it because I wanted to be a real estate investor. That was my whole inspiration. And when I started, I started working with just investors. I was placing little classified ads in the Orange County Register in the pennysaver. Yes, that was before al gore invented the internet and before he invented global warming, okay, so you always gotta raise a little controversy, don’t you, Jason? Yes, you do. Okay, so I was placing these little classified ads, advertising government repos, and VA repos, FHA and VA repos or HUD repos. And these are properties that had government insured mortgages, FHA and VA Veterans Administration, and the people went into default. And when they went into default, the government got the properties back, and then they would auction them off. And this was my whole specialty, the beginning of my real estate career as a real estate agent at age 19. And the vast majority of my clients were investors, but I did have some first time homebuyers, too. And it was very, very interesting working with all of these people as I was driving them around in my little brand new Volkswagen Jetta, after my mom had given me a massive lecture on how absolutely crazy I was for entering in to a financing arrangement on my little Volkswagen Jetta to have car payments of get this a whopping $189 per month. Yes, I know, times they are changing, aren’t they? And now my lease payments on my crappy and I will emphasize that crappy Tesla are 1600 and $40 per month. Yes times they are changing. And the last Tesla, I paid cash for this one I financed on a lease. It’s a better deal really to lease it and keep the money and be able to invest the money and in properties. But yeah, you’ve heard of About my complaints this time around on this Tesla, it’s been pretty pretty darn bad. Anyway, more on that on my Twitter account, you can see the videos of me cursing at the car and showing you how bad it is. Tesla sees these videos, and they completely deny the problems. Yes, a video you would think that would be undisputable proof. But for Tesla, who thinks they walk on water, they denied the problems anyway, at the risk of not getting on it. Let’s not get on a tangent here. Jason, let’s talk about these properties and let’s get some perspective on our real estate investments. Okay, here we go. then fast forward. I’m talking about my career here for a moment. So I started doing that. And I was at century 21 in Anaheim. And I was selling to mostly investors, but some first time buyers. The homes I was showing wore disgusting they were completely disgusting. They were usually boarded up. So you had to show the house with a flashlight. He had a special lockbox key and you walk in the house and it would the houses stunk. They were just it was disgusting. Okay. It was really gross. But my investors back then thought it was an incredible time to buy real estate way back then. Because the interest rates were only they were only 12 to 14% interest. Yes, I know. You think Wow, that’s amazing, right? One of the perspectives I want you to make sure you have is understanding that remember when people buy a property, they rarely buy it based on the price. They buy it based on the payment. Okay, they buy based on the payment. Now, that’s one thing to know. But the second thing to know is let’s let’s just fast forward a little bit here. And let’s go way up to 2000 for now, and let’s talk about the time that I got into the investment, only real estate business. This was about a year before. I had sold my traditional real estate company to Coldwell Banker in 2005. And I knew I was starting to negotiate that deal. And I wanted to sort of set up my next potential career and turned out to be the investor only business and so I’ve been in that business ever since. Well, I guess you could say 2005 when I completely got out of the traditional real estate business, and way back in 2004. Remember, there’s a year of overlap. Okay, one year of overlap, way back in 2004. When I did my very first creating wealth seminar for real estate investors, one of the things we were talking about in 2004, and 2005, is we were talking about rent to value ratio, rent to value ratio. And here’s what’s really interesting about it. Back then, here was the perspective people had. They thought a property was a fantastic deal. A fantastic buy a great buy. If, if if you could buy that property for a point 7% Rv ratio point seven, not 1% not point 8% not point 9%. But point 7%. They thought that was an incredible deal. And when they looked at the properties, and they looked at the performance because we were using real estate tools, calm back then property tracker, the property tracker product, the apps were not yet invented. Because back then, in 2004, in 2005, we would have had someone brought an iPhone, into our lives back then, we would have thought it was magic. We would have thought It’s a really amazing time to be alive because there was no such thing as an iPhone. And so so that was before the era of real smartphones. So there were no apps, there were no apps that you can now get in the app store for iPad and iPhone there because there was no real estate tools.com apps, but we did a property tracker back then. And when you looked at the property tracker, Performa, and you saw a point 7% Rv ratio, when you looked at the multi dimensional characteristics of real estate investment, and you looked at the amount of leverage you can get, and you looked at the appreciation and you looked at everything back then with very conservative assumptions of not more than 6% annual appreciation, not less than an 8% or one month per year vacancy rate and a management fee of a round in the soul. Very little Put around 8% and then maintenance percentages anywhere from two to 8% back then okay. When you looked at that, you would generally get a total return on investment of somewhere in the 25 to 30% annual range. Now, nowadays, it is getting very challenging to get that coveted 1% rent to value or RV ratio, right we all know how difficult that is. So, like the famous song If you can’t be with the one you love, then love the one you’re with. I was thought those lyrics were really funny. And by the way, since we’re talking about relationships here for a moment there is another great relationship song That can teach us a lot about relationships. It’s by a band called 38. Special. You know the song I’m talking about, don’t you? Yes. Hold on loosely, but don’t let go sometimes. That’s great advice. Okay. So that might also be good advice for investors nowadays, hold on loosely, but don’t let go. Right? Because if we cling too tightly to our old ideas, we’re going to lose control. Boy, I’m actually doing that pretty well, just like in in real estate investing to that, that famous 38 special song or an eye. Okay. So the old idea was that we would get 1% rent to value ratio or even better 1.2% do you know, do you know? And I hate to totally bum you out here, listeners. Do you know that during the depths, the ugliest part of the great recession when very few people had the confidence and the vision and just the sheer raw guts, the Kona haze. Okay, as they say, by the way, what is the actual translation of that word? koneko. I’m gonna look that up if I knew how to actually spell it. I would do that. When anybody had the confidence, the guts, the whatever. The hutzpah. How’s that one the chutzpah to invest in real estate during the depths of the Great Recession? They sometimes got rent to value ratios. You’re ready for those? of 1.4 1.6 even 1.8%? Yes, they could buy a property and just for round number sake, that property was actually probably a little cheaper. Well, no, it wasn’t. They could buy a property for 100,000 thousand dollars and the total rent now this is a multi. This is a Plex. Okay By the way, we gotta stop calling these plexes duplexes triplexes and for plexes multifamily, I know a lot of people refer to them that way. When I think of multifamily, I think of more than four units. I think we need to classify these two three and four unit properties as plexes. It’s a Plex it’s a duplex triplex or four Plex. Okay, so that was a Plex. And this Plex for $100,000. could literally rent for 16 to 1800 dollars. I know, I’m bumming you out, I get it. And nowadays 100,000 property dollar property. If it rents for 1000, you’re doing great. But just remember when you gain some perspective, and when you stop looking at the metrics that don’t tell the whole story that don’t tell the whole story. What metrics are those? Well, the first offender is cap rate. That’s big offender. Why is cap rate capitalization rate, such a big offender and such a misleading metric? It’s really misleading, because it doesn’t include appreciation. And it doesn’t include leverage. But there’s one more thing it doesn’t include. Because leverage and my own metric, the one that I have, why didn’t make it up, but I did discover it, and I popularized it. And if anybody else is talking to you about it, they’re copying me. I just want you to know that. But hey, imitation is the sincerest form of flattery. There is this one weasel in our business. Guy drives me crazy. He just relentlessly copies me I mean, it’s really just unbelievable. In fact, one of our clients who’s probably listening right now says that they heard him on this podcast, someone else’s podcast. And it’s like, he just copied my 10 commandments. Well, there you go. imitation is the sincerest form of flattery. But the other metric that cap rate does not consider, of course, you know what I’m gonna say probably, if you’re a regular listener, inflation induced debt destruction, inflation induced debt destruction is not considered there. The other one that you really got to be careful of you got to stop looking at so much as cash on cash return. Now look at I’m not saying you shouldn’t consider these metrics. I’m just saying that they don’t tell the whole story. I mean, why do you think that income property is the most historically proven asset class in the entire world? Why is that? Well, it’s because it’s a multi dimensional asset class. And as such, you earn your return on investment from so many wonderful sources. So many ways that you get that return on investment. And if you look at cash on cash return or cap rate, you’re not looking at the whole picture. And it’s really dangerous not to look at the whole picture. Look at you all remember that tragic incident where JFK Jr. crashed his airplane on a foggy overcast night, on the way to Martha’s Vineyard, right? Because he only had 120 hours of flight flying experience. And the magic number if you’re a pilot, by the for a general aviation private pilot is about 200 hours 200 maybe 255. And that’s when your insurance rates drop a lot as a pilot, okay? So if you’re an inexperienced investor, you’re you’re going to look at information that does Give you the whole picture. But if you’re experienced or you’re even if you’re not experienced, but if you gained experience from someone else, like hopefully Yours truly, you have learned, you must look at the whole picture. See JFK Jr. Crashed because he wasn’t looking at the whole picture. He didn’t know how to be an instrument pilot. He was looking out the windows. Alright. And that wasn’t the whole picture. Because when you’re in an aircraft, it is very easy to become disoriented. I mean, one of our venture Alliance members, Brandon, who’s a fighter pilot, he knows there’s a lot more to the picture, if you will, and I shouldn’t even be calling it a picture. Because that implies that it’s visual only than just looking out the windows of your cockpit, right? There’s way more to it than that. And so JFK Jr. Of course just crashed right into the ocean. Okay, right into the water because he didn’t see the whole picture because he couldn’t without Understanding how to read his instruments. So our interest instruments that we use as real estate investors, well, they are the performer, they we got to understand how to read the performance. And to do that properly, we must look at total return on investment, total return on investment. Now, here’s, here’s two quick examples, and then we’ll get to our guest. And these are right off our website right now, these properties do say their first sale. However, by the time you hear this, one day from now, they may be gone. And you understand that it is a fast moving market right now. So it’s very important that you work closely with your investment counselor so that they can find you good properties. All right. Here’s one and this is Indianapolis 159,900 and with a 75% loan to value and it does not get you a 1% return to value ratio, projected run here is only 1400. dollars only, I say, right. And your overall return on investment, though, is projected at 27% annually. 27%. Folks, people who understand the concept of perspective in the world always ask themselves the question, you ready? Here’s the question, compared to what? Compared to what, compared to what 27% return on investment, that’s the projection right here on the performance. But if you only look at cap rate or cash on cash return, you’ll do this. you’ll throw that property away, and you’ll miss out. Okay, here’s another example. And this property is brand new. It’s in Jacksonville, Florida. All right, here, it’s 164,900 projected rain. is only Yeah, I’m saying only because it’s not 1% 1375 overall return on investment on this performer 29% annually. So, you know, if it only goes half as well as expected, you’re going to get 14 and a half percent. Where are you going to beat that? Where are you going to get 14 and a half percent. And that’s on the bad scenario that’s on the scenario that says it only goes half as well as the performer. Alright, look at folks, income properties, the most historically proven asset class in the world. And there is a reason and the reason is that it’s multi dimensional, and it offers like we’ve talked about before, a lot of flexibility that allows you to change the dynamic Have your investment later, by refinancing it selling it lease optioning it 1031 exchanging it, you’ve got so many options down the road. So the scenario you buy at today does not lock you in, even though that’s a pretty damn good scenario. It’s pretty good. Now, back in 2004 Let me enlighten you with one other thing and this is why it’s really important to listen to the flashback Friday episodes, because back in 2004, I told you that the ideal rent to value ratio was point 7.7. All right. But guess what the acceptable rent to value ratio for it was for people back then already. Point 5.5 half a percent. In other words, the hundred and $50,000 property would only rent for $750 per month. Now listen, I don’t think that point five is good enough. All right, I’m just telling you that people that were doing nationwide investing back then were ready, willing and able to purchase lots of properties at point five. And you know why? I’ll tell you why. Because the question they asked themselves was, compared to what? Compared to what if they were to be investing in the Socialist Republic of California, or in Miami, or Boston, or New York or Washington DC or any, you know, those are just the examples I give, but there are several others, any expensive market if they weren’t in the Pacific Northwest? Look, we used to do Redmond, Oregon. Okay, that was one of our markets. It’s just outside. It’s like a suburb of bend. And I was talking to someone just maybe two weeks ago, who’s from Redmond, and she was telling me all about the market there and you know, it’s just way too expensive. Now, well, what about our clients that invested there? Yeah, the RV ratios are no good anymore. I mean, the rent to what I paid for it in 2004, and 2005 ratio is pretty good. But the rent to value is not very good. And that’s why we help you rebalance your portfolio, portfolio rebalancing. That’s what our investment counselors are here to do with you. You should do this a couple times a year, every six months or so, talk to your investment counselor, and let them help you give you a little consultation and do a portfolio review and see if you need to do some rebalancing. All right, that’s done in in the financial services industry. You know, those Wall Street people with their crappy products, but they do have, I mean, financial planning is a legitimate art and science and we do that we just do it with a better asset class. So look, as usual, I’ve gone a little long here, what’s new, right? You’re used to that. I get off on a 10 And I think what am I going to talk about, and here we go 24 minutes in, and I’m still talking. So it’s time for me to shut up. Let’s get to our guests, because I really do want you to hear this innovative offering that’s available to you. So check it out, I think I asked all the right questions of our guests, this is just another one of those things, maybe you don’t use it, maybe you just put it in the back of your mind. And someday, with some property, you have one property in your portfolio, or maybe three of 20 properties in your portfolio could really benefit from something like this. So it’s just an option. And that’s what we want to do. We want to tell you about the innovative things that are going on in the industry. So this is one of them may or may not be applicable, but it’s worth considering. So let’s get to that. Make sure you go to Jason hartman.com. Check out properties, educational products, make sure you are taking advantage of the 27 minute video It’s free on the front page of our website at Jason Hartman calm and that’ll help you analyze real estate deals. All right.
Here’s our guest as we talked about renter insurance. It’s my pleasure to welcome rakin cool to the show. He is CEO and founder at least lock he’s an attorney, season four winner of The Amazing Race. Former US Air Force officer spokesman for servicemembers Legal Defense Network and author of the best selling book. Here’s what we’ll say growing up coming out. And the US Air Force Academy rakin Welcome. How are you?
Reichen Kuhl 26:39
Hey, thank you. Thanks for having me on the show. I’m great. It’s good to have you on so you know, I
Jason Hartman 26:43
love talking about these innovative products or services. I guess in this case for landlords, especially for landlords that are self managing, you know if they just want to have some more security in the end your services interesting. I found it quite A while ago, actually and wanted to get you on the show to talk about this. So lease lock is basically an insurance policy that ensures tenant performance that the tenant will pay the rent, wouldn’t we all love that as landlords, right? But it does cost a little bit of money. It’s paid for by the tenant. Now, think about this, you know, it first i thought when reagan when you were explaining that to me, I thought, well, you know, why is the tenant gonna be willing to pay for this, but if you think about it, when someone gets a mortgage, and they need to have either MMI mortgage insurance on like an FHA loan or PMI, mortgage insurance on a conventional loan, they pay for the mortgage insurance, the borrower pays the mortgage insurance with title insurance, at least in most cases, I believe the lenders policy is paid for by the borrower. So here the tenant is paying for the landlord’s insurance benefit, right?
Reichen Kuhl 27:58
Correct. Yeah. And in most cases, you know, like for PMI insurance. The reason that those people pay is a lot of times because it’s mandatory and a lot of our landlords that we’re working with now at least lock and a lot of our property management companies are making the lease lock option mandatory. The landlords have decided that, you know, along with us, that the the old way of, you know, adding extra security deposits, so you just have a big pile of money sitting there that might protect you for a month or two, or asking for resident to go get a cosigner isn’t the answer and the real answer is make the resident go get insurance on the least. So that if there is a default the landlord is always indemnified and then only in that case, will they rent to that renter who is presenting risk?
Jason Hartman 28:50
Okay, so you wouldn’t do this with every applicant, right? You would only insist on it with a marginal marginally qualified I’d applicant like what would you do like, say if the FICO score is above or below a certain number or the income or how do you actually implement this without being accused of discrimination? That’s what I would be concerned about.
Reichen Kuhl 29:12
Yeah, it’s up to the landlord. So the landlord has their they always have their standards set. So they say, you know, this group of people who meet these particular financial credentials are approved to this group of people who do not meet the financial credentials are denied. And this group of people, we would actually want them and only if they provided extra security to us in the form of a security deposit or cosigner. That’s the group that lease lock helps. So the landlord pushes that conditional conditionally approved group over to lease lock and then we take it from there. But that’s in our traditional we stock plans. We have a lot of student housing, property management companies who now make lease lock mandatory for everyone. In other words, every bed that’s filled in a student housing complex has to have Release lock on it. They don’t care if you meet the criteria or not, they want everyone to have it so that if anything goes wrong, they know that they’re protected by the least lock coverage.
Jason Hartman 30:10
Okay, sure, but but you know, we both know that student housing is a bit of a unique animal. So you know, because a lot of times the students want to rent the property and they have either no credit report, no credit score, or very little credit, because you know, they’re younger, obviously, right, credit only started when you’re 18. And maybe the parents won’t cosign or maybe they do sign. Yeah, they don’t want to I don’t blame them. But, you know, even if they do cosign there, you know, they might be marginal themselves in terms of being qualified. So take us through the mechanics of how it works. Do you For example, do the tenant screening on your end, like do landlords that sign up with your service, have the tenants, the prospective tenant, go to a portal on your website and, you know, do you order the credit report or do they just does the landlord do that completely separate from you using whatever service they want, or the property manager as the case may be? And then come to you and say, Hey, give me insurance or give my tenant insurance?
Reichen Kuhl 31:13
Yeah, I’m gonna give you a lawyer answer. And the answer is it depends. So it just, it depends on the landlord. So, some of our landlords have decided that they just, you know, they want everybody on a lease lock and they push everything over to lease lock to do you know, any kind of screening that we want to do. But most landlords do their own initial screening, and then they accept the applicants who meet their screening criteria. But when they have their conditional applicants that they send the lease lock, we also go through kind of a super screening process and so we we take a lot more information from the renter, because of the the technology we have in order to look into bank statements bank accounts, past rental history and and also employment. employment history and payment history from that employer, we’re able to make a decision usually within 24 hours on that renter, just tell the landlord Yes, we’re going to go ahead and supply you an insurance certificate on this landlord. We don’t just say things on credit score, we found that credit score is not a really great indication of who is a rent payer, we slot cares about who is a rent pair, not who has perfect credit. So you could you know, be late on your credit card bills and late on your car payments. And, you know, you don’t have had your car possessed. But if you’re a rent payer, we’re gonna we’re definitely going to issue that the insurance certificate for that person. So that’s where where we that’s, that’s where we’re leaning toward is looking to see that we’re not gonna, you know, lose on that risk. Whereas, you know, typical landlord screening systems right now are just looking at income and then credit score, when that’s really not the best indicator of whether someone’s going to pay rent. You are so right about
Jason Hartman 32:57
that. So let me just mention that I’ve been I’ve been researching and studying this a bit Do you know there are so many data points that determine whether someone will pay either their rent or their car payment or because what we find in in these in credit scoring is in now you know the technology is getting so good algorithms are written to really do deep dives into sort of the psychology of, of every person where where they can determine like, some people literally could be great rent payers, but they just say screw you to all their other debt collectors. And interestingly, there have been studies about people who, for example, when they fill out a credit application online, if they do it in all caps, versus upper lower case, those people are literally they have determined less likely to pay on time. I mean, there’s there’s there’s crazy stuff I mean, this is getting really good. It’s getting super interesting.
Reichen Kuhl 34:04
Oh, yeah, yeah, we’re, yeah, we’re able to screen you know, the way people spend because of our access now to bank account and spending habits. We can, we can actually see how people are spending we’ve been, we do some crazy analyses in the office on on our data, you know, we can link the likelihood that someone’s going to pay rent to how much they spend on let’s say, eating out, you know, like, whereas someone who’s eating out all the time at big expensive meals is going to be in a different group of rent payers than someone who spent a little money maybe a lot of meals. It’s interesting because we can run all kinds of analyses and it’s really part of our secret sauce to to be able to determine, okay, we’re going to look at all this everything about this person, all their spending habits, their income, where they work, what part of the country, they’re in. Male, female, we were allowed to look at all that stuff because we’re allowed Look at insurance risk. And you know, a lot of those things that are protected classes. Those are still those are still factors in determining risk. So it’s interesting what we can do and how we can determine it.
Jason Hartman 35:14
Well, okay, so a couple of interesting things that you said there. Of course, I’m curious, do the big meal spenders pay better or worse than the people that spend a little bit but I have a lot of meals out
Reichen Kuhl 35:26
where, or a big meal, right?
Reichen Kuhl 35:31
People, people who tend to spend a lot and splurge a lot more people who are not as well, in my opinion, are people who are not as aware of how much they have on hand at any one time. And so whereas people who are just dipping a little bit and constantly paying attention to how much they have, even though they’re spending the exact same amount of money, they’re just people who end up having the rent at the end of the month because they’re monitoring it better. Yeah, well, this is
Jason Hartman 35:59
the split Your mentality is like, hey, live for today, you know, tomorrow be damned. Hooray. So that’s the thing. And when the first of the month rolls around, and the rents too, you know, they don’t have that. So.
Reichen Kuhl 36:11
Yeah, exactly.
Jason Hartman 36:12
Yeah. You know, another interesting thing that you said is, though, you talk, you know, in, in fair housing laws, we all have to be very conscious of protected classes and not discriminating a court, of course, not just because of the law, but just because it’s not right. Okay. You know, it’s just not a moral thing to do. But interestingly, as an insurance company, you can look at that differently. Is that what you just said, It sounded like you said that
Reichen Kuhl 36:40
we can, you know, your insurance company will insure you differently because you’re a male or female, whereas there are no other industries where you can be treated differently like that. You know, but, you know, you’re allowed to look at look at those kinds of habits. I mean, obviously, you’re not allowed to just you know, blanketly deny You know, deny insurance or services or any kind of, or any kind of product based on, you know, race or, or gender, but we can certainly look at those things and, and add them into all of our predictors and then be able to kind of decide what our entire risk is going to be as a company and go from there. But yeah, you’re right, you always have to, you know, provide at least the same opportunities for everybody. But, but for predictors, yeah, you know, all these all these plan. But we, we, we do have to comply with fair fair housing laws in ways where we don’t want to deny housing to someone who would otherwise get it but the kind of the cool part about lease lock they keeps us above that level is these people who are coming to us are already being denied. And so we can only bring them above that level. So they’re either going to be where they were when they came to lease lock and be denied housing unless they leave are able to come up with money, you know a lot of money for an extra security deposit, whereas belief lock fee is going to be way lower than that. Or they’re going to have to find a cosigner but you know, we slot kind of, we always say we take the renters and turn them into a renters for the landlord.
Jason Hartman 38:16
Interesting. Okay, so talk to us about how much this insurance is going to cost. I’m aware of the prices, but why don’t you go ahead and explain how it works?
Reichen Kuhl 38:24
Yeah, so our base rate insurance is 7% of the full lease value. So let’s take to keep it simple. Let’s take $1,000 a month lease that is 10 months long, that’s going to be a $10,000 increase value. So 7% of that $10,000 is going to be $700. So that’s what the renter is going to have to pay up front in order to have us issue an insurance certificate to their landlord saying that we will indemnify for all lost rent. The the renter only has to pay half of that upfront, so they would pay 300 $50 upfront with that $350 payment, we’ll go ahead and issue the insurance certificate to the landlord that says, hey landlord, if you if you miss out on any rent payments throughout this lease, we’re going to indemnify you, if the renter skips, we’re going to pay the rent while the apartment is empty for the whole time until you re rent it or until the lease is over, whichever comes first. And then we’re gonna have a CH the rest of the five payments from the renter’s bank account or their credit card over a five month period. So for that rent would be $70 a month in the scenario for five months,
Jason Hartman 39:32
you gave an example of a 10 month lease, and I know you’re probably used to that because you deal with a lot of student housing. And most student housing though, frankly, nowadays is just your round laces anyway, but the point here is it’s the amount of the lease. So if the value of that lease is $10,000, so it’s $800 and $880 per month or whatever it is, right? So it’s a $10,000 lease and say it’s a 12 month lease. It’s going to cost the tenants seven $100 to get the insurance for that lease period, and they’re gonna pay $350 upfront, and then they’re gonna make five payments of $70 out of the first five months of that lease,
Reichen Kuhl 40:13
right? Correct. And and what we’re competing with is the landlord saying, well, we want you to put down an extra security deposit of one month’s rent, you know when something goes wrong. And so and so in that case, it’d be another $880 more down, it would and we find that most of our renters who are coming to the lease lock program, they don’t care. They care so much less about putting the money down and getting it back in a year than they do about, hey, what is the cheapest absolute lowest moving cost that I can get right now to get in this apartment taking the least amount of money out of my bank account? And that’s what we appeal to we appeal to the renter going, Hey, you know, and the landlords love it too, because the landlord say, yeah, at least keep it cheap for them because I’d rather you push them to buy the insurance because then I’m indemnified for the whole lease rather than just like one month of rent that I’m holding. What’s that gonna do for me if I have to do an eviction, you know, lease talks gonna pay your rent while you’re going through an eviction and they’re not paying you we’re gonna cover all that. And we even cover eviction fees with lawyers and courts. So you know, it’s it’s just insurance is the better option it makes more sense than the antiquated way of collecting security deposits and and looking for co signers that you’re probably never going to find and even if you do, they’re not going to pay.
Jason Hartman 41:30
Okay, interesting. Is there anything else you want people to know? Do you have any other products or services or any other permutations of this we should know about? I know he’s got to wrap it up.
Reichen Kuhl 41:39
No, that’s about it. Um, you know, we were keeping it simple for now. You know, we we run out of our own captive insurance company and we realize that you know, later down the road we can, we can branch out and maybe do renter’s insurance and other kinds of programs are right now. We’re really focusing on this one market. This one industry of you know, rent default protection and we want to become the best in the world at predicting when someone’s going to default on rent. And that’s what our whole company is about. This is a competitor. We do we have, we have competitors. We don’t have any competitors who are a nationwide issue insurance program. There are some competitors that are working with surety bonds we have competitors that are working only in kind of limited regional markets. But they’re they haven’t kind of span the gamut as we have you know, we have under our portfolio, the largest property management company in the country and then several under those, you know, we we pride ourselves as being the trusted name and the trusted company in the industry. So, we’re, we watch our competitors. And we always strive to do way better. So
Jason Hartman 42:54
how long is lease lock been around?
Reichen Kuhl 42:57
So I wrote lease lock on a napkin. In 2010 2011, I put up a website just on my own that says, I’m a stranger, I will cosign on your lease for you if you show me these certain things like your credit report and whatever. Yeah, interesting. Yeah. And I, I ended up a lot of people wrote me, I dealt with a lot of people, I ended up doing about a dozen of these. And I made $30,000 in about 45 days. And then I said, and then, after 12 months, none of the people that I picked defaulted, and I co signed on all their leases. And then I said, Okay, this is a business and so, I took it to an incubator in, in silicon beach called mucker capital, and they kind of got me set up with my first investors and a co founder and gone so awesome. See,
Jason Hartman 43:49
I gotta ask you one more question. Are there any parameters as to you know, like, will you not rent to the very bottom of the market or the very high end market. You know, this is not an area in which most of my listeners are in. But I just want to get the question out there before you go, you know, someone has a $300 a month unit that they want to rent and get this insurance on. Can their tenant get that for at least moq?
Reichen Kuhl 44:13
Yes, yeah, we will do that. It’s where our parameters really are, is about enter risk. We do have a hard stop below a credit score of 490. We don’t we don’t go there. And we just can’t help everybody. As far as as high as we’ll go. We’ll go. We’ve gotten really high, because it’s based on the lease value. So the lease lock fee on that lease is going to be a lot higher. So if the rent is $15,000 a month, 180 grand a year, you’ll ensure that at least two but that’ll be pretty expensive insurance. It will we’ll do it but if you can buy the lease lock will insure it. Yeah,
Jason Hartman 44:52
absolutely. Okay. And if it’s if it’s a $300 a month place, you’ll do that too, right?
Reichen Kuhl 44:57
Absolutely. Yeah. Okay. Interesting. He I know you’ve got to run the website is lease lock, calm. Anything else you want to say? No, I just want to thank you for having me on the show and letting letting me talk about this company, which I’m super proud of.
Jason Hartman 45:11
Yeah, my pleasure. We love to bring you new and interesting and innovative ideas to our listeners. And this is one of them. So thanks for joining us.
Reichen Kuhl 45:18
All right. Thanks a lot. I appreciate it.
Jason Hartman 45:22
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