In the first part of today’s episode, Jason Hartman talks about China ending its one-child policy, the fragmented nature of the real estate industry, and insurance companies denying claims. In the interview segment, he welcomes the founder of Ross Diversified Insurance Services, Ed Babtkis, about their nationwide coverage. He explains the deductible options and norms and how the insurance rates are calculated. They also talk about cash value, replacement coverage, land contracts, and loss of rent insurance.
Announcer 0:00
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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 1000s 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. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth show. This is episode number 593. And this is your host, Jason Hartman, thank you so much for joining me today. I have a question for you as we start the show, and it relates back to the last episode. So hopefully you know how to answer what time is it? Yeah, what time? Is it? The answer, it’s an amazing time to be alive. It’s an amazing time to be alive. Do you feel as do I, that every day, you’re reading about or hearing about some amazing new technology, or some amazing new insight or discovery, it is just an incredible time. And one of the big reasons for this is that we live in such a networked economy, the whole world is so well networked, and it’s actually getting better. I mean, we’ve got, you know, another 3 billion or so people who are really, really coming online, and starting to engage and share ideas with the rest of the world. Billions already are, of course, but it is only going to get better in terms of ideas. And, you know, every day, I am just just amazed at the kind of stuff that’s going on in the world. So it’s great, not the least of which is China has ended their idiotic, Malthusian, destructive, awful, oppressive, one child policy, because they finally realized that their economy is headed for absolute disaster, unless people have children to support the aging population. So they have ended that, and I guess China now has a two child policy. Boy, these these kinds of government controls are scary. And this is what you get from the environmental left. You know, you get this this Malthusian idea that resources are scarce, they’ve been saying this for centuries. Okay. And yet, the human race, and it’s amazing ingenuity, has always, always overcome these problems. People are a resource, they are not a cost. They are a resource. It is just amazing. I mean, all of these discoveries that we read about all of these new insights, all of these new inventions, where do they come from? They come from people, people, the greatest resource, not the greatest cost, the greatest resource we have. So hopefully, you feel as I do, and you like people, and you look at them as a resource. It is an amazing time to be alive. Now today. Well, you know, not only today, but we got some great episodes coming up for you. We’re always trying to keep it real over here.
We’re coming up on episode 600. And today, we’re going to talk about nationwide property insurance. Really excited to have you here, this guest today. You may know that I was very excited A few years ago, and I’ve talked about it on the show before about a Nationwide Insurance Program. Because as you understand income property in our style of investing is a fragmented industry is fragmented, where you have different players, they’re all doing things a different way. You know that that’s just the nature of the real estate industry. And that’s, I always say embrace fragmentation. Because that fragmentation is what keeps the institutional players out. They don’t want to enter into this fragmented business, it’s just too hard for them to streamline it. And if and make it efficient for them, you know, they can, they can go on Wall Street, and they can deploy billions of dollars in, you know, in a very quick fashion. But in real estate, the fragmented industry that it is, it’s much harder to do that. And of course, we know, we’ve seen institutional players in our market, but not in any real way compared to the wall street world, the modern version of organized crime, the famous quote by Warren Buffett, I wish I had it here to play that you all know, he said a few years ago, he talked about, he said, you know, what, what did he say I buy a few 100,000 single family homes, if I could figure out a way to manage them, you know, and there you go from the oracle of Omaha himself, right, Warren Buffett. So that opportunity has been preserved for us, for the small investor for the middle class and upper middle class investor. And even for the dreamer, just starting out, like I was at age 20. Well, really at age 16, frankly, at age 21, I purchased my first income property. And so that opportunity is here for us because it’s fragmented. If it wasn’t that way, Goldman Sachs would have swooped in and stolen all the opportunity from us.
That’s one of the wonderful things about it. But it would be so much easier if we had a way to have one insurance company, insure our portfolios nationwide, where we could have one point of contact one source, and we could say, Hey, you know, I’ve got properties in Tennessee, Texas, Georgia, Florida. And Indiana, for example, you know, might be different markets. But those are markets we obviously like. And you can see all those at Jason hartman.com under the property section, of course, and I’ve got properties and all these places. And it would be so nice to just go to one source, and have and get insurance for them. That would be easy. Now, several years ago, I discovered a company called national real estate Insurance Group or affinity group management, and had a terrible experience with them. And a few of our clients complained about them, too. I was just in a real estate forum, actually yesterday, and I don’t know this company. I mean, are they hiring like shills to go and argue with people who complain about them in these forums? It sure felt like that. I mean, I can’t believe that someone would be so quick to defend just a company that that they just know about, you know, that maybe they’re a customer of, I don’t know, you know, there are cult members for various companies. And, boy, if you can get your company to that kind of level, it’s great. You know, and I would say that Apple has achieved that. Certainly, you know, there have been many people who have argued on behalf of Apple being Apple’s advocate, you know, arguing over the virtues of Apple versus PCs, right. But yeah, this guy, john Gregory Hall, a real estate agent in Austin, Texas, was just debating with me debating defending this company.
And I’m like, why? I, you know, I and several other people in this forum are talking about the bad experiences they had with this company. And, you know, one person in the forum is litigating with them over a claim that they denied and, you know, just not a good experience for me. Now, granted, maybe some people have happy experiences and more power to yet I know that one person at least had a claim with this company, national real estate Insurance Group or affinity group management, by the way, why do they have this complicated name? You know, this big, long, double name? Is it so it’s kind of like harder for people to refer to them? I mean, if you just want to say State Farm, or Allstate, the good hands, people, that’s a great thing, by the way, it’s easier for you to refer to them, but they got this big, long, complicated name I never understood. So we’re not going to hear from this company today, because I did not have a good experience with him at all. I filed a claim on a property and, you know, they denied the claim. But you know, that’s it. I mean, that the law the courts and that the the history of cases is riddled with insurance, bad faith. I mean, you know, this is not an uncommon thing at all. We’re insurance companies, you know, they like collecting the premiums, but when the claim comes along, they don’t like to pay the claim if they can, if they can avoid it, but a couple people said they had good experiences with them where their property their house burned down. Okay, well, I guess it’s probably pretty hard to deny that kind of claim, because, you know, either burnt down or it didn’t. Okay, so maybe those claims were harder to weasel out of I don’t know. Anyway, that’s the thing. So I have been looking for a company that would provide this same kind of thing. And, you know, I found one, and I put this guy on the show, and he’s our guest today. And so we’ll hear what he has to say. But yeah, I I did not have a good experience with this other company, Joe, just to finish that story. They send out an adjuster, and then they, they suppressed the adjusters report, they wouldn’t give me a copy of it until I had to write them a big lawyer Lee letter and tell them that I was legally entitled to the adjusters report. And they finally turned it over after much hassle and very slow processing, and then, you know, eventual denial of my claim.
Anyway, hopefully, there will be some better experiences from better companies out there. And again, this is just my experience. Some people say they like them fair and balanced here, but I’m telling you my experience, Fernando had a bad experience with them. You’ve heard Fernando on the show before, and several other people have come to me saying the same thing. So we want to use good companies that will take good care of us. So that’s what we’re going to talk about today. And our guest has an insurance company in Irvine, California, who offers nationwide property insurance one stop shop. So again, do your own due due diligence, check out anybody to deal with, but I just wanted to bring this topic up because it is a a very convenient thing if you can get it. Now the other thing I want to tell you is that one of our shows coming up next week I want you to pay particular attention to is Monday’s episode. Of course, we’ve got flashback Friday, where we’ve got john Malden on the show, America’s economic outlook. He’s author and publisher of thoughts from the front line, a great book that I got into last year after he’s been on the show a couple of times, it’s called Code Red was really quite interesting. I like this wonky economic stuff, you know, monetary and fiscal policy stuff. It was quite interesting. But all of these guys, you know, they they just don’t give real estate or I should say income property, enough credit with investment because they’re usually steeped in the world of Wall Street in the stock market. Wall Street, of course, the modern version of organized crime, as I like to say. But Monday’s show, I’ve got the founder of a company called weego.
Look, now you’re gonna love this. Because if you want to be empowered, as a geographically diversified investor, so you take you follow my commandment on, thou shalt diversify. And you take the most historically proven asset class, but you diversify it geographically. Because the old saying, and real estate is what all real estate is local, all real estate is local. So two things on this, you know, one is, don’t put all your eggs in one basket, and the other from Andrew Carnegie, is put all your eggs in one basket. But watch that basket. And I kind of take a middle ground on these two old sayings. put all your eggs, but don’t even put all your eggs, okay, but put a lot of your eggs in the income property basket, but diversify geographically, because there’s no such thing as a national housing market, in a country as large and diverse as the United States. I know we have a worldwide audience, we have listeners in 164 countries. Wow, thank you so much for listening listeners around the world, you know, as the Empire known as the United States of America, which by the way, I’m not in favor of this. I think it’s absurd and ridiculous. And the military industrial complex. What do we have military bases in 190 countries or some ridiculous thing like that? Or no, no, I think it’s like 172 countries, right? And it’s arguable how many countries there really are, there’s somewhere around 200 give or take. But you know, we got listeners in 164 countries. So my goal is to have listeners in more countries than the Empire known as the US has military bases in the back. That’s a new goal. I just made it up. Okay, there we go. new goal.
We have listeners all around the world. But the United States real estate market is very special for all the reasons I’ve outlined before on many episodes, not the least Which is it’s subsidized by the government. For decades now, the data market is much more mature in the US, meaning we have the customs of the multiple listing service. We have things like Zillow, we have really good county records. So you really know what prices are, and you know what things are worth here. And we have a very mature supply chain, in terms of the mortgage market, a very mature supply chain, in terms of construction and repairs. And, and it makes our construction cost, oddly very low in the US, even though we have higher wages here. I was just talking to someone about that last week, when I spoke at my big event audience, 2000 people my second largest audience ever with that, you know, they were talking about how they were, they had what they said they had a couple properties in Central America. I think they had Costa Rica, Belize. I want to say Nicaragua, maybe I can’t remember. But they were talking about how high the construction costs were, and how you could build so much more inexpensively in the US. Now you’d think that would be the opposite. it’s counterintuitive. Yes, you have really cheap labor in those places. But the supply chains and the systems are not mature like they are in the US. So that really brings our construction costs way down. We have very low construction costs here. compared to many places in the world, even though our labor cost is higher. So a lot of great benefits, of course, but listen, I don’t want to get off on a tangent like I always do. You know, I do. Go to Jason hartman.com. Join us for our meet the masters of income property event. It’s only once a year, it’s in January. It’s gonna be awesome. This year. We’ve got Garrett Sutton, our first celebrity speaker, multiple best selling author of several of the Rich Dad Poor Dad books with Robert Kiyosaki, there he is speaking on Saturday at meet the masters of income property investing, it’s going to be a great event. I’m off to Orlando tomorrow to do our property tour and creating wealth boot camp. They’re our biggest one ever 58 people registered, wow. We’re looking forward to seeing all of you there. It’s going to be a great event. But hey, let’s talk about nationwide property insurance with our guests go to Jason hartman.com, for all of that stuff, and let’s get to our guests. Nationwide property insurance. That’s not the name of the company, by the way, it’s the subject matter. So here he is.
It’s my pleasure to welcome Ed Babtkis to the show. He is the founder of RDIS and they offer something that real estate investors should really perk up and listen to. And that is Nationwide Insurance. If you’re a longtime listener, you know that we had interviewed another company on the show, that’s affinity group management or national real estate Insurance Group. And we got some complaints. And personally I didn’t have a very good experience with them. I just really missed that whole simplicity of having a nationwide insurance provider, because I want to be able to invest in the best markets that make the most sense. And so I’m back frankly to, you know, local state by state insurance providers, for every property myself for my entities own own in in different states, I got to have a different insurance broker. And you know that, that just adds to the complexity. So this kind of solution is really interesting. So perk up and listen to this. Ed, welcome How you doing?
Ed Babtkis 18:42
Doing real well. How about yourself today?
Jason Hartman 18:44
Good, good. Good to have you on the show. Tell us how long have you been offering a Nationwide Insurance solution?
Ed Babtkis 18:52
Ross Diversified, the name of my agency has been around close to 30 years now. And we are licensed in all states and and then offering national solutions, National Insurance Solutions to lenders as well as real estate investors throughout the duration of my career.
Jason Hartman 19:09
Okay, so how long then for nationwide? What like what year did this start?
Ed Babtkis 19:13
We started the agency back in 1986. And we’ve been national one year into the birth of the agency. So for about 30 years, we’ve had national insurance programs.
Jason Hartman 19:23
Why is this such a secret? I mean, I’m I’m deeply I’m probably more deeply entrenched in this business than anybody else. I mean, when and you know, I’ve only heard of a couple of players that do this. And as you know, I had a bad experience with one and we had several client complaints and other people complaining about them and, you know, denying claims and so forth. So, you know, what, why is this a secret?
Ed Babtkis 19:48
You know, it’s it’s a great question and without trying to go overboard with the answer. From an insurance company’s point of view, they’re trying to aggregate what relatively speaking is a small market niche. And then they’re trying to find the expertise of agents and brokers like myself to do that. And then of course, they want to write profitable business. So an agent like myself has to get become licensed in all 50 states, which we are. And then we vet every program that we look at to see if it’s going to work. Because of the nuances associated with this type of business. For example, you’re going to have institutional lenders for some of your investors. So real estate, which is going to require loss, payee clauses, mortgagee clauses, etc, then you’re going to turn around, you’re going to have cash buyers that maybe have actual cash value, coverage needs versus replacement costs needs. And so the the options can be, can be endless, and to focus in and drill down and find an insurance company or combination thereof, that’s willing to write this marketplace on a national basis is not an easy thing to find.
Jason Hartman 20:55
Okay, so you are a brokerage, you’re not actually the insurance company, is that correct?
Ed Babtkis 21:00
That is correct.
Jason Hartman 21:02
Okay. And who is actually underwriting these policies?
Ed Babtkis 21:06
Great, great question. Acceptance, Indemnity, A-rated carrier rights of property coverage and first layer of liability coverage, A rated and then Cincinnati insurance. And these aren’t household names, but Cincinnati insurance is an A-rated carrier that provides a $10 million liability policy for each location under an investor’s policy.
Jason Hartman 21:28
Wow. 10. That’s a huge policy. I’ve never heard of anybody having that much insurance on a regular residential type property, maybe, you know, in some commercial properties, I could see that, especially industrial type stuff,
Ed Babtkis 21:41
It, it’s something that’s, that’s nice to have that umbrella policy that gives you the comfort in it doesn’t jack the premiums up, you’d be surprised how competitive the entire program is.
Jason Hartman 21:51
Okay, good. So explain those layers of insurance. You know, I think that might have been one of the problems with National Real Estate Insurance Group or affinity group in getting, you know, and then denying claims that, you know, several people thought were unfair denials. But of course, you know, that’s a matter of opinion. Right. So I do want to give that disclaimer, and, you know, happy to hear their side of the story, too. But how do those layers work?
Ed Babtkis 22:17
You know, there’s so much naivety, I guess, with insurance. I mean, your business is to buy that home at the right price rehab that, get a renter in there, and make sure to cash flows to hit your rate of return. I mean, that’s seems to be the general mindset of most of the investors that we’re dealing with, and they get a handle on their expenses. And then they know what they got going in. And they know what they got going out and they look at as insurance is a component expense. So whether the house cash flows at 7.85, or 7.82, you know, whether the insurance 400 bucks or 500 bucks, whatever you put aside for it. And unfortunately, that’s where all the attention stops. And that’s why investors can run into problems with insurance claims, because they really don’t look to see exactly what they’re purchasing. And I’m not going to take a shot at anybody because I don’t know what was disclosed to anybody. But when you get into programs that are nationwide, they’re normally done on a blanket basis, which means that the insurance provider says I need to find somebody who can aggregate all these investors and who can hold their hands, tell them what they have explained the program correctly. And make sure we’re all on the same page. So I’m working with a wonderful brokerage called Mahoney that’s been able to do this with the carriers we mentioned Acceptance, Indemnity, and Cincinnati, A-rated carriers. And the key here without trying to get too buried into the minutiae is that what you’re being offered matches the exact same coverage that’s been issued to the brokerage firm. When there’s a discrepancy, for example, if if I have a policy that says x and somebody else has a policy that says y, those discrepancies is what gets everyone into a state of misunderstanding. If those discrepancies are pointed out going in, it may make a lot of sense to choose that option. We don’t prefer to market those and we don’t market programs that have discrepancies. What we present to you is exactly the insurance line for line item for item that’s been underwritten by Acceptance, Indemnity, and by Cincinnati.
Jason Hartman 24:24
Okay. So with the layers of coverage issue, though, you know, does does your firm do any of the coverage? So let’s let’s take an example. Let’s say that’s the best way to do it. So someone has a property, let’s assume it’s a single family home. I’m sure you do apartments and so forth to probably but let’s say it’s a single family home, and the house is worth $100,000 and a pipe breaks and they have a claim, and the claim is for $25,000. Is your agency going to be paying any of that claim or is Simply one underwriter. And what would be the typical deductible? Or are there two carrier see insurance companies do this sometimes to spread their risk too, which is logical. And you’ll have multiple claim payers in there, right? So
Ed Babtkis 25:18
I understand exactly what you’re asking. And that’s where I perhaps wasn’t as clear when I said look for the discrepancies between the coverages between carrier a and carrier B. Here, there is only one insurance carrier for the property damage, that’s acceptance, indemnity. And you have deductible options to choose as a consumer upfront, ranging from 1000 to 10,000. And that’s exactly what’s in the coverage of the program, there is no self insuring, which you may be alluding to, when you say layers of insurance, there is no retention, which is another form of layering the insurance by the broker, the insurance carrier is on the risk for 100% of the claim less the deductible chosen by the consumer by the investor,
Jason Hartman 26:04
What is the typical deductible in these policies?
Ed Babtkis 26:06
The beauty of this program is that you can have your choice of deductible ranging from $1,000 to $10,000. We have many foreign investors who prefer a $10,000 deductible because they want the premiums down. And we see on the average deductibles being chosen really around the $5,000. Mark. Okay.
Jason Hartman 26:26
Do you agree, you know, there’s a big school of thought on these deductibles is that, you know, the likelihood is that it’s worth it to increase the deductible and keep the premiums lower? You know, it’s always this matching between the two, it’s this balancing between the two, what is your opinion on that sort of that sweet spot for a deductible? Is it 5000 or 2500? Or what’s your thought,
Ed Babtkis 26:51
My thought is 2500 is a great is a great deductible, your premiums are not going to be too expensive at all, in fact, are going to be very, very moderately priced. And you’re not going to be filing a claim because there’s a leak under the kitchen sink or because the the hot water heater broke in the garage, and there might be some small drywall damage. So you’re not going to file a bunch of nuisance claims, which is eventually going to be caused for your premiums either to go up or your for your policy to be cancelled.
Jason Hartman 27:18
Yeah, okay. All right. And do you insure in every state, all 50 states?
Ed Babtkis 27:23
We do and that’s one of the beauties of this program here is each investor is issued their own blanket program with their own identification number for their portion of the policy. And what that means is that when they call our office, they’ll already be on file, they’ll give us a property address and about seven or eight components of what’s needed for us to quote for example, the your bill, the the ownership, that there’s going to be a loss payee, if they’re using institutional financing, or even hard money financing. If there’s a property manager who needs to be named as an additional insured, etc, etc. So we get our information necessary, we then turn a quote around in about 24 hours, that gives the investor the various options of the $1,000 deductible to the $10,000 deductible range. And depending on the amount of coverage and where the zip code is of that property, and then the deductible, those are the three drivers of the rate that we use to calculate what the premiums going to be.
Jason Hartman 28:20
Okay. When someone gets an insurance policy from you. Do you check their credit report? Or does the carrier check their credit report? I have noticed that’s like a sort of a new, well, I guess it’s not so new anymore, but it’s been going on for the last several years that that’s starting to happen now. Is that a, it’s that an indicator of claims liability?
Ed Babtkis 28:40
It is to a degree. To a degree. I think the insurance carrier is always trying to tweak, there’s always actuaries that are trying to tweak and underwrite a little bit more carefully. Theoretically, the logic is that if you have a bad credit score, you don’t have the money to repair the roof or maintain the property in a condition that would preclude it from having as much claims as someone else who is maintaining their property meticulously. That’s that’s the logic behind it. At our program program here, we don’t run credit, we’re looking at the property we’re looking at where it’s located. In investors buying the property and using it as a rental. Our feeling is that the investors have good standing if they have the wherewithal to be buying single-family homes for for investment purposes.
Jason Hartman 29:27
Now, what about entities, our clients have found it to be a little bit more challenging, although not impossible, when they own their properties inside of LLC, and they have that limited liability company? You know that they, the normal insurance companies out there will usually want to charge them a premium. You know, maybe that policy will be harder to find. It’ll be more expensive. And I encountered this myself as well, on a couple deals.
Ed Babtkis 29:54
It’s all over the board here. You’re right, it varies per the insurance company. You know insurance company’s all have their unique set of underwriting rules and guidelines that dictate exactly how they’re going to administer their particular program, whether it’s State Farm or all states, or any of the big ones versus any of the small names that are still a aerated very well financially salt fault. solvent carriers who who aren’t household names. And with this program here, there is no problems with LLC, there’s no problems with benefit plans, we get a lot of Florida one case that, you know, the properties may be held in. And certainly, you know, trusts family trust is almost a given on many of these as well. And the beauty of this program here without trying to oversell it is that, you know, we’re approved by dwell, which is a major financing source and be to our, you know, subsidiaries of Blackstone that are doing so much financing on these homes these days. So, when we go through their insurance guidelines and they vet us, it makes me feel that much better than I can have a conversation with you like this, and lets me know, I’m marketing the right program.
Jason Hartman 31:01
Uh huh. Okay, so now I assume this next question is going to be pretty hard to answer. But what are the rates? I mean, you know, you can quote rates probably, because you don’t know that you don’t know the property, it depends on so many things,
Ed Babtkis 31:15
Right. It is a pretty, pretty broad question. That said, I’m still going to try to give you an answer that you can almost hold me to, barring few exceptions. Insurance is going to range from a rate of let’s say, 35 cents to 42 cents. So what does that mean? It means for $100,000 of coverage, it might be $350. That’s what a 35 cent rate equates to. 42 cents rate on $100,000, home equates to 420 bucks, certain zip codes are even lower, and certain zip codes are certainly higher. But if I was to feel comfortable giving you a range, that that would be what it is. And then of course, the deductible can bring those rates down or up accordingly. Okay, so when you talk about those rates, and I just want you to go over that math, so people know how to actually calculate the insurance rate? What’s the number of cents per $100.
Jason Hartman 32:10
Or per $1,000?
Ed Babtkis 32:12
You know, it’s 35 cents. So $100,000 home, at a 35 cent rate is going to cost $350. So you multiply 35 cents, times the number of 1000s in the price, right?
Ed Babtkis 32:27
Right. And that’ll give you your premium.
Jason Hartman 32:29
Okay, so what kind of deductible will that 35 cent number apply to?
Ed Babtkis 32:35
Usually the $2500 deductible. But again, I can’t
Jason Hartman 32:39
Which is the one you recommend
Ed Babtkis 32:41
I can’t overemphasize that it’s zip code driven. Please, please don’t lose sight of that. Because,
Jason Hartman 32:46
Yeah, okay.
Ed Babtkis 32:47
If you tell me we’re in Dade County in Miami, or if we’re in a little county in Missouri, or another county in Tennessee, I wouldn’t want you to hold me to these these specific,
Jason Hartman 32:57
Yeah, I got you. No problem. We won’t hold you to it. listeners, everything is subject to change.
Ed Babtkis 33:04
The one thing that I would like to really point out because this is where there’s a lot of Mystique. And unfortunately, in my 30 years that we’re educating investors all the time, when I go to various meetings, and I speak at various meetings, sometimes we overlook the basics. And when I say the basics, I’m talking about actual cash value versus replacement cost. And for those that are unaware of actual cash value.
Jason Hartman 33:29
That’s what I was gonna get into. Yeah. Yeah. Good. I’m glad you’re going into that. That, that was my next set of questions.
Ed Babtkis 33:34
So it’s, it’s the number one issue that we see people get upset on claims outside of just poor claim payments. You know, that being an issue all unto itself. But as far as misunderstanding of coverage, if you think of actual cash value, like a car that depreciates every year. The insurance companies use a program. Marshall swift deck is a major software company that provides us information for the industry. And they’ll look at zip codes, they’ll look at material costs, they’ll look at labor rates, etc. And they’ll come up with a value of what a house should be. And then they’ll apply maybe a 60-year life to that house or a 70-year life to that house. And various insurance companies will offer what we call actual cash value coverage, so where I’m going is when you have a fire, they’ll depreciate the loss. So if the loss is truly 50,000, but the house is 45 years old, or 50 years old, you may end up with the check for nine or $10,000 after the deductible. And a lot of agents in, I love my industry I truly do, won’t really explain the difference carefully on why a premium is maybe 300 bucks or 400 bucks, but if the 400 bucks gets you the $50,000 versus the $9,000 means you’re getting a good replacement cost policy versus a stripped down actual cash value policy.
Jason Hartman 34:52
Okay, so you recommend then that people get replacement cost insurance, right?
Ed Babtkis 34:59
Absolutely. My job as a broker agent, if you will, is to make sure that when there’s a claim, you walk away happy. Because that’s, you know, is, as cliche as that sounds, that’s really the reality. My heat level goes up if you’re not happy with the claim. And after 30 years, I don’t need the heat. So we explain what the benefits are of the program, we explain why you should have one coverage versus another. And we’ll have people sign disclosures if they choose certain coverages that we quite frankly, don’t believe fit the risk.
Jason Hartman 35:31
Okay, just so they really know that they’re there, what they’re getting into. Talk a little bit about some of the other types of insurance you offer. For example, you know, many of our listeners are hard money lenders. And then, you know, some might occasionally buy a note on a property or, well, actually, no, we, you know, in in one of our markets, we do a lot of people, we have a lot of people that buy land contracts on properties, which actually is a good insurance question. When a land contract is created, okay, and one of our investors buys that land contract at a discount. The way land contract works is really the person living in the house technically, does not have the deed until they follow all the terms of that land contract and pay it off. So who is really responsible for insurance? Now, I have had this question asked and answered with a different person, but I’d like to hear from the insurance man himself.
Ed Babtkis 36:35
Certainly. No, no. And it’s a great question, because land contracts are almost defined as lease options, if you will. It’s, it makes it easy to evict versus foreclose. I mean, all the the nuances of using the land contract vehicle, our perspective is that it is like you mentioned when you do a land contract, as a seller, you’re still the owner. And as a consequence, if the person who executed the land contract lets the insurance lapse or doesn’t pay their insurance, that you to protect your interest should go ahead and place insurance on that property listing yourself as the insured.
Jason Hartman 37:15
Right? Okay. So do you list yourself as the, do you have them list you as additional insured? Or do you get your own policy?
Ed Babtkis 37:22
As a land contract, I would list myself as the insured and list the person in the property as an additional insured.
Jason Hartman 37:29
Okay, now, you so so in other words, you would take on the burden of getting your own insurance
Ed Babtkis 37:36
and charge it to the person moving into the property.
Jason Hartman 37:38
Oh, okay. So it wouldn’t be like there’d be double policies then, really.
Ed Babtkis 37:41
Correct. Most of the the investment community again, is, is looking at that IRR. And I truly get it. Being an investor myself.
Jason Hartman 37:51
IRR, of course, is Internal Rate of Return. And what you’re saying there and is that most investors are just looking at their return on investment. Right? That’s what you meant by that.
Ed Babtkis 38:01
Correct. And if they can forego the insurance expense. Many times that’s what they prefer to do. The reality is, these investors, however, aren’t tracking the insurance. So if the borrower elects not to pay it, for whatever reason, and the place burns down, the investor is out of luck?
Jason Hartman 38:19
Yeah, well, that is why I really think using a loan servicing company, a good reputable loan servicing company that will manage that insurance component, as well as collect payments and service the loan is is a really good idea. It just makes life a lot easier.
Ed Babtkis 38:35
I agree with you completely. But it’s amazing how many investors are out there servicing their own notes.
Jason Hartman 38:41
Yeah, that’s true. No question about it. So with this type of insurance, or with someone that’s doing hard money loans all the time, and and maybe they’ve got a bunch of them out there. What should they do if they’re, if they’re a hard money lender? I mean, of course, hopefully, the title company or the escrow company is managing the insurance component and naming them as additional insured, but I don’t know, maybe not. You got to be careful with this stuff. Can they buy like a blanket policy through you? That makes it really simple and easy.
Ed Babtkis 39:10
What they can do is, you know, without trying to, to get too crazy here, but the reality is they can call our office, we have a program again, that’s good all over the country that investors can call in and say my borrower has left their insurance lapse. Again, we’re talking about the hard money lender now. My borrowers let the insurance lapse, I need to place property coverage. Can you help me? We get those calls daily routinely. And we have a program that allows that investor to choose the amount of coverage they want to put on that property. And those rates going to be higher than our rental program rates because the investor is what would generally be termed for forced-placing insurance onto that property on behalf of this borrower.
Jason Hartman 39:54
Okay, okay, good. Anything else people should know. Maybe a question I didn’t ask you about insurance. Just anything else they should know.
Ed Babtkis 40:01
Yeah, I think things like loss of rents. How important is that?
Jason Hartman 40:06
Oh, good point. Yeah. You know what, that would have been a glaring omission. Talk about loss of rent insurance and whether or not they should buy that kind of coverage.
Ed Babtkis 40:07
Well, we’re seeing it required more and more when we name institutional lenders on onto the policy, most lenders want to see a year of rents, so we decided to double it. And we provide two years loss of rents with our program. So, and not to overkill just for the sake of over killing, there’s there’s nothing like having that money come in if the place burns to the ground. And again, the the premium is not even hardly impacted at all, by that type of the benefit. So loss of rents is something certainly that works, they can see is another thing, if we’re talking about rental properties, these go vacant from time to time, they go vacant for a month, they could go vacant for four months, the traditional insurance companies, as soon as you notify them, it’s vacant, they start reducing coverage, or they send you out cancellation notices. With our program, we allow that property to go vacant for as long as six months before we’ll start reducing any sort of coverages. And those are the little things that we tell you going in, but the things that are nice, so that in the event of a claim on a property that’s taken three or four months, you’re not going to have issue. That’s something that would certainly make make everyone aware of that we understand what we’re ensuring we’re not the State Farm agent who says, Yeah, I can write you up a policy on a rental house who may not have a real good depiction of what he’s doing.
Jason Hartman 41:34
Absolutely. Does your policy require that people have a property manager? Or can they self manage, we’re, we’re finding, interestingly, a lot of people that are very successfully self-managing their income properties from a distance. Myself included.
Ed Babtkis 41:54
Interesting. interesting. And I applaud those people, first of all, but second of all it to your point,
Jason Hartman 41:57
I’m not saying and by the way, I’m not saying you could have done that very effectively, 15 20 years ago. The reason it’s so effective now is because you have so many technologies that make it easier, you have Google Earth, you know, you have Street View, you have services, like wegolook.com. And there’s just a lot of really good tools nowadays to make this stuff much easier than it used to be.
Ed Babtkis 42:22
I don’t disagree with you. And I think probably the size of your portfolio and where you’re at in life might might dictate some of those, those circumstances in decision making. The insurance is not impacted at all, whether you’re self managed, or whether you’re you’re using a property management company. With our program, we can certainly endorse any property management company on to it.
Jason Hartman 42:45
Okay, so property manager required or not? Just want to make sure that’s clear to the listeners
Ed Babtkis 42:50
With our program that it doesn’t matter. We’re happy to add property managers as additional insured,
Jason Hartman 42:57
But people can self manage, right?
Ed Babtkis 42:59
Absolutely.
Jason Hartman 43:00
Okay. Good, good. Any other type of insurance you provide that people might want to know about, just generally?
Ed Babtkis 43:06
This really is our niche. We’ve been fortunate to be successful in in this real estate community, and providing these types of programs and haven’t had to stray too far from it. We’ve done a, we do have a marketplace for some of the LLC that want to get errors and omissions or professional liability for their, their LLC fees and we’re happy to provide that as well. But the primary function of what we do here truly is insure real estate all over the country.
Jason Hartman 43:33
Yeah, fantastic. Well Ed, thank you so much for the info. And we will be I’m sure sending some referrals your way so people can check this out in more detail. We really appreciate it. Thanks for being on the show.
Ed Babtkis 43:43
Look forward to it. And we’d love to quote your portfolio.
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