1708 - Part 2: Special Guest Aaron Letzeiser
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Jennifer (00:00:01) - Welcome to episode eight of season 17 of The Growing Empire Show. Today I'm back with my special guest, Aaron Caesar. And in case you missed it, you want to make sure you go back to the previous episode. Aaron and I had a great conversation, and he provided a lot of insight and information that I find valuable to real estate investors on their journey. But in case you did not hear that episode, I wanted to give you a quick background on Aaron. He successfully launched and grew several companies, guiding them to successful exits. Notably, he's not only an active real estate investor, but also a venture partner at Pioneer Fund, a San Francisco based venture capital group. Aaron's remarkable achievements have earned him a place on the Forbes 30 under 30 list, and he is the founder of Obi Insurance. So today we're going to continue our discussion. So stay tuned.
Speaker (00:00:49) - Welcome to Growing Empires, hosted by real estate entrepreneur and trusted investment advisor Jennifer DeJesus. Growing empires provides insight to building wealth through passive income, producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
Jennifer (00:01:10) - People talk about putting properties in an LLC to obviously shield some of that risk or that liability. Can you share your perspective on that approach and how that impacts insurance policy that you're purchasing, as well as your investment strategies?
Aaron (00:01:28) - Yeah, so I mean, my, my, my first recommendation is find a really good real estate attorney. Right. We talked about that a good insurance agent, good attorney and good accountant. for me personally, I like putting them inside of an LLC. I think from a legal perspective, it does provide you with an additional layer of separation between you and all of the other assets that you might own, right? So for me personally, that's the route that we always went. That's the route that we've always been advised on from, from, you know, from counsel, from an insurance perspective, it doesn't necessarily matter. Right? but, you know, the one thing that I would also remind folks is, is that, you know, in the event that you start with a property that's in your name and then you move that into an LLC, make sure you tell your insurance company right.
Aaron (00:02:14) - Don't give your insurance carrier an opportunity or a reason to, to deny that claim. Right. Your name insured really should be that LLC. You can be listed on there as an additional insured or an additional named insured. but from an insurance perspective, it doesn't really matter. We look at the top of that declarations page on your policy, and we look to see who is that named insured. Right. And then from there, it's really their responsibility, whether it's in an LLC or an owner, where when I pay them the check, right, they're going to say, okay, well, I've got 30% equity. My my lender's got 70. Right. Like we're going to, we're going to disperse this if, if we're just taking the cash value for the home or they're going to end up rebuilding. So we just want to make sure that the person that actually owns the property is the one that's actually listed on the policy. Okay.
Jennifer (00:02:59) - Does owning in an LLC change the premium on a policy?
Aaron (00:03:05) - it, it normally I would say it depends on the carrier.
Aaron (00:03:09) - Right. There are plenty of carriers out there that again they built their real estate investor product, their landlord, their dwelling product, on their homeowner's platform. And so that homeowner's policy has never been contemplated in a way where a, you know, an LLC or a corporation might own that asset. So there are carriers out there that won't write that policy in the name of an LLC. Their systems just won't, won't, won't even allow it. It's not even built in that way. For others. It really shouldn't. More often than not, I will say the only thing that that potentially matters sometimes is that, if it's in your personal name and that carrier kind of operates, more as a, as a homeowner's insurance carrier, you individually and your individual insurance score. Right. how you've operated with insurance carriers in the past, but claims that you've ended up filing that insurance score under your own name can help your price sometimes, whereas you don't have a similar insurance score for just a random LLC that you might have.
Aaron (00:04:09) - So normally it shouldn't. But I think, you know, putting your properties in an LLC, even if you have fewer insurance markets to be able to go to, I think the benefits obviously outweigh the potential extra, you know, 5000, 150, $200, that you might have in annual insurance costs.
Speaker 4 (00:04:25) - Okay.
Jennifer (00:04:26) - So let's talk a little bit more about O.B.. I want to talk about, you know, what what do you do different? You had already mentioned that if I caught it correctly, that you can, you know, get your policy online. Right? So it sounds like a much more tech forward structure or company than the most of what insurance is. You know, I'm sure many investors can relate to going back to the old days where they'd go sit in their insurance brokers office and talked about talk about the policies. So talk to me a little bit about your company, what you do. I think you did mention you're in many states, many US states. So if you can just expand on that, it'd be great.
Aaron (00:05:08) - Yeah. We, we are available in all 50 states plus Washington DC in, you know, 98% then of of the US, you know, there's some counties that are a little bit more restrictive. if you're on the beach in southern Florida, right, that's a little bit harder sometimes to be able to do instantly. But we wanted to build a product where, you know, you could sit on your couch on a Saturday morning and buy insurance without having to talk to anybody. that that was the goal. We still have a very large team of experienced sales and service folks. If people have questions about their policy or about a quote, people are always available. But what we found is that, again, insurance was that piece that people really didn't like dealing with. It was that nuisance item to closing their loan or, updating it for their property manager or just getting a renewal done. And so we wanted to make this process as easy as possible. And so we're one of the only providers out there where you can actually do that, get an instant rate, and then be able to kind of manipulate that rate and bind and sign directly with your provider.
Aaron (00:06:02) - The other piece, too, is that, what makes it really different is that, we also embed ourselves directly inside of the workflows of. Where real estate investors were at. That was something that was very important for Ryan and I that, you know, there were already platforms and plenty of solutions that exist in the market that are already supporting real estate investors, whether that's the loan closing software. Right. As you work through that process of an appraisal and the docs and the mortgage and the approvals, right. We embedded OBS coding system for insurance directly inside of most of the big lenders and most of the single family rental lenders across the US. We started to do the same thing then with property management software. Right. You're in there. A lot of folks are familiar with renter's insurance and are now integrated inside of like a a lease signing process, right? Your owner, rightfully so, requires you to have renter's insurance. You can either drag and drop a copy of your, you know, your policy that you already have, or you can get an instantly available policy right here directly through that system.
Aaron (00:06:59) - We wanted to provide owners with that exact same type of experience, so that that's really how we differentiate ourselves. And we also use a lot of technology to try and limit the number of questions that we end up asking. Right? We used to sit there with multiple page PDFs, filling out all of the information, square footage, you're built, number of units you know, in 2024. That's table stakes, right? All of that data exists out there. Anybody could go to Zillow and, you know, or Redfin's website and see the same thing. And so we want to be able to limit that, that type of experience and make it as easy as possible for somebody to come through O.B. and get a quote. We've had people go through and as as little as, you know, a minute to be able to just go in and put in your address, select the coverage that you want, put in your credit card and checkout. And that's that's at the end of the day, the way that we're trying to at least change the insurance market.
Speaker 4 (00:07:47) - Okay.
Jennifer (00:07:48) - Do you have options with these policies to pick like your payment structure, like whether it's an annual premium that you pay a quarterly premium, monthly premium. Yeah.
Aaron (00:07:57) - So, right now we only offer annual, annual bill. That's a function of really the payment processor, which we're continuously working on. I'd love to get to that point. Right. For us to be able to do it. I would say one of the differentiating factors as well, with OB is that we don't have what's known as a minimum earned premium. So a lot of your listeners might be familiar with insurance where you buy it, but even if you cancel it the next day, the carrier will keep 25% of that policy. Right? They they, they keep it 25% minimum earned. And so you could buy a policy today and then cancel it tomorrow. you could buy it today and cancel it a month from now. We'll give you that prorated premium directly back to you. There's no penalty in doing that. we obviously want to keep people for, you know, as long as we can, but we also have a large contingent of owners that are flippers, right? They want to keep their policy for three months, four months, five months.
Aaron (00:08:43) - Well, it's on the market. Do a little, cosmetic work on the property and then, you know, be able to flip that to an owner. we want to be able to build a product that was really conducive to being able to do that.
Jennifer (00:08:53) - So if I'm a consumer that wants to check out a quote, what do I do?
Aaron (00:08:58) - I would go to OB Insurance.com. That's OB Insurance.com you can throw your address in there, a couple other pieces of information, and you should for most folks, you should be able to get an instant quote right then and there.
Speaker 4 (00:09:10) - Okay, so.
Jennifer (00:09:11) - After I get this quote, how do I know it's the right quote for me? What should I what would you step two be?
Aaron (00:09:18) - step two the the step two for any, any really insurance provider is, you know, is first, make sure that it actually covers, and complies with your lender requirements. Nobody likes that. nobody likes that. Notice probably 30, 40, 50 days after you bound this policy from your lender, or Fannie and Freddie or somebody else saying, hey, I know you just went through this process and I'm sure it was painstaking, but I needed to now change a bunch of things.
Aaron (00:09:43) - Right. so that's the first thing. The second thing is you also want to check out, like the, the, the rating of the carrier that you're using. Right. much like the financial markets, the insurance market runs on what's known as an Am best rating, right? So it would be offers anywhere from an A minus to an A+ rated product. Anybody that's got an A minus or better means that there's really strong financial strength to be able to then like pay out those claims. that's that's really step number two. Okay.
Jennifer (00:10:09) - Do you see? I'll be replacing the need to have that insurance broker as your as your partner.
Aaron (00:10:16) - No, I don't think so. I'm going to be really curious to see what happens in the personal lines market. If people want to get like their auto insurance directly through, you know, maybe their car manufacturer like Ford and Toyota. Tesla's obviously been doing this. I don't think that that's actually going to be the case. Instead of a product where the owner and the buyer of insurance feels like a business owner.
Aaron (00:10:37) - Right. I think it's incumbent on the insurance world to continue to to help empower our agents, and to be put in a position where they can be really successful with our products. But no, I don't see ob I don't see OB necessarily replacing that at least. You know, at least not anytime in the near to medium term.
Speaker (00:10:57) - The episode will continue in just a moment.
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Speaker 4 (00:11:58) - How do you.
Jennifer (00:12:00) - So obviously, you know, technology is is changing even the insurance industry. Right. To some extent. So how do you see this kind of evolving. Do you see tech you know, tech, prop AI and all these things having a dramatic impact on real estate investing as a whole. And and what do you see as some of the things that you think will be on the horizon in the next year or two, based on the technology?
Aaron (00:12:26) - Yeah, I mean, I, you know, in, in the insurance world, before getting more broadly what I, what I would love to be able to see long term is that if we can get away from, you know, your agent asking you what year the property was built in, right? It opens up the opportunity for more, more of an opportunity in the limited time window that I have with our clients or our potential clients to get some really impactful information.
Aaron (00:12:48) - And so if I can, you know, if I can figure out as the insurance company how to integrate and pull in certain data points from maybe your property management software, right. So you have really low vacancy if you have really low, you know, maintenance requests. do you take really good care of these, these properties? Right. Do you have a really good lender. That's pretty strict, right. That, that, you know, obviously did a deep dive into you. I want to be able to then like reward you with a cheaper policy long term. Right. If you're a really good owner and you're a really good operator. Why should you also have to pay the exact same premium as somebody that really doesn't take care of their their asset? The only thing the insurance market has ever had to go off of for the last hundreds of of years is just that property, right? One, two, three Main Street, where you could have a really good owner and also kind of a careless owner, right.
Aaron (00:13:37) - Or somebody that's just not taking really good care of that property. Why should you both pay the exact same rate? Right. I want to be able to reward somebody that's going to take care of the condition of that property and decrease the the prevalence of claims. So I think that's something that data can, I think, start to really impact in the insurance space long term. That's something that that I'm excited to see happen. I think more broadly in the real estate space, some of the big things that I've, you know, that I've seen, AI is obviously a big buzzword right now, but I think, you know, I think we're we're large models can start to help. Is that even then the, the most novice of investor can start to run predictive. And I think robust pro formas to to model out the potential outcomes of these assets. Right. Can we get to a point where something like an open AI or a ChatGPT has ingested so many underwriting models and performance about assets that you could, you know, you could ask it, right.
Aaron (00:14:34) - You could basically give it a Zillow link and say, hey, this is up for sale. Can you run a model for me? Right. Much like in the financial markets, you've got, you know, the the Fibonacci models, right. All the different potential 100,000, a million different combinations. But what are the most likely outcomes based on a certain number of variables. And if you can feed really large models of data around maybe rent growth, population growth, you know, maybe new construction permits, maybe changes in zoning laws, maybe a softening in, in local municipalities, providing, you know, new housing in areas. All of that data could be really powerful for even the most novice investor to say, hey, you know, Siri or hey, Alexa or whoever might be one day, here's a property. Is this going to be a good investment? And to run hundreds of thousands, if not millions of data points to sit there and say, wow, yeah, amongst all of these different things, this looks like it's a good investment, right? Something that might even be able to say, hey, there's actually a Starbucks or there's a Trader Joe's, there's a Whole Foods that actually just got a construction permit approved, you know, three blocks away.
Aaron (00:15:40) - We see that as a really good indicator of potential population growth in the area or rent growth. That's, I think, really some of the powerful things that might not come in the next year or two, but I think is certainly the direction that everything's going.
Speaker 4 (00:15:54) - Okay.
Jennifer (00:15:55) - What do you think are the most underwritten parts of a policy that that investors need to pay more attention to some of the missing items, like I'm sure you've had, you know, people calling in, you know, claims and, you know, you go you look at their policy that's not covered. Right. So what are some of those missing pieces that people forget about or don't even know about, because their insurance broker never educated them on those tricky subjects?
Aaron (00:16:25) - It's it's a great question. I think, you know, to two of the big ones that we've covered already are really that that property limit, making sure that you have enough and then also that that liability limit. Right. Making sure that you have enough. But some of the other ones that I think that are a little bit more under the radar and the one that comes up the most is probably that loss of rent.
Aaron (00:16:42) - Right? that, that one. And then so, so loss of rent for some of your listeners. it's not an expensive item, but it's usually an item that, as you're going through your policy, is a little bit buried down, further down the line. And in the event that you have something that's going to make your property inhabitable for a certain period of time, that's going to pay not only the expenses potentially for that tenant to, you know, be put up in another place, a hotel, another rental property for a period of time. But it's also paying you that lost rent, right. So let's make sure that you get to, you know, rebuild or restore your property in a really good position, but also you're not out of pocket. It's not like you were impacted then by not having a tenant in there. So that's a big one. the other two that are really big. One is water backup, right. water is probably the either, depending on the year, the first or second most common cause of claims.
Aaron (00:17:32) - It's easy coverage to throw in there. and then the, the other really big one that I think gets missed is something called law and ordinance coverage. And so this is again, you know, a rather inexpensive coverage, but especially for homes that are more than call it, you know, at this point, 30, 40, 50 years old. We do, you know, plenty of properties that are 100 years old at this point. What that basically means is your condition, like the condition of your property as it was approved by the city, you've been grandfathered in. But if something happens at your property and you need to now update the plumbing or the electrical or the condition of an asset because the laws or the ordinances and the regulations have changed since that period of time, this coverage will actually cover that difference, right? So insurance companies give you that dwelling or that property limit that's to replace your property into the condition that it was in at the time of the loss. But that condition might not also be the code anymore.
Aaron (00:18:28) - And so this additional coverage is going to help cover you and make sure that you have the money that's needed to now upgrade to, you know, the the galvanized steel that you now need in order to connect to the city's water line from, from your property or whatever that might be. that can get very expensive very quickly. And it's one of those items that I think people just don't think about, especially if you have an older property.
Jennifer (00:18:50) - I'm smiling and nodding my head, although my listeners cannot see me because I just I literally just experience this, you know, in a property, we had a multi-unit property and, the tenant caused a fire, I did something stupid and it caused a massive fire in, in the building. Thankfully, everybody was okay. Everybody got out safe, and all those things are wonderful. But as I'm walking through with the the code enforcement officials, the city after the fire, and they're talking about all the things that we need to do to bring this property back to code compliant.
Jennifer (00:19:34) - This ordinance of law or lull of ordinance coverage was apparent in how it works, probably more so in this particular fire than any of the other ones I've ever experienced. Oh yeah, and it's because, you know, it's an old building. It was easily 100 plus years old. It was all plaster and glass and the whole entire building ceilings, walls, everything, all plaster. And last and then it was covered over with drop ceiling. because that's what they did as the plaster and last started to crack. They didn't paint it or fix it. They covered over. Right. So that's what happens in these. But now that there's a fire and there is no more drop ceiling, you can see that it was all plaster and laugh. So what did you think the code enforcement officials said? Well, you got to bring this up to today's standards. And that requires double five day drywall and fire blocking. And and I'm just thinking in my head, I'm hearing the. The checking of the of the register, you know, just ticking in my head.
Jennifer (00:20:27) - And as soon as I left, I called the investor and I just said, please tell me you have ordinance of law coverage. If not, this is going to be terrible for you because almost everything you've got to do besides the obvious, you know, you got to clean out the the soot and the smell and the airborne contaminants and all that stuff that you typically would do. They're now making you rebuild this as if it was a brand new house up to today's standards. And we weren't even close with a hundred year old building. Thankfully, I had the coverage, but so obvious. And you know, I just find that it's just not something that is talked about, right? I think, you know, my experience with insurance brokers, and I'm not talking about anybody specifically, but just in general in the industry, right over the decade and a half that I've been here, I feel like insurance brokers have become the order taker and not the business partner. Right. So I'm going to talk to you.
Jennifer (00:21:25) - I'm going to find out the information. I'm going to ask you all the dumb questions that I could find online about the age of the property and all those things, and then I'm going to spit out a policy for you, but I'm not going to ask you anything else. And I'm also not going to recommend the things that you might need to consider. even in addition to this ordinance of law sinkhole coverage or, you know, there are areas that are just these things are really common. And if you don't have the coverage, I promise you the thing that you have a claim on, it's a thing you don't have coverage on. It's like, you know, it's like a given, right? Right. You can never you'll never have a claim on the things you got coverage on. You will always have a claim on the thing that you forgot to insure. So I think that, you know, going back to what we were talking about before, you know, having that insurance broker be a part of the team, but also being able to really understand what, what the whole concept of the investment strategy and in picking the policy with the right amount of coverage or the right amount of endorsements, the right amount of, you know, coverages is is critical to your success.
Jennifer (00:22:27) - And if you're spending, you know, real estate is typically people's, you know, most prized possession, the most valuable possession that anybody owns. Right to not then to protect that most valuable investment with the right insurance policy. To me it's just insane. It's insane. It makes no sense. So so I couldn't agree with you more. I am super excited for my listeners to check out Albie and see what you have online. And in addition to going to Obi is there there are other ways that my listeners can connect with you outside of the podcast.
Aaron (00:23:05) - Yeah. I mean, if anybody has questions, they can always reach me at, Aaron at Obi Insurance.com. That's the best way to always connect with me. I'm certainly not the smartest person at this company. So the questions that you have, we will, we'll be able to point you in the right direction.
Jennifer (00:23:18) - That's awesome. Well, Aaron, I couldn't thank you enough for your time today in all your wealth of information. It's been so valuable.
Jennifer (00:23:26) - And I think you you broke down something that is typically people avoid just because it's complicated and not easily understood. I think you were able to break it down into very manageable, bite sized pieces that people will relate to and understand, and now can take action on and hopefully protect their investments. So thank you so much for your time today. I really appreciate it. Thanks, Jen.
Jennifer (00:23:50) - Thank you for listening to this two part episode with my special guest, Aaron, founder of Obie insurance. I hope you enjoyed these episodes. And until next time, take care.
Speaker (00:24:00) - For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit Growing empires.com.