Ep. 79 4 Insurance Mistakes And How To Avoid Them With Jeremy Goodrich

Welcome to the Next Level Income show where it's our goal to raise your income, investments and your life to the next level. I'm your host, Chris Larsen. Get your free copy of our book@nextlevelincome.com if you click on the book link and put your address in, I'll even send you a copy. Also, if you're an accredited investor, check out our Invest link to learn how to gain access to our Self storage fund as well as other institutional quality real estate opportunities. On today's show, we're going to talk to Jeremy Goodrich of Shine Insurance. If you're thinking, oh my gosh, I do not want to hear about insurance, he makes it fun. He talks about the four mistakes that most people make investors make in insurance and also some great actions you can take today to help protect yourself. Today's show is sponsored by Money Insights and their investment optimizer strategy. In my book, I share how I use the same strategy starting over a decade ago to invest my money in two places at one time. This strategy has been used by the wealthiest for generations for estate planning, minimizing taxes, preserving wealth and increasing stability for their investments. Now you can do the same thing. In addition, you can build a plan to build an emergency fund, pay for college, fund a business plan for retirement, and ultimately optimize your total financial picture. To find out more information, check us out at the banking link@nextlevelincome.com on today's show we have Jeremy Goodrich. Jeremy Goodrich owns Shine Insurance, but before Shine, he was an elementary school teacher helping countless kids fall in love with art, math, science and writing. After 13 years of teaching, he decided it was time to change the way people feel about insurance. Jeremy carried the heart of an educator over and he's been making insurance simple for first time home buyers and real estate investors ever since. He's also the host of Multifamily Real Estate Podcast and The host of YouTube's number one most watched independent insurance agency channel. Jeremy, welcome to the show.

Chris, super excited to be here. As you know, I love your investing strategy. I love what you all have been doing with passiveincome.com and everything else. Just really excited to dig in with you today.

Yeah, no, and we're going to talk about one of my favorite topics, insurance, which a lot of people may cringe when they hear that. Right?

One of your favorite topics.

We are going to make it fun. I just got off another podcast and we talked all about life insurance and cash value. Life insurance? Yeah, absolutely. Yeah. I think we talked about in relation to investing. So that's what I want to talk about today. Jeremy. But before we do that, I had a great time on your podcast. If anyone didn't catch that, share a little bit of your background with the audience and how you ended up where we are today.

Yeah, absolutely. So I spent most of my adult life as an elementary school teacher. Thirteen years in a third and fourth grade classroom teaching math and reading and writing and how to play hockey. That was really the, my favorite thing to teach was how to play street hockey and all these kinds of things. So at the end of that period, close to the end of when I was a teacher, I met my wife and now business partner who's a third generation insurance agent. She was working at an ads agency and he ultimately sold his agency and she just felt like that wasn't where she wasn't where she wanted to be anymore. I was pretty done with teaching and so we came together and said what if we start our own agency? Do insurance differently, Change the way people feel about insurance and just try and provide smart insurance and really simple processes. So I rolled into the insurance world with zero background in sales or business ownership. Besides, I guess I did have a lawn mowing business from the age of 12 all the way up to as when I was a teacher. I would roll in my truck and trailer with my mowers on the back and teach all day and then mow all afternoon. So I did have some experience being a business owner. But we started shine and I really dug into how can I really add value to people's lives. And I was doing home and auto insurance and I immediately connected with first time homebuyers and they were asking me about insurance, but they were also asking me about how to find a good realtor, how to find a good lender. What in the heck is a title company? What's an appraisal? What's an inspection? All these questions were coming up and I, I didn't really know the answers, but I wanted to provide them. Right? I'm a teacher. I'm a teacher by heart, so I want to answer questions. And so I started asking realtors and asking lenders and asking title companies and recording it in videos and posting it to YouTube and that just started to snowball. We now have about 15,000 subscribers on our YouTube channel. And so real estate really became the heart of my story in connection with insurance. It started with the first time home buyers and then it moved into investors, first residential investors to four family investors and then now for the last couple years, I'm 100% connected with commercial real estate investors. During that time, I've had a few podcasts and I've always created podcasts that serve the community that I'm a part of. And so that's how REI Clarity was created, which is the show you came on. The intention is just to help real estate investor investors grow their portfolio, have a successful journey, and find that financial freedom that we're all looking for.

Well, man, I can tell you I love your website and you have all this information on there. It's unlike any other insurance website that I've personally seen. And a lot of listeners know I work for State Farm when I was just getting started in my career. So I'm pretty familiar with the insurance business for sure. We mentioned in the beginning of the show we're talking about. I love talking about insurance. I think it's an interesting topic for a lot of different reasons. But why don't people like to talk about insurance?

Jeremy, you know, there's a couple of reasons. One is nobody likes to talk about bad things that happen inherently. When we're talking about protecting our money, when we're talking about protecting our portfolio, when we're talking about protecting ourself, what are we protecting ourselves from? Right? And we have to consider those things and wonder about those things. And all of them are potentially catastrophic, have major pain points. And so I think insurance asks us to connect with a pain point, which is something as humans, we just don't naturally do. I think that's the first thing. The second thing is insurance has such a bad name. I think that as, you know, people just see insurance as maybe something I have to do, maybe something my lender or the BMB or whoever makes me have. There's this concept that protecting yourself through passing risk to someone else is somewhat forced upon you. And then so many stories of when claims don't get covered, so then the bad thing happens. You paid all this money in and suddenly insurance company doesn't do what it said it would do. There's a lot of reasons for that as well. But when we put all three of those things together, I think a lot of people just say, you know what? This piece of the puzzle, I don't want to understand, I don't want to dig into. And I just think it sucks. So I'm going to push it to the side and, you know, just think it's bad. And there's a lot of legitimate reasons for that. But I think with a little bit of understanding you can really parse that and find an understanding and maybe even a little bit of excitement about it.

Yeah. And I think I have a different story with insurance because my father died when I was five and he accidentally had an extra policy. And that policy helped me pay for college, helped me come out of school with no debt, in addition to going to a school, I got in state tuition in addition to working through school, in addition to getting scholarships. It wasn't a ton of money, but it was enough. So I have a little bit of a different story with respect to that. But one of the other things I like to say is no one ever said, you know what, I have too much insurance. If you need it, it's like, especially life insurance. There's never enough.

In that scenario. Your dad or someone took the time to set it up so that when something terrible, you lost your dad, no amount of money, I'm sure that you would hand that money back in a second if you could just have a couple more weeks with it. Right?

10, 10 fold. 100.

Yeah. So that happened. And that's awful. I have a similar story. I lost two children, and so mine is more around health insurance without, you know, they spent lots of time in hospitals over the course of years, and millions of dollars in medical costs would have completely sunk me except for my health insurance. So another insurance example of bailing me out personally. Both of these scenarios, as folks are listening, they're like, oh, I want to stop this con already, because I have to think about real things. But the reality is these are real moments in our lives that we've experienced, and insurance helped us just a little bit. Not to get rid of the pain, not to take away the reality, but to address the financial situation that otherwise would have been a lot, you know, we both would have been a lot worse off.

That's why I want to have this conversation today. Because, you know, if you take the time, you know, I talk about in my book, make, keep and grow, you know, make more money, keep your, keep more money, and ultimately grow your money. If you don't keep your money, whether you lose it through taxes or proper entity planning, a liability, or you lose it because of a lack of insurance, you can never grow your money. And that's why I think this is so important. And the thing is, you don't have to think about it every single day. You can do some proper planning and you may never have to think about it ever again. But let's hone in on real estate now, Jeremy. So let's talk about Something that the audience loves to talk about real estate.

Absolutely.

Why is insurance so important in real estate?

Well, I think it comes back to that keep piece of your description. Right. Like one of our human instincts is to hold on to the things we already have. If I say to you, would you rather have a brand new Maserati or not have your car that you have right now at all, you would say, oh my gosh, I don't need something new. I would rather hold onto the thing I already have. And so when it comes to real estate, what are we doing when we talk about insurance and risk management in general? We're protecting our money and we're protecting the properties that are ultimately an asset that can become money. And so it matters because of the way that it protects us. When I talk with investors about their real estate, I try and talk from a broader risk management perspective. Let's talk about your strategies around risk management. Obviously, insurance is one piece of those, but LLCs, tax strategies, safety measures on your property and the way that you do capex, you know, projects and things of that nature. These are all elements of risk management management that ultimately are going to help you to make more money, to protect the money that you have and make the tenants in your properties. If you're investing in multifamily or office or whatever, whoever the tenant is, it's going to make them feel happier, make them feel like they're in a more elevated space and therefore be more willing to pay more rent and things of that nature. So I think it all comes together in a holistic way. And insurance is just one piece of that risk management puzzle.

I love the way you kind of brought those two together and you've worked with residential as well as commercial properties. Talk about some of the differences because most people understand, hey, I can open my drawer here and pull out my State Farm policy and look at our residential policies. Our commercial policies are quite different. Talk a little bit about that. So for somebody that owns their house, but maybe they're in, I don't know, an apartment syndication. What's the difference between a 200 unit apartment, how that's insured and how the company sees it versus, you know, your, your typical home.

Yeah, I think as far as the basic coverages that exist in insurance policies, many of them are not that different. So you know, you have four primary coverages. One is coverage for the building. Well, if it's your own home, that's the building. If it's a 200 unit apartment complex, it's the building we want to make sure we cover that properly. You know, the second one is the stuff inside the building. If you are covering your own home, all the stuff inside your home is yours. And so your insurance policy should protect that. Right. So you want to make sure that if the entire place burns down, you know, you can, you can replace the piano and the couch and the bed and the clothes and all those things. In an apartment complex, it's a little bit different. If you imagine picking that complex up, turning it upside down and shaking it, all the stuff that falls out is the stuff, you know, and so most of the stuff that falls out of that apartment complex is not yours as a property owner. So you really don't have a lot of responsibility for the belongings inside that complex. In fact, I think you should always require a renter's policy as part of your lease agreement so that they have coverage. Yeah, yeah, absolutely. And so, you know, that's coverage number two for an apartment complex. You don't need to worry about that so much unless you have an office and then, you know, you want to cover the stuff in your office. The third coverage is loss of income. And so if you have a 200 unit complex and the whole thing goes down, that's a pretty catastrophic idea. But you know, then you, you know, you can't make money off of that property. For the time it takes to rebuild the property, your insurance policy should have coverage for that lost income. That is specific to commercial insurance. Right. You don't lose any income if your own house burns down. Now, there's some variations of that for your own home in an insurance policy, but you know, we're, we're in the real estate world, so I'll move on from that. And then the last one is liability coverage. Right. So coverage for bad things that happen to other people because of you or your properties. So on the home side, that's lots of things. You're riding a bike and you cause a car accident. Someone comes over to your house and they're injured in your backyard. I have so many examples of this. The most recent one is someone had a party, a bunch of kids in the backyard. A kid just hurt himself. Not terrible. You know, just an injury that required some stitches at the hospital. And it was maybe a two grand situation. Well, the health insurance said, where did this happen? Oh, over at this other person's house. Well, you know, we're going to go after their home insurance for that. That is liability coverage that ultimately paid out. Again, not a big deal. Of course, there are bigger, much more Catastrophic stories. I'm really, I don't believe in telling super scary stories and scaring people, but you know, there really is stuff that happens that's bigger. So of those four coverages, building coverage, personal property or business, personal property coverage, loss of income and general liability, they align in many ways across homeowners and commercial policies. They're just set up for the different uses of that given property.

Yeah. And as an investor and also as an operator, over the past eight years we've had two fires. Fire burned entire building down. One of our properties in Charleston burned a unit down in another property. And then we've also had a hurricane blew off about damaged the roof on about 20 units out of a little over 200 unit property during that period. So we've seen that. It's interesting because we actually turned the kind of the remains of that one building into a park. It actually made more sense just to take the insurance proceeds in that case. But in the other cases, we fully utilize that insurance. And people, investors are maybe surprised to hear this, but fires aren't that uncommon in apartment buildings.

Absolutely. I've got one I'm working on right now that had one complex, I think about 110 unit complex, multiple buildings has had in the last three years one fire that took out an entire building. And unfortunately, someone passed away in that fire, another fire in another building, and then a, you know, hail a wind hail claim. That was a $400,000 claim. So the payout from the insurance company on that Property is about $2 million total.

Wow.

Yeah. I mean, when you look at the profitability of insurance, if you look at multifamily in specific, across the country, insurance companies have lost money for the last now 13 quarters in a row. So a few years now on multifamily insurance. There is a reason why the insurance is so expensive and it still isn't covering the total losses that insurance companies are experiencing.

How about that? How about that? That's an interesting statistic. So, yeah, so again, it's super important from a business. But one of the big reasons I had you on, Jeremy, is because you're also an investor, you understand this market. So how does, how does being an investor in these sorts of properties make you better at what you do?

Well, I'm a passive investor right now, so I'm not an active investor in any deals. I mostly because I have so much coming through as an insurance Advisor. I see OMs all day, every day. I look at deals constantly. So I'm able to have a sense of and I also know how I'm treated by investors. Tells me a lot about what they'll be as an operator of a property. So I have some, you might call it kind of inside knowledge on some of the things that would make a deal good or not. And so I get involved as a passive investor. So most of the time, I'm the insurance agent on the passive investor with the passive investor, so I know that the property's properly protected. I have the answer to a lot of the questions that we're talking about in this conversation today. But I think that the biggest insight I would have for anyone listening is really around, well, two things. One is considering protection a key element of how you pitch a deal to potential investors, passive investors. When you're talking about your. When you're building your slide deck, how are you managing risk? Put that in your deck, you know, and say, this is how I am protecting your investment and making sure that there won't be a cap call, that I won't have to, you know, close this thing down because something bad happened. Here are the ways that I'm managing risk. So that would be one of my biggest insights, is think about real estate risk management holistically. And then the second is think about your service providers as key members of your team, whether that's your lawyers, your accountants, certainly your property managers, your brokers, folks like that, but also your insurance advisor. I think that tends to be the one where we're very tempted to just be like, I'll get four quotes and I'll look at them and whatever's the cheapest one, I'll choose that one. And you wouldn't do that with leases. You wouldn't do that with property managers. You wouldn't do that with your accountant. And we need to treat our insurance advisors the same way.

Yeah, I think that's fantastic. Yeah, you really need people on the team that you have relationships with. They understand your business. And even it's not just multifamily. Right. It's specific areas within multifamily. So from an investor perspective, so you look at a couple different deals, and I've heard this, and people are like, I wouldn't invest in Florida, Chris, because of hurricanes. From an insurance perspective, how would you respond to somebody that said that?

Well, I think it's fair to figure this cost into your assessment of whether it's a profitable deal. I think one of the mistakes we make in a place like Florida, or I would add an equally high risk of flood zone almost anywhere in the country.

Right.

If you're in.

Let's say you're in or close to a flood zone or, you know, even. But I just said Florida because some people are like, oh, Florida hurricanes. It's crazy.

Yeah, well, Florida is an interesting insurance market altogether because, you know, for one, Florida is. The entire state of Florida is considered high risk, is considered coastal, is considered, you know, and then the, the litigation law in Florida is different than any other state in very strange and interesting ways, which tend to make claims, liability claims pay out a lot more. Maybe I stepped in.

I really stepped in it with this example, didn't I?

Right. So. So Florida, you know, but I think that, you know, that's what we should be thinking about. People invest in Florida, and it's great. You know, you just have to know that your insurance is going to be a larger number. Instead of 4% of, you know, the gross revenue, it's going to be six or whatever. Like, as long as the deal still pencils with that higher insurance cost. It's similar to property taxes in a bigger city or somewhere that has higher costs. I mean, you know, you just have to understand the mistake I see people make a lot is they use the seller's numbers for insurance, plug those into their underwriting, get deep into due diligence before they actually contact someone and find out that it's in a flood zone. But the seller didn't have to have flood insurance because they didn't have any lending going on. But you, as the buyer, will need flood insurance. And now the insurance, instead of being $400 a door, is going to be $800 a door. Well, that just made a huge dent in your noi.

Yeah.

And I think that, you know, so it's more about knowing that line item and making sure you're right about that line item.

Yeah, no, I think that's a terrific point. And you just had a kind of like a little webinar here, little course that you had that I was looking at on your website. You talk about four insurance mistakes. So we just started talking about mistakes. We might have covered some already. But what are those? Can you go through those four insurance mistakes that investors make and people make, and how can we avoid that?

Yeah, and I'll do it real quick and then you can tell me what you'd like to hear more. So I think the first mistake that I see clients make is one I just mentioned, which is bidding for insurance. So going out to four brokers and saying, hey, you give me a quote and you give me a quote and you give me A quote and you give me a quote. And the way it works behind the curtain, it doesn't work to your benefit. It's not like doing that with a contractor where they're figuring it all out on their own and there's no barriers. When you ask multiple people to go out and they end up cross contaminating the companies that they're looking to try and get insurance for you from. And when those company underwriters see that there's multiple agents coming to them, they say, you know, this operator doesn't know what they're doing. They're not going to stick with us for very long. It's just a bad look. And insurance companies, especially on the larger commercial side, are looking at the story and that directly affects whether they offer coverage or not and what price they offer coverage at. It's similar to commercial lending where personal lending is a little bit more regimented. It kind of is what it is on the commercial side. You know, they've got some movement, they've got some potential to change the numbers if it works and makes sense. Same thing on commercial insurance. So when they see some of that cross contamination, they're like, ah, forget it, I'm not going to do it. Or I'll just throw out a high number. If they really want insurance for me, it's going to be much higher. That's what we don't want. So, so mistake number one is, you know, bidding it out. Mistake number two, I feel like I'm going to go on for a long time. I'll go, this is great.

Yeah, okay, cool. I wound you up. Keep rolling.

Okay, cool. So mistake number two is, I also have talked about, and that is using the seller's numbers. And I already explained why that's a problem.

And you know, I've seen that be an issue.

Oh, it's a huge issue. And sometimes the seller's numbers, you know, I gave some examples, but other ones are the seller has 10,000 units and you're picking up 100 unit building for the first time. Number is going to be drastically different per unit. Right. Seller didn't have to have a loan. You do have to have a loan. Drastically different. Seller was willing to carry $100,000 deductible. You're not able to do that. Drastically different price. So, you know, the second example is just using the seller's numbers without any insight. The third example is not giving the your insurance agent enough information. Here's an example. I had a someone on the podcast who described to me they had picked up A single family property. They were going to flip it. They called their insurance agent and said, hey, Ad, add a so and so property to my schedule. Insurance agent said, great. Added it. They had a contractor out there, was drilling into the wall, created smoke and smolder. Everybody left for lunch. Long story short, entire burned down of the house totally went down. Gone.

Wow.

They turn in the claim and the house had been put onto the schedule of properties as an annual tenant occupied building. In other words, there's someone living in that house. Well, this was a clearly vacant property who had no one living in this house. In the end, claim denied, no coverage, loss of. In this case, it wasn't the end of the world. You know, this property, this owner had multiple properties. They lost 150,000, you know, $190,000. It didn't kill them.

Still hurts.

It hurts pretty good. Yeah.

So I would. If you. If you. I'll tell you where it feels like if you kick me if, if I lose that money.

Yeah, a hundred percent. So. So that was the. That's the third one. And then the last one is just. I don't speak insurance. If you feel like you don't speak insurance, if you're listening to this episode and you're like, every time I talk to my insurance agent, they speak in total Greek. I feel dumber after I get off the phone than when I got on the telephone. That is not a you problem. That is a them problem. You have got to just like anything else you do.

Yes. The teacher and you speak. And that is great. Yeah, that is great.

You know, you don't have to know every word of the lease that you put out. You don't have to know every word of the property manager agreement or contract that you have. You know, you have a lawyer for a reason and you connect. You have to trust people on some level, but you do have to speak the language a little bit. And you have to expect that your service team and the people around you can speak your language as well. There's a lot of nerdy insurance ease. You'll notice that I didn't use it at any point in this conversation because.

A little let down because I was excited to hear some of that.

And it's just because that's not who I'm talking to. You know, when I finish a conversation with you and turn around and talk to an underwriter at an insurance company, I change my language. It's sort of like an interpreter who speaks both English and Spanish. You know, I think that that's the capacity that a good agent should have. And so you have to believe that you can speak insurance a little bit. So those are the four biggest mistakes that I see investors make all the time.

I think those are fantastic. And you see it in taxes, you see it insurance, you see these improper assumptions. I was just having a conversation, talking about being an engineer and how that relates to being an investor and said people make the wrong assumptions. You've got to understand these things. And these are very simple things that if you understand what Jerem Me just went through, you can use it over and over and over again. All right, so if you could say there's one thing that investors can do to better protect themselves, real estate investors, is there something that they can do today like call their insurance agent or just something that they can apply in every deal, aside from those four things, what would you say that's something actionable people can go and do?

Yeah, I think one very easy thing to do is make sure that your buildings are insured to value. Now, if you want to get in the weeds, there's. There's kind of a deeper weeds thing. But all you have to do is go to your insurance policy, pull it out, and, you know, see what those insured values are. Think about the square footage of the property that's insured. You know, be insured to at least $120 a square foot. Obviously it depends on the area, the part of the country, the building materials. If you've got an A class property, you're going to need a higher number than if you've got a C class property. If you really want to know, ask a contractor. What would it cost to rebuild this building? And make sure the number that you have on your insurance policy is that number and not the market value. The market value is so much less important when it comes to an insurance policy than the replacement cost value of the building. And so go to your policy right now. Look at that number, think about what it would actually cost to replace that and consider fixing that if it's problematic.

Yeah, it's interesting. My insurance company gave me a higher replacement cost than my appraiser. So I think that appraiser. I was like, you gotta be. You missed a bedroom, dude. I was like, what are you doing here? True story. Guy missed a bedroom. And the bank was like, oh, we're fine with it. I was like, of course you are. You guys are charging me more money. And yeah, finally got the VP on the phone. He's like, yeah, this is a bad appraisal. He's like, we'll redo it. I was like, okay. He goes, just give us two to three months to redo your loan. I was like, two to three months. So we ended up going with that, that appraisal that missed a bedroom. It was humorous. It was pretty humorous.

Humorous and let's get this fixed way. You know, there's a lot of things that make me laugh, but I don't necessarily love them.

You know, one of my favorite Simpsons quotes, it was, it was funny. It was just not ha ha funny is what I like to say. So, Jeremy, I want you to share how people can can find out more information, look at your terrific website. But first, if you go back to your 25 year old self and give yourself one piece of advice, what would it be?

You know, when I was 21, I thought to myself, when I'm 25, I'll have it all figured out. I really like had this idea. So I did not have that all figured out. 25 was the beginning of a decade that, you know, I explained, I said earlier that I lost some kids and it took about a decade to experience that. So I would probably warn my 25 year old self about that particular experience. But on the topic of real estate and business ownership and entrepreneurship and insurance, I think I would say there's no finish line. I think that's the biggest thing that as a young person we struggle with is like, hey, I just have to make a map and then work towards a finish line. And then when I get to the finish line, it's going to feel really, really good. And then over the course of decades, I'm 45, you know, so over the course of decades, you know, you keep thinking, well, I'm going to get to that finish line at some point, I'm going to get to that finish line. And I think what I would tell my 25 year old self that I didn't know then, that I do know now, is it's a journey, you know, it's about the journey and I think so many people say it better than I just did. But that idea that it's really about the journey more than the destination I think is the biggest piece of advice I'd give myself.

I think it's great advice. And yeah, it's like you try to run to the edge of the earth and then you realize it's round and just keep going around. There's always somewhere else to go.

It never got there.

It never got there. But again, like I said, I love your website, I love all the educational resources. If people want to learn more, if they want to see your YouTube channel, listen to your podcast, what's the best way to find out all that? I'm sorry, See all that, get all the information and get in touch with you?

Yeah. So shineinsurance.com is our website. We have a program called the Shine Shield Program where we really put together some of the things I talked about in this and give you the capacity to talk about your risk mitigation. Even saying you're a part of the Shine Shield program as a way to tell your investors that you really are taking care care of your properties. You can find all that@shineinsurance.com and then the REI Clarity podcast is@reiclarity.com and shamelessly.

I will say that's a great podcast and you've had some really great guests on there too. And speaking of which, you've been a phenomenal guest. Jeremy, thank you so much for shedding some light onto the topic of insurance, some humor and also some great actionable items that everyone that invests can use today.

Absolutely, Chris. It's my pleasure to come on. Really appreciate the opportunity to share.

Absolutely. Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to gift you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also please like share and take just 90 seconds to give us a rating on Apple Podcasts.