Crum-Halsted is a full service insurance and risk management agency headquartered in Sycamore, IL with six offices in Illinois providing outstanding service, security, and peace of mind for businesses, families, and individuals for over 90 years.
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Listen to our Podcast: https://thestoragestud.podbean.com/e/what-is-the-deal-with-property-insurance/
Titan Wealth Group operates nationwide sourcing off market investment properties for Titan Wealth Group’s acquisition as well as servicing a network of thousands of active real estate investors world wide. Prior to founding Titan Wealth Group, Fernando worked for Dow Chemical, a Fortune 50 company, rolling out a flagship product estimated to gross $1B in global revenues.
With an engineering background, Fernando is able to approach real estate investing with a keen analytical mindset that allows Titan Wealth Group to identify opportunities and project accurate pictures of future performance.
Fernando graduated from the University of Illinois at Urbana-Champaign with a B.A. degree in Technical Systems Management.
Titan Wealth Group was founded in 2015 with the vision of gathering individual investors that have the means to invest but lack either the time to find high-yield investment opportunities or the access to these off-market deals. All too often, founders Fernando Angelucci & Steven Wear came across investors who had deployed their capital only to regret the lack of consistency or degree of returns their investments were producing. In response, Titan Wealth Group provides access to highly-vetted real estate secured investments and off-market acquisition opportunities primarily in the Greater Chicago MSA. Today, Titan Wealth Group not only assists individual investors but has grown to support the acquisition goals and capital deployment of investment groups, private equity firms, and real estate investment trusts (REITs).
As a facilitator of wealth growth, Titan Wealth Group believes that success is not limited to the sum of our efforts and is infinite with what can be accomplished through partnership.
Fernando Angelucci (00:53):
Doing good. I'm doing good. It's 72, 73 degrees outside in California. I'm glad I'm not in Chicago at the moment.
Fernando Angelucci (01:06):
Okay. So Greg, on this podcast, we have all types of listeners from super professional, you know, multi million dollar portfolio, all the way to the new investor or someone that is trying to become a new investor. So let's back up a little bit and, you know, explain who you are and what you do.
Greg Jones (01:26):
Got it. So my name is Greg Jones. I am a risk advisor with Crum Halstead Agency. So I work with real estate companies and developers as well as contractors around consulting around risk and placement of insurance.
Greg Jones (01:45):
I was introduced to a guy that owned an agency shoot, this is probably almost 10 years ago now. Right place, right time. I grew up in a background of construction, both my dad and my brother owned construction companies. Had friends that were in real estate, didn't want to do construction for a living. So I figured I would give insurance a try and it ended up being a really good fit.
Fernando Angelucci (02:20):
Okay. So for people that don't know what is Property Insurance and what does a risk advisor do?
Greg Jones (02:31):
So property insurance is realistically, it's a like a contract. So the owner of the property has a contract in place with an insurance company, say whether that's a Travelers or a Hartford or whoever the carrier might be. And in that contract, it will lay out in the event of a claim. Here's what the insurance company is going to pay out. And that covers both damage to the property as well as if there's an injury to someone at the property. So the contract States, what the limits are, what the causes of that claim are covered versus certain kinds of causes of claim might not be covered, unless you buy that or purchase it as an add-on, a good example of that is earthquake coverage. Earthquake isn't automatically included, but you can purchase it as an additional coverage line item, but it's all built into a contract that lasts for 12 months between the owner and the insurance company.
Fernando Angelucci (03:28):
Okay. And then with those types of con, let's bring it into reality with some examples. So say I'm a new investor. I'm going to be buying a four flat property in Chicago. I'm going to live in one unit myself, rent out the other three units, let's say each units, 1200 square feet and the buildings' a hundred years old, what am I looking at for coverage? Or what should I be looking at for coverage? Where are the premiums going to fall? And what are some things that I should be paying attention to or looking for in those contracts?
Greg Jones (04:04):
Right. So the first question you have to answer, especially because you're living in one of those units, is how are you going to cover the property? You could cover it on a personal insurance policy, or you could cover it on a commercial policy because it's four units, that's the breaking point. You could cover it either way. After you get to five units, it's always considered a commercial policy.
Greg Jones (04:27):
If you go the route of commercial, which is typically what I recommend the coverage form is a little bit broader in what it will cover you for. The downside is you have to treat yourself because you're living in one of those units as a tenant, you're a tenant within your own building. So your personal property as the resident, isn't going to be covered, but your asset, the building contents within the rental properties, those are covered under the contract.
Greg Jones (04:59):
When you're looking at a four unit building, based on the square footage, there's typically a dollar amount that insurance carriers will look at in terms of we're want to cover this for what it will cost to replace it. If you have a catastrophic loss, right? Every carrier has their own algorithms they'll use for this, but typically it comes down to a dollar amount per square foot. The average we're seeing at least in Chicago right now, if it's joist and masonry or better is typically anywhere from 150 to $170 a square foot is what it would cost to completely rebuild. So we would look at what does that cost look like? Then you can set up whatever deductible structure you want. Deductibles go as low as, I mean, realistically, you can go as low as you use the $500. I never seen anybody go that low. Usually the average is, you know, 25 to 10,000 for a deductible. So then if you do have a loss, everything that it's covered under that contract is paid out minus the cost of your deductible.
Fernando Angelucci (06:00):
Exactly. Now, one of the things that occurs quite often in Chicago is we have these pockets, these neighborhoods, where the cost of buy the property is significantly below the replacement value. For example you know, my partner, Steven?
Fernando Angelucci (06:16):
He has a property where, you know, it's 140 year old masonry and limestone building the cost to replace that type of building would be a 1.4, 1.3, 1.4 million, but he bought it for significantly lower than that in those types of situations, what do you recommend doing with the coverage amount with the policy?
Greg Jones (06:42):
So it really comes down to as the building owner, what is your goal in the event of a claim, right? So you want to make sure you have enough coverage so that if there's a partial claim or a partial loss is what they call it. So let's say hale comes through and destroys the roof. It's not a total loss. You want to have enough to repair that roof.
Greg Jones (07:03):
The question is, if you were to have a catastrophic loss, the building is completely destroyed or it's damaged so much that the city comes in and says, you have to take this building down. It's now a safety hazard, right? In that kind of scenario, what do you want to do? Do you want to rebuild something there? Or would you rather just take the money and go buy something else and sell the land after the debris has been removed, right?
Greg Jones (07:28):
So the answer to that question really drives how we advise, typically in these situations, I find the investor really would rather just take the money and go buy something else because that coverage amount that you've got for that partial loss is more than enough to buy at least another building like it in that area, or maybe even more, right? So you get this dilemma of, I bought it for, you know, say 250,000, but it will cost me 1.5 million to rebuild it. Right? Insurance companies will allow you in some cases and it depends on the carrier, but they will allow you to do what's called a stated amount, or it's a, some carriers call it a loss limit. So, you as the building owner can say, this is how much I want to cover my building for. I recognize it's not enough to rebuild it, but I want to cover it. So let's use this building and as an example, you buy it for 250,000 let's say it's 1.5 to fully rebuild it. And you say, I only want to cover it for half a million dollars, half a million will cover any partial loss that happens. If it's a total loss, I'd rather just take the money and go buy something else. The rating for that is typically a little bit higher, but it still ends up coming out much less than it would be if you were to fully insure it for $1.5 million.
Greg Jones (08:54):
So, the premium for insurance for property is driven by a rate. So whatever value is selected for that building. So let's say a million dollars for round number purposes. So you take that million dollars, divide it by a hundred and you multiply it by a rate, and that equals your premium. So let's say it's you're getting a 20 cent rate. So for a million dollar building divide it by 10, multiply it by 0.20, that's your property premium.
Greg Jones (09:24):
Rates vary based on the asset type. So typically you'll see multi-family tends to be the highest rated asset class out there where retail is considered a little bit less hazardous, office and industrial tend to be considered the least risky. So you could have a building of the same square footage. Let's say you're at a 18 cent rate for apartment building, same size building would be a, what? 10 to 12 cent rate for retail. You might get as low as 8 to 10 cents on office or industrial, just depending on what the asset class is and where it's located.
Fernando Angelucci (10:06):
Interesting. Now with, let's say someone in what situations would somebody opt for the full replacement cost is that if you have like a super custom property that, you know, you can't find anywhere else, or?
Greg Jones (10:20):
If you have a super custom property, or if the idea is I like where I'm located, the land has significant value. Even if I was going to take the money, I would rebuild something here. I might not rebuild the same thing. So another way that you can do it is some carriers offer what's called Functional Replacement Cost. Right? I seen this particularly with real estate related to older church properties and some need, especially you think about Chicago land. There is all of these churches that were built in the 18 hundreds, the architectures' crazy. You're not going to rebuild one of those just like it stands right now. Right?
Greg Jones (10:59):
But you look at, if we were to have a total loss, we would want to rebuild something, same purpose, but we're not going to rebuild it the same way. And so you can use, what's called a Functional Replacement Cost, where you'll estimate based on, if we had a loss, what would we rebuild? What would the square footage be? Same questions, but you're not basing on what's there, you're basing it on what you would build.
Fernando Angelucci (11:24):
Right.That's interesting. With the property insurance business, there's a lot of moving parts and it's one of those vendors in the real estate space that usually a lot of the investors don't actually know what goes on behind, right behind the curtains here.
Greg Jones (11:43):
Right.
Fernando Angelucci (11:43):
Walk us through. When I talk to you, it almost seems like every person that works within your organization, It's almost running like it's their own little business with inside of the organization. Almost like you're not entrepreneur or entrepreneur, some people would say, what is the day in the life of a risk advisor look like, what are you doing on a day-to-day basis?
Greg Jones (12:04):
So on a day-to-day basis my time is usually split in a few different categories, right? So there's the time that goes into just the day to day servicing of your existing clients, right? That's helping guide through the process of whether it's an acquisition, that's coming up a disposition, a refinance, there's always moving parts, particularly within real estate. Right? And so there's a lot of day to day servicing. I mean, the interactions with a real estate client versus let's say a manufacturer is completely different.
Greg Jones (12:38):
Right. Just because of all those moving parts. So part of the time is spent with that servicing with myself and my team. There's another element of it, of I'm trying to connect with new people. So before we hit a, you know, pandemic that involved going to lots of events and networking and, you know, all that came to a screeching halt in March. So now it's been a lot more time on the phone working through marketing, trying to figure out different creative ways to connect with people, to bring in new clients. Right?
Greg Jones (13:10):
And then once you open that opportunity and you're starting to work on a new client there's a lot of time that goes into underwriting. So if an investor says, Hey, we want you to look at our portfolio. There's a lot of detail that you work through with them to gather the right information. And then you're compiling that information and really painting a picture for your underwriters. So, I mean, people have asked me before, what's the difference between a good broker in a bad broker or a good adviser, bad advisors is it's really making sure that you're painting a picture for an underwriter to make that client look really good versus here's 12 locations, here's all the basic raw data, what's my rate? You know, if you actually go into more detail and explain, like here's what the company does, here's what their practices look like, here's what they require of tenants of vendors coming in and out of the space to do work. You can actually derive a much better result than just providing a spreadsheet asking for someone to get you a quote.
Fernando Angelucci (14:12):
Interesting. So almost painting a picture of the whole business, not just that one property, you're looking for.
Fernando Angelucci (14:20):
Interesting. How about on the other side? So that's, you know, that's your prospect side, if you will, but how about the actual carriers that you match up with? How do you find these guys? How do you know if a deal is gonna be right for a certain carrier? Cause I know there's hundreds of insurance companies around.
Greg Jones (14:42):
Well, maybe not all of them, but a lot. So yeah. Every, so every insurance company has a different appetite, right? So there is some time spent with those and what those underwriters figuring out what that appetite looks like. So some carriers will, every carrier will say they like real estate in some capacity. Right? But the question is what kind of real estate that you like. So back in the day is when carriers would stop by the office and, you know, have a catch-up meeting with us, you know, they would talk about their appetite, what they've been hitting on recently where they've seen success. And so the first question is always, what kind of real estate are you writing? So in some cases, it's, they really like office and industrial, some carriers really like apartments, few carriers, like every asset class, there are a few. And then I would say in today's market, it's even changing beyond what it has been historically, just because of the unknowns of, you know, what will come of the pandemic and particularly around office and retail and what that's gonna look like. So we've even seen carriers backing away from those asset classes where they historically have been of the most appetite.
Fernando Angelucci (15:55):
Yeah. That makes a lot of sense. So for example, how many carriers do you work with if you had to guess?
Greg Jones (16:03):
So in the real estate space, I would say we probably have 15 or 20 that really focus in on real estate that specialize in that. So the team that I came over with that help launch our Chicago office has really put a lot of emphasis into partnering with the right companies that work with real estate because real estate is our focus. And so, if there's a market we've come across, that we find is really competitive in the real estate space, we do what we can to get a contract with them. So there's very few markets that specialize in real estate that we don't work with.
Fernando Angelucci (16:36):
Yeah. And it's funny, we've worked with each other in the past and you really know which carriers have an appetite for what type of assets. You know, we do some niche style assets, not only the single family, multifamily, but also the self storage buildings.
Fernando Angelucci (16:51):
And you've gotten quotes to me not only quickly, but usually beating out almost all the competition on the premium. And I think one of the things that really helped us, is the fact that you do have a really good ability to paint kind of that picture. Here's what the company's like. Now I have, I'm somebody that always believes that you should get insurance and, you know, plan for the worst, but hope for the best I have come across a lot of investors that do the opposite.
Fernando Angelucci (17:20):
I survived.
Fernando Angelucci (17:20):
And swear by real estate insurance is a scam and the carriers never pay out. So for you, what would you say? Why should a real estate investor have property insurance? And on top of that, why should they use a risk advisor or a broker as opposed to just contacting a company directly?
Greg Jones (17:43):
Good question. So I would say, why should they have property insurance? The short and simple answer is in most cases, if there's a bank involved, it's going to be required.
Greg Jones (17:54):
Where it's an option is where you actually own the asset a hundred percent. There's no lending requirements. You can choose whether you're going to insure the building or not. I've seen this particularly be the case when you've got developers who are buying, let's say a vacant property that they're going to repurpose, right? So usually they'll in a lot of cases, they'll buy it for cash or there won't be a bank involved if you will. So they have a choice whether they want to cover that building or not. The, I would say the reason you want to is because you want to have something that protects your investment, right? And it's not just the asset itself, especially when you're looking at development projects, you might purchase a building for, let's say a million dollars.
Greg Jones (18:43):
You're going to put a couple of million into it, repurpose it. It's not just covering that initial million dollar investment. It's also looking at what is the potential income that you stand to lose if you lose that asset. Right?
Greg Jones (18:58):
So insurance is, I mean, if you think about it, there's not a product out there where you can spend, let's say, I mean, I'm thinking back to one that I did for a client a while back bought a vacant building for it was like half a million dollars. Once he was done with the repurposing of it, he would have been into it for probably about 2.5. And the monetary return on this was going to be over half a million dollars a year. Once it was all done, the coverage of insurance was like $8,000, but we were covering the building for $2 million. Right? So you're spending eight in the event of a total loss. You're getting all of your investment back minus your deductible for 8K to protect an investment of significantly more. So, I mean, being someone that's fairly risk averse I would strongly recommend it.
Fernando Angelucci (19:59):
Yeah. And so you're talking about the significant income that, that property would bring in. Is there some type of a rider that you can get for say, instead of it being a total loss, but say something happens where all of a sudden you lose your income generating potential from that building. Is there some type of like loss of rents protection or income protection that you can put on as a rider?
Greg Jones (20:20):
So typically you'll have a loss of income or what's called business interruption coverage that's built in. So once you have a stabilized asset, it's generating rental income, you can cover that two ways. You can do it on a stated amount. So you're stating for every location that you have, this is what our annual income is. And if there's a claim, so let's say there was a fire at the building, right? The tenants have to relocate because you're doing all these repairs, it's going to take six months to do the repairs.
Fernando Angelucci (21:42):
And I know we're skipping ahead here, but what are your recommendations on the two methods stated income versus actual? What do you prefer? What do you advise people to go with?
Greg Jones (21:54):
Oh, I always prefer actual losses sustained. If you can get it just because it makes it very clean. So, I mean, a lot of times when you'll have an investor that's buying a new asset, they're typically inheriting tenants, right? They might be doing things to the building, providing more value, updates, all kinds of things. Right? And with that comes typically at lease renewal time adjustments in the lease. And if you have actual losses sustained, it doesn't matter what those adjustments are. You can have a unit that's going forward $2,000 a month. You put a lot of value into it, updates, improvements. You're going to increase that from, you know, $2,000 a month to 2,500 a month or whatever the case might be. You don't have to go back and report it every single time. So you don't want to have a cap on what could be paid out for lost income. Actual losses sustained is a much cleaner way to do it.
Fernando Angelucci (22:49):
Gotcha. So what are some of the decisions that an investor or someone would be faced with when choosing insurance, what should they be looking out for? What are the things that you're recommending they look for, or pushing them or nudging them towards getting, if it's additional riders, if it's certain types of policies, kind of walk us through that.
Greg Jones (23:13):
So there's a few things that I always look for. First time I see a policy. So one of those things is co-insurance which is a very confusing thing for most investors, co-insurance has to do with how much you're going to cover your building for. So the average investor will always cover their building for replacement costs. Typically that's the most standard way to do it. So let's say you have a building that's valued at a million dollars at replacement cost. Co-insurance allows you to insure it for a little less than that. So typically you'll see either 80% or 90%, but if you go below that, there's, what's called a co-insurance penalty, which means, let's say the buildings' a million dollars in value. You have an 80% co-insurance clause in your policy. That means that you can be fully insured up to 80% of the value.
Greg Jones (24:08):
So in this case it would be 800,000, right? If you are insured for less than that, and there's a claim, even if it's a partial claim, they will subtract a percentage off of what would have been your claim paid amount based on how far under that 80% you are. So let's say you're insured only to 60% value. Well, you're 20% below where you should have been any claim that gets paid out is going to be docked 20%.
Greg Jones (25:34):
Exactly. So that's something that I always want to make sure is at a very good limit. That's included in the Chicago market the other one is ordinance and law coverage.
Greg Jones (25:46):
So it's not automatically included, but it provides coverage for, let's say you have a catastrophic loss and you're dealing with a building that was built in 1912.
Greg Jones (25:56):
It's been updated, but there's a lot of things that are grandfathered in, just because of the age of the building. When you reconstruct, you have to reconstruct according to 2020 building code.
Greg Jones (26:10):
And that's an additional expense that is not automatically covered. So making sure that you have those kinds of things. So we, I really focus on trying to get into the weeds on this kind of thing, to make sure you know exactly what it is you're purchasing, and that it's actually protecting your asset, right? Because there's nothing worse than you go out and you purchase a policy from your broker, you have a claim. And then in that process, something's not covered. And you're like, well, I paid for this policy. Why is this not covered? It's like, well, this wasn't included, or this was sub limited. So only a certain amount of it gets paid and you're left spending money out of pocket. The last thing you want is to spend money out of pocket after you've had a claim, and you're already dealing with that headache.
Fernando Angelucci (27:00):
Right. How would you advise someone choose the right coverage for their building in a word? It seems like property insurance is kind of like this pull lever here lose a little bit on the other side, pull lever on the other side, loses a little bit here. Usually it's with premium or with, which coverage amount, you're talking about things that are, let's call them named coverages versus unnamed.
Fernando Angelucci (27:26):
You know, issues. So what would you advise for someone and how they should approach choosing the right coverage?
Greg Jones (27:35):
So typically the way I've always approached it is, I want to lay every option out there. That's on the table, right? These are the coverages that are available. Here's the tiers at which you can get these coverages. Right? So think about sewer and drain backup. For example, I can show you if you want 25,000 of coverage, it's going to cost of this. If you want 50, it's going to cause this, if you want 250, it's gonna cost that. Right? And then based on the size of the building what's your lower level construction type, right? Is it all block and stone? Okay. You probably don't need as much as then you're looking at, you know, fixtures and things like that versus yeah. We have a frame drywall, carpeted, you know, lower level, right?
Greg Jones (28:19):
That's gonna sustain a lot more damage. So there's a lot of consulting around, based on what you have. This is what's recommended, but here are all the options. And so you lay that out on the table, make a recommendation but at the end of the day, it's up to that investor to choose what they want to proceed with.
Fernando Angelucci (28:37):
Okay. What is the most common mistake or mistakes you see real estate investors make when it comes to property insurance?
Greg Jones (28:46):
I would say the most common mistake I see is that the first thing they do is they look at what the premium is and they make the decision based on the premium without actually diving into all of those little ancillary coverages. Right? So they'll look at what the premium is and how much is the building covered for, they won't look at things like co-insurance, they won't look at is there any limitation on what my business interruption coverages, is equipment breakdown included all of those little things that if there's a claim will have a big impact. They're just looking at my billings cover for a million dollars and it costs this much. That's the least expensive one. Let's go with that. Or also looking at, what carrier are you partnering with? How does that carrier respond? If there's a claim. Or they carry that really will push back and try to find any possible way, not pay a claim or do they have a good track record of really working with their insurance, right?
Greg Jones (29:50):
So that's where I think working with a adviser comes into play, especially one that's ingrained in the industry by the industry. I mean the real estate industry. So someone who's worked with multiple carriers has been able to see claims walked out from multiple carriers, and be able to say, I've seen experience with this carrier, They're all willing to offer you terms. Here's the pros and cons of each one and what I think their strong suits are.
Fernando Angelucci (30:19):
Gotcha. How about on the flip side, what are some of the common mistakes you've seen risk advisors make?
Greg Jones (30:29):
I would say the two that I see the most would be not going into full detail and doing the full underwriting themselves on the front end. So, like I said before, there's a lot of brokers out there. I mean, there's thousands of insurance brokers, right? I mean, you can go to anybody, you want to get insurance pretty much.
Greg Jones (30:50):
But if they are not going into that full detail and figuring out all of the things on the front end before they start quoting something with a carrier. There's a lot of things that can get missed. Right? Not actually doing the legwork to make sure are we covering the building adequately, are we running the right reports to make sure that this asset will be fully protected up to the investment level that the investor has, right? Are we including the right coverages?
Greg Jones (31:20):
Are we asking for the right endorsements or add-ons right. I would say that's probably the biggest mistake because that's where you find they rush through the process, they get a quote, something happens and then there's an item that wasn't covered, and then it's up to that broker to make that right. So I would say that's probably the biggest mistake I've seen. The other is just not actually, like I was talking about before painting that picture with an underwriter, the difference that you can get for a client through that is huge. It's really, that's a way to create value for an investor when you do it that way versus just spit balling out there to any carrier you can to get a quote. And it's also a way to potentially lose the client in the long run, because you're going to get the best pricing when you paint that picture, versus you're just marketing it out to everybody and taking a shotgun approach. It's very easy for somebody that really knows what they're doing to come in and create that value drive down that cost, and then you lose the client. So.
Fernando Angelucci (32:37):
One of the things that I have seen is trying to do everything yourself, as opposed to building out a team to help you with that. And you've alluded to it multiple times that you have a team around you that helps you fill these duties. What does that look like? What does your team look like? And what are they responsible for each?
Greg Jones (33:00):
So on the team is built out of there's multiple advisers in my firm multiple ones of us that focus in real estate. I think one of the real advantages is the way we've built out this office is we have professionals that are focused not only within real estate, but within various aspects of real estate. So you have guys that are really focused in the multifamily space. You have guys that are focused in commercial, meaning like office retail, industrial. You have others that are focused in condominium associations, right? So it creates a wealth of knowledge that you can pull from. So let's say you're working on something that's a little bit outside of your wheelhouse. You have that resource that you can bring in to make sure that nothing's getting missed through that process, right? There's expertise there. There's also a service team that handles a lot of the transactional pieces that happen within a real estate account. So when you're going through a refinance there's documentation that the lender needs to see based on what you have on your insurance policy, you know, evidence of coverage, et cetera. We have a team that one processes, those changes provides those certificates when they're needed, helps process the day-to-day things of those transactions that you're doing on the front end behind the scenes with the carrier, so that people like myself, the advisers can really interact more with their clients and do the consulting piece.
Fernando Angelucci (34:31):
Yeah, that makes a lot of sense. So let's move back to say new investor, new real estate investors looking to get involved, just saw this podcast. What advice would you give them when they're looking to buy their first investment property or start their first project? Let's say maybe it's inside of a rental, It's a fix and flip property.
Greg Jones (34:57):
Right. I would say as someone new that's getting into it, the, I think the most important thing you have to think about when it comes to insurance is partnering with the right broker, because a lot of people are generalists that'll say, sure, I write real estate. I also write restaurants and I write manufacturing and I'll write a trucking company and they're not ingrained into the industry. And there are, there are brokers that really specialize within an industry like myself, that's real estate. Right?
Greg Jones (35:30):
As a new investor, there's a lot of education that comes with that first investment, that first project, even the first few. Right? And so being able to partner with someone that is part of the team with you, that can say, okay, based on what you're investing in, or the project that you're doing, these are all the things you want to consider. Right? You don't have to go with all of them, but at least you have the information and you can make an educated decision.
Fernando Angelucci (35:58):
And then how about on the flip side, what advice would you give to somebody considering becoming a risk advisor or an insurance broker?
Greg Jones (36:07):
I would say if you're going to become an insurance broker or an advisor. The most important thing I think you need to be able to do is specialize in an industry.
Greg Jones (36:15):
For the same purpose. Right? There's obviously a lot of change happening within the insurance industry, right? I mean, online rating systems are on the rise. I mean, think about your home and auto insurance. Right?
Greg Jones (36:32):
You don't have to go through a broker to get home and auto insurance. You can go online, plug in your information, the quote will get spit right back out at you. It's turning it into very much of a commodity. Right? I think in the commercial space, there's still a lot of room to bring value to clients. Right? But the only way you bring value is if you can bring consulting and advice and you can't bring consulting and advice on 12 different industries, you have to really be able to understand how your client's business works and speak to that versus taking orders or reacting to what they're asking for when maybe what they're asking for isn't actually going to protect them the right way. And you want to be able to bring value. And that's the only way you can do it.
Fernando Angelucci (37:24):
I always tell people, especially new investors for real estate investors, it's good to be a Jack of all trades and master of none. But then you surround yourself with investor or with advisors that are the opposite.
Fernando Angelucci (37:41):
So, you know, I worked with you in the past. I know you, I know a lot of people that worked with you in the past, what can a real estate investor do to make themselves a good partner, a good client to you? So that is the interaction between the two is seamless. And you don't want to scream every time you see Fernando calling you on the phone.
Greg Jones (38:07):
Yeah. I would say communication is probably the biggest thing. Right? I was talking with a colleague about this a couple of years ago, and I was like, you can tell a difference between a client that views you as a vendor and a commodity. Versus a client that views you as an advisor and part of their team. Right? And the difference there is, they're bringing you into conversations about what the future looks like in advance. So I've got some clients that are really good at this, where we have quarterly meetings and we'll talk about this is what's in the pipeline. What do we need to be thinking about? Let's prepare for this in advance. They'll ask a lot of questions, and you particularly see this where if you've got an investor who's maybe changing their direction of their focus, right? So let's say I've talked to some groups recently where historically they've done a lot of work in the office and retail space.
Greg Jones (39:05):
They want to launch a multifamily division. And so they'll say, okay, we're changing direction here. What do we need to be thinking about as we start looking at a different kind of investment versus what we've done in the past? With those kinds of conversations, the process is much smoother versus the I have a portfolio of office and retail and, Oh, by the way, I forgot to tell you, I'm closing at noon tomorrow on a 80 unit apartment building. I need you to get this added for me, which if there was no conversation on the front end, who knows if the carrier that you're with, you could even add that location to, or you have to go and get something from scratch and you're on a you're on a deadline to do it. So I would say the communication and just having open dialogue about what's going on within the company and asking questions and keeping that line of communication open is the best thing a client can do.
Fernando Angelucci (40:03):
Yeah. I mean, that makes a lot of sense with almost any advise you work with. You've got to really make sure you're, you're communicating not only often, but well in advance of when you need things to be done by a certain deadline.
Fernando Angelucci (40:20):
So with that being said, how can, you know, how can people reach you and what should they know, or what should they prepare before trying to contact you or reaching out to you?
Greg Jones (40:34):
So I can be reached my contact info I believe is on our website www.CrumHalstad.com. I also can be reached by phone, email. I don't know if you'll have that information up later, but that's typically the easiest way to get ahold of me phone and email. As far as what to have prepared, I mean, typically I like to start just by having a conversation with, what is it you're looking for? What do you have? What's the plan? One of the things that I've tried to do that's a little bit different with clients is not just looking at what your particular need is right now, but also like what's the next 12 months look like? Right. So I was a good example of this. I was talking with an investment group that so far all of their investments have been in Chicago. Right? But over the next 12 months, they're trying to start investing in multiple States. And so, having an overview conversation around what the plan is, is really helpful because you want to set a platform that a client can grow from. Right? So as far as what they have prepared, just have a conversation and then we can kind of direct from there, what information we need.
Fernando Angelucci (41:55):
Yeah. That makes sense. Come prepared, that I know you like to get involved a little bit earlier in the process and what most investors will involve you in the process. Right?
Fernando Angelucci (42:06):
How many let's say I got a closing on December 30th, when should I call you?
Fernando Angelucci (42:19):
Yeah right as you go into contract. So it really has to do with, it's not so much what our timeline is, really. It comes down to what the carrier's timeline is, right? Because when we get that phone call that says, you know, hey, I'm closing in four or five days, there are some carriers that could be really competitive in that space, but they can't turn it around that quickly. They, because they already have so many files on their desks that they're trying to work through. They're not going to jump on the last minute one that just came in and push everything else they've been working on to the side typically. So as much in advance as you can is great. That being said, there's always options. I mean, I've done it before where I get notification two days before we put something together, it doesn't allow us time to go out to all of the options. Right? But it still allows you to provide some, right?
Greg Jones (43:14):
And then you talk at that point of, okay, so what's the strategy after we move forward with this, you know, do we try to remarket it down the road at next renewal? Start the process earlier, et cetera.
Fernando Angelucci (43:27):
That makes sense. Alright Greg, I really appreciate you coming on. Thank you for giving us the scoop in on Property Insurance and Risk Advisers. Everyone that is watching, they'll have a link to your contact information below as well as the website there, if with whatever you'd like to provide.
Fernando Angelucci (43:51):
And thanks again, everybody for tuning in to What's The Deal, the real estate podcast that gives you answers. If you have any questions or if you have certain topics you'd like us to cover, feel free to comment below, and we'll get back to you as soon as possible. And that is our Thanksgiving edition of What's The Deal. Hope everybody has a safe and happy holiday.
Greg Jones is the Vice President of the Chicago Real Estate Council and Director with the Rogers Park Builders Group as well as a Deacon at Christ Community Church in Lemont. When not working, he enjoys watching the cubs with a good cigar and a great whiskey in hand, playing poker, and riding motorcycles.
Fernando O. Angelucci is the Founder and President of Titan Wealth Group. He also leads the firm’s finance and acquisitions departments. Fernando Angelucci and Steven Wear founded Titan Wealth Group in 2015, and under his leadership, the firm’s revenue has grown over 100% year over year. Today,
Find out more at
Listen to our Podcast: https://thestoragestud.podbean.com/e/what-is-the-deal-with-property-insurance/
Titan Wealth Group operates nationwide sourcing off market investment properties for Titan Wealth Group’s acquisition as well as servicing a network of thousands of active real estate investors world wide. Prior to founding Titan Wealth Group, Fernando worked for Dow Chemical, a Fortune 50 company, rolling out a flagship product estimated to gross $1B in global revenues.
With an engineering background, Fernando is able to approach real estate investing with a keen analytical mindset that allows Titan Wealth Group to identify opportunities and project accurate pictures of future performance.
Fernando graduated from the University of Illinois at Urbana-Champaign with a B.A. degree in Technical Systems Management.
Titan Wealth Group was founded in 2015 with the vision of gathering individual investors that have the means to invest but lack either the time to find high-yield investment opportunities or the access to these off-market deals. All too often, founders Fernando Angelucci & Steven Wear came across investors who had deployed their capital only to regret the lack of consistency or degree of returns their investments were producing. In response, Titan Wealth Group provides access to highly-vetted real estate secured investments and off-market acquisition opportunities primarily in the Greater Chicago MSA. Today, Titan Wealth Group not only assists individual investors but has grown to support the acquisition goals and capital deployment of investment groups, private equity firms, and real estate investment trusts (REITs).
As a facilitator of wealth growth, Titan Wealth Group believes that success is not limited to the sum of our efforts and is infinite with what can be accomplished through partnership.
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Fernando Angelucci (00:16):
Hey everybody, welcome back. We're doing a special Thanksgiving podcast here today. So on this episode of What's The Deal, the real estate podcast that gives answers, we'll be covering What's The Deal with Property I nsurance. Real estate is one of the few investment vehicles that you can purchase in property insurance for, you now, yay for hard assets. So joining me today to provide some coverage on the topic of Property Insurance is my good friend and colleague Greg Jones. So how are we doing Greg?
Hey everybody, welcome back. We're doing a special Thanksgiving podcast here today. So on this episode of What's The Deal, the real estate podcast that gives answers, we'll be covering What's The Deal with Property I nsurance. Real estate is one of the few investment vehicles that you can purchase in property insurance for, you now, yay for hard assets. So joining me today to provide some coverage on the topic of Property Insurance is my good friend and colleague Greg Jones. So how are we doing Greg?
Fernando Angelucci (00:53):
Doing good. I'm doing good. It's 72, 73 degrees outside in California. I'm glad I'm not in Chicago at the moment.
Fernando Angelucci (01:06):
Okay. So Greg, on this podcast, we have all types of listeners from super professional, you know, multi million dollar portfolio, all the way to the new investor or someone that is trying to become a new investor. So let's back up a little bit and, you know, explain who you are and what you do.
Greg Jones (01:26):
Got it. So my name is Greg Jones. I am a risk advisor with Crum Halstead Agency. So I work with real estate companies and developers as well as contractors around consulting around risk and placement of insurance.
Greg Jones (01:45):
I was introduced to a guy that owned an agency shoot, this is probably almost 10 years ago now. Right place, right time. I grew up in a background of construction, both my dad and my brother owned construction companies. Had friends that were in real estate, didn't want to do construction for a living. So I figured I would give insurance a try and it ended up being a really good fit.
Fernando Angelucci (02:20):
Okay. So for people that don't know what is Property Insurance and what does a risk advisor do?
Greg Jones (02:31):
So property insurance is realistically, it's a like a contract. So the owner of the property has a contract in place with an insurance company, say whether that's a Travelers or a Hartford or whoever the carrier might be. And in that contract, it will lay out in the event of a claim. Here's what the insurance company is going to pay out. And that covers both damage to the property as well as if there's an injury to someone at the property. So the contract States, what the limits are, what the causes of that claim are covered versus certain kinds of causes of claim might not be covered, unless you buy that or purchase it as an add-on, a good example of that is earthquake coverage. Earthquake isn't automatically included, but you can purchase it as an additional coverage line item, but it's all built into a contract that lasts for 12 months between the owner and the insurance company.
Fernando Angelucci (03:28):
Okay. And then with those types of con, let's bring it into reality with some examples. So say I'm a new investor. I'm going to be buying a four flat property in Chicago. I'm going to live in one unit myself, rent out the other three units, let's say each units, 1200 square feet and the buildings' a hundred years old, what am I looking at for coverage? Or what should I be looking at for coverage? Where are the premiums going to fall? And what are some things that I should be paying attention to or looking for in those contracts?
Greg Jones (04:04):
Right. So the first question you have to answer, especially because you're living in one of those units, is how are you going to cover the property? You could cover it on a personal insurance policy, or you could cover it on a commercial policy because it's four units, that's the breaking point. You could cover it either way. After you get to five units, it's always considered a commercial policy.
Greg Jones (04:27):
If you go the route of commercial, which is typically what I recommend the coverage form is a little bit broader in what it will cover you for. The downside is you have to treat yourself because you're living in one of those units as a tenant, you're a tenant within your own building. So your personal property as the resident, isn't going to be covered, but your asset, the building contents within the rental properties, those are covered under the contract.
Greg Jones (04:59):
When you're looking at a four unit building, based on the square footage, there's typically a dollar amount that insurance carriers will look at in terms of we're want to cover this for what it will cost to replace it. If you have a catastrophic loss, right? Every carrier has their own algorithms they'll use for this, but typically it comes down to a dollar amount per square foot. The average we're seeing at least in Chicago right now, if it's joist and masonry or better is typically anywhere from 150 to $170 a square foot is what it would cost to completely rebuild. So we would look at what does that cost look like? Then you can set up whatever deductible structure you want. Deductibles go as low as, I mean, realistically, you can go as low as you use the $500. I never seen anybody go that low. Usually the average is, you know, 25 to 10,000 for a deductible. So then if you do have a loss, everything that it's covered under that contract is paid out minus the cost of your deductible.
Fernando Angelucci (06:00):
Exactly. Now, one of the things that occurs quite often in Chicago is we have these pockets, these neighborhoods, where the cost of buy the property is significantly below the replacement value. For example you know, my partner, Steven?
Fernando Angelucci (06:16):
He has a property where, you know, it's 140 year old masonry and limestone building the cost to replace that type of building would be a 1.4, 1.3, 1.4 million, but he bought it for significantly lower than that in those types of situations, what do you recommend doing with the coverage amount with the policy?
Greg Jones (06:42):
So it really comes down to as the building owner, what is your goal in the event of a claim, right? So you want to make sure you have enough coverage so that if there's a partial claim or a partial loss is what they call it. So let's say hale comes through and destroys the roof. It's not a total loss. You want to have enough to repair that roof.
Greg Jones (07:03):
The question is, if you were to have a catastrophic loss, the building is completely destroyed or it's damaged so much that the city comes in and says, you have to take this building down. It's now a safety hazard, right? In that kind of scenario, what do you want to do? Do you want to rebuild something there? Or would you rather just take the money and go buy something else and sell the land after the debris has been removed, right?
Greg Jones (07:28):
So the answer to that question really drives how we advise, typically in these situations, I find the investor really would rather just take the money and go buy something else because that coverage amount that you've got for that partial loss is more than enough to buy at least another building like it in that area, or maybe even more, right? So you get this dilemma of, I bought it for, you know, say 250,000, but it will cost me 1.5 million to rebuild it. Right? Insurance companies will allow you in some cases and it depends on the carrier, but they will allow you to do what's called a stated amount, or it's a, some carriers call it a loss limit. So, you as the building owner can say, this is how much I want to cover my building for. I recognize it's not enough to rebuild it, but I want to cover it. So let's use this building and as an example, you buy it for 250,000 let's say it's 1.5 to fully rebuild it. And you say, I only want to cover it for half a million dollars, half a million will cover any partial loss that happens. If it's a total loss, I'd rather just take the money and go buy something else. The rating for that is typically a little bit higher, but it still ends up coming out much less than it would be if you were to fully insure it for $1.5 million.
Greg Jones (08:54):
So, the premium for insurance for property is driven by a rate. So whatever value is selected for that building. So let's say a million dollars for round number purposes. So you take that million dollars, divide it by a hundred and you multiply it by a rate, and that equals your premium. So let's say it's you're getting a 20 cent rate. So for a million dollar building divide it by 10, multiply it by 0.20, that's your property premium.
Greg Jones (09:24):
Rates vary based on the asset type. So typically you'll see multi-family tends to be the highest rated asset class out there where retail is considered a little bit less hazardous, office and industrial tend to be considered the least risky. So you could have a building of the same square footage. Let's say you're at a 18 cent rate for apartment building, same size building would be a, what? 10 to 12 cent rate for retail. You might get as low as 8 to 10 cents on office or industrial, just depending on what the asset class is and where it's located.
Fernando Angelucci (10:06):
Interesting. Now with, let's say someone in what situations would somebody opt for the full replacement cost is that if you have like a super custom property that, you know, you can't find anywhere else, or?
Greg Jones (10:20):
If you have a super custom property, or if the idea is I like where I'm located, the land has significant value. Even if I was going to take the money, I would rebuild something here. I might not rebuild the same thing. So another way that you can do it is some carriers offer what's called Functional Replacement Cost. Right? I seen this particularly with real estate related to older church properties and some need, especially you think about Chicago land. There is all of these churches that were built in the 18 hundreds, the architectures' crazy. You're not going to rebuild one of those just like it stands right now. Right?
Greg Jones (10:59):
But you look at, if we were to have a total loss, we would want to rebuild something, same purpose, but we're not going to rebuild it the same way. And so you can use, what's called a Functional Replacement Cost, where you'll estimate based on, if we had a loss, what would we rebuild? What would the square footage be? Same questions, but you're not basing on what's there, you're basing it on what you would build.
Fernando Angelucci (11:24):
Right.That's interesting. With the property insurance business, there's a lot of moving parts and it's one of those vendors in the real estate space that usually a lot of the investors don't actually know what goes on behind, right behind the curtains here.
Greg Jones (11:43):
Right.
Fernando Angelucci (11:43):
Walk us through. When I talk to you, it almost seems like every person that works within your organization, It's almost running like it's their own little business with inside of the organization. Almost like you're not entrepreneur or entrepreneur, some people would say, what is the day in the life of a risk advisor look like, what are you doing on a day-to-day basis?
Greg Jones (12:04):
So on a day-to-day basis my time is usually split in a few different categories, right? So there's the time that goes into just the day to day servicing of your existing clients, right? That's helping guide through the process of whether it's an acquisition, that's coming up a disposition, a refinance, there's always moving parts, particularly within real estate. Right? And so there's a lot of day to day servicing. I mean, the interactions with a real estate client versus let's say a manufacturer is completely different.
Greg Jones (12:38):
Right. Just because of all those moving parts. So part of the time is spent with that servicing with myself and my team. There's another element of it, of I'm trying to connect with new people. So before we hit a, you know, pandemic that involved going to lots of events and networking and, you know, all that came to a screeching halt in March. So now it's been a lot more time on the phone working through marketing, trying to figure out different creative ways to connect with people, to bring in new clients. Right?
Greg Jones (13:10):
And then once you open that opportunity and you're starting to work on a new client there's a lot of time that goes into underwriting. So if an investor says, Hey, we want you to look at our portfolio. There's a lot of detail that you work through with them to gather the right information. And then you're compiling that information and really painting a picture for your underwriters. So, I mean, people have asked me before, what's the difference between a good broker in a bad broker or a good adviser, bad advisors is it's really making sure that you're painting a picture for an underwriter to make that client look really good versus here's 12 locations, here's all the basic raw data, what's my rate? You know, if you actually go into more detail and explain, like here's what the company does, here's what their practices look like, here's what they require of tenants of vendors coming in and out of the space to do work. You can actually derive a much better result than just providing a spreadsheet asking for someone to get you a quote.
Fernando Angelucci (14:12):
Interesting. So almost painting a picture of the whole business, not just that one property, you're looking for.
Fernando Angelucci (14:20):
Interesting. How about on the other side? So that's, you know, that's your prospect side, if you will, but how about the actual carriers that you match up with? How do you find these guys? How do you know if a deal is gonna be right for a certain carrier? Cause I know there's hundreds of insurance companies around.
Greg Jones (14:42):
Well, maybe not all of them, but a lot. So yeah. Every, so every insurance company has a different appetite, right? So there is some time spent with those and what those underwriters figuring out what that appetite looks like. So some carriers will, every carrier will say they like real estate in some capacity. Right? But the question is what kind of real estate that you like. So back in the day is when carriers would stop by the office and, you know, have a catch-up meeting with us, you know, they would talk about their appetite, what they've been hitting on recently where they've seen success. And so the first question is always, what kind of real estate are you writing? So in some cases, it's, they really like office and industrial, some carriers really like apartments, few carriers, like every asset class, there are a few. And then I would say in today's market, it's even changing beyond what it has been historically, just because of the unknowns of, you know, what will come of the pandemic and particularly around office and retail and what that's gonna look like. So we've even seen carriers backing away from those asset classes where they historically have been of the most appetite.
Fernando Angelucci (15:55):
Yeah. That makes a lot of sense. So for example, how many carriers do you work with if you had to guess?
Greg Jones (16:03):
So in the real estate space, I would say we probably have 15 or 20 that really focus in on real estate that specialize in that. So the team that I came over with that help launch our Chicago office has really put a lot of emphasis into partnering with the right companies that work with real estate because real estate is our focus. And so, if there's a market we've come across, that we find is really competitive in the real estate space, we do what we can to get a contract with them. So there's very few markets that specialize in real estate that we don't work with.
Fernando Angelucci (16:36):
Yeah. And it's funny, we've worked with each other in the past and you really know which carriers have an appetite for what type of assets. You know, we do some niche style assets, not only the single family, multifamily, but also the self storage buildings.
Fernando Angelucci (16:51):
And you've gotten quotes to me not only quickly, but usually beating out almost all the competition on the premium. And I think one of the things that really helped us, is the fact that you do have a really good ability to paint kind of that picture. Here's what the company's like. Now I have, I'm somebody that always believes that you should get insurance and, you know, plan for the worst, but hope for the best I have come across a lot of investors that do the opposite.
Fernando Angelucci (17:20):
I survived.
Fernando Angelucci (17:20):
And swear by real estate insurance is a scam and the carriers never pay out. So for you, what would you say? Why should a real estate investor have property insurance? And on top of that, why should they use a risk advisor or a broker as opposed to just contacting a company directly?
Greg Jones (17:43):
Good question. So I would say, why should they have property insurance? The short and simple answer is in most cases, if there's a bank involved, it's going to be required.
Greg Jones (17:54):
Where it's an option is where you actually own the asset a hundred percent. There's no lending requirements. You can choose whether you're going to insure the building or not. I've seen this particularly be the case when you've got developers who are buying, let's say a vacant property that they're going to repurpose, right? So usually they'll in a lot of cases, they'll buy it for cash or there won't be a bank involved if you will. So they have a choice whether they want to cover that building or not. The, I would say the reason you want to is because you want to have something that protects your investment, right? And it's not just the asset itself, especially when you're looking at development projects, you might purchase a building for, let's say a million dollars.
Greg Jones (18:43):
You're going to put a couple of million into it, repurpose it. It's not just covering that initial million dollar investment. It's also looking at what is the potential income that you stand to lose if you lose that asset. Right?
Greg Jones (18:58):
So insurance is, I mean, if you think about it, there's not a product out there where you can spend, let's say, I mean, I'm thinking back to one that I did for a client a while back bought a vacant building for it was like half a million dollars. Once he was done with the repurposing of it, he would have been into it for probably about 2.5. And the monetary return on this was going to be over half a million dollars a year. Once it was all done, the coverage of insurance was like $8,000, but we were covering the building for $2 million. Right? So you're spending eight in the event of a total loss. You're getting all of your investment back minus your deductible for 8K to protect an investment of significantly more. So, I mean, being someone that's fairly risk averse I would strongly recommend it.
Fernando Angelucci (19:59):
Yeah. And so you're talking about the significant income that, that property would bring in. Is there some type of a rider that you can get for say, instead of it being a total loss, but say something happens where all of a sudden you lose your income generating potential from that building. Is there some type of like loss of rents protection or income protection that you can put on as a rider?
Greg Jones (20:20):
So typically you'll have a loss of income or what's called business interruption coverage that's built in. So once you have a stabilized asset, it's generating rental income, you can cover that two ways. You can do it on a stated amount. So you're stating for every location that you have, this is what our annual income is. And if there's a claim, so let's say there was a fire at the building, right? The tenants have to relocate because you're doing all these repairs, it's going to take six months to do the repairs.
The policy will pay out that loss rental income for those six months until you're back up and operational again. That's based on a stated amount, it functions the same way. A lot of companies prefer to do what's called actual losses sustained, which means you report what the rental income is, but you're not capped at that number. This is particularly important on portfolios where tenants change, right? You don't want to have to go back and report every single time. Well, this tenant moved out, this tenant, moved in. The rents went up a little bit, you know, and change that number all the time. So having actual losses sustained what they will do if there's a claim, they'll look at at the time of the claim, what was the rental income? And that's what they start paying until the repairs are done.
Fernando Angelucci (21:42):
And I know we're skipping ahead here, but what are your recommendations on the two methods stated income versus actual? What do you prefer? What do you advise people to go with?
Greg Jones (21:54):
Oh, I always prefer actual losses sustained. If you can get it just because it makes it very clean. So, I mean, a lot of times when you'll have an investor that's buying a new asset, they're typically inheriting tenants, right? They might be doing things to the building, providing more value, updates, all kinds of things. Right? And with that comes typically at lease renewal time adjustments in the lease. And if you have actual losses sustained, it doesn't matter what those adjustments are. You can have a unit that's going forward $2,000 a month. You put a lot of value into it, updates, improvements. You're going to increase that from, you know, $2,000 a month to 2,500 a month or whatever the case might be. You don't have to go back and report it every single time. So you don't want to have a cap on what could be paid out for lost income. Actual losses sustained is a much cleaner way to do it.
Fernando Angelucci (22:49):
Gotcha. So what are some of the decisions that an investor or someone would be faced with when choosing insurance, what should they be looking out for? What are the things that you're recommending they look for, or pushing them or nudging them towards getting, if it's additional riders, if it's certain types of policies, kind of walk us through that.
Greg Jones (23:13):
So there's a few things that I always look for. First time I see a policy. So one of those things is co-insurance which is a very confusing thing for most investors, co-insurance has to do with how much you're going to cover your building for. So the average investor will always cover their building for replacement costs. Typically that's the most standard way to do it. So let's say you have a building that's valued at a million dollars at replacement cost. Co-insurance allows you to insure it for a little less than that. So typically you'll see either 80% or 90%, but if you go below that, there's, what's called a co-insurance penalty, which means, let's say the buildings' a million dollars in value. You have an 80% co-insurance clause in your policy. That means that you can be fully insured up to 80% of the value.
Greg Jones (24:08):
So in this case it would be 800,000, right? If you are insured for less than that, and there's a claim, even if it's a partial claim, they will subtract a percentage off of what would have been your claim paid amount based on how far under that 80% you are. So let's say you're insured only to 60% value. Well, you're 20% below where you should have been any claim that gets paid out is going to be docked 20%.
So what we do is, we look at trying to put everything on what's called Agreed Amount, which waives co-insurance, which basically is stating, I mean, we've gone through the process to make sure we're insured adequately, right? But we don't want any risk of co-insurance or penalties. If there's, you know, evaluation difference between the time we wrote the policy and the time of claim happens. So we are going to the carrier is a green in their contract. They will pay out up to X, no questions asked if that is on agreed amount. So that's one of the big ones we look at. One of the overlooked coverages I think is sewer and drain backup. And it's oftentimes put at a very low limit, but if you've gone through claims before, water damage, and you're a lower level, that can cause a significant damage to repair.
Greg Jones (25:34):
Exactly. So that's something that I always want to make sure is at a very good limit. That's included in the Chicago market the other one is ordinance and law coverage.
Greg Jones (25:46):
So it's not automatically included, but it provides coverage for, let's say you have a catastrophic loss and you're dealing with a building that was built in 1912.
Greg Jones (25:56):
It's been updated, but there's a lot of things that are grandfathered in, just because of the age of the building. When you reconstruct, you have to reconstruct according to 2020 building code.
Greg Jones (26:10):
And that's an additional expense that is not automatically covered. So making sure that you have those kinds of things. So we, I really focus on trying to get into the weeds on this kind of thing, to make sure you know exactly what it is you're purchasing, and that it's actually protecting your asset, right? Because there's nothing worse than you go out and you purchase a policy from your broker, you have a claim. And then in that process, something's not covered. And you're like, well, I paid for this policy. Why is this not covered? It's like, well, this wasn't included, or this was sub limited. So only a certain amount of it gets paid and you're left spending money out of pocket. The last thing you want is to spend money out of pocket after you've had a claim, and you're already dealing with that headache.
Fernando Angelucci (27:00):
Right. How would you advise someone choose the right coverage for their building in a word? It seems like property insurance is kind of like this pull lever here lose a little bit on the other side, pull lever on the other side, loses a little bit here. Usually it's with premium or with, which coverage amount, you're talking about things that are, let's call them named coverages versus unnamed.
Fernando Angelucci (27:26):
You know, issues. So what would you advise for someone and how they should approach choosing the right coverage?
Greg Jones (27:35):
So typically the way I've always approached it is, I want to lay every option out there. That's on the table, right? These are the coverages that are available. Here's the tiers at which you can get these coverages. Right? So think about sewer and drain backup. For example, I can show you if you want 25,000 of coverage, it's going to cost of this. If you want 50, it's going to cause this, if you want 250, it's gonna cost that. Right? And then based on the size of the building what's your lower level construction type, right? Is it all block and stone? Okay. You probably don't need as much as then you're looking at, you know, fixtures and things like that versus yeah. We have a frame drywall, carpeted, you know, lower level, right?
Greg Jones (28:19):
That's gonna sustain a lot more damage. So there's a lot of consulting around, based on what you have. This is what's recommended, but here are all the options. And so you lay that out on the table, make a recommendation but at the end of the day, it's up to that investor to choose what they want to proceed with.
Fernando Angelucci (28:37):
Okay. What is the most common mistake or mistakes you see real estate investors make when it comes to property insurance?
Greg Jones (28:46):
I would say the most common mistake I see is that the first thing they do is they look at what the premium is and they make the decision based on the premium without actually diving into all of those little ancillary coverages. Right? So they'll look at what the premium is and how much is the building covered for, they won't look at things like co-insurance, they won't look at is there any limitation on what my business interruption coverages, is equipment breakdown included all of those little things that if there's a claim will have a big impact. They're just looking at my billings cover for a million dollars and it costs this much. That's the least expensive one. Let's go with that. Or also looking at, what carrier are you partnering with? How does that carrier respond? If there's a claim. Or they carry that really will push back and try to find any possible way, not pay a claim or do they have a good track record of really working with their insurance, right?
Greg Jones (29:50):
So that's where I think working with a adviser comes into play, especially one that's ingrained in the industry by the industry. I mean the real estate industry. So someone who's worked with multiple carriers has been able to see claims walked out from multiple carriers, and be able to say, I've seen experience with this carrier, They're all willing to offer you terms. Here's the pros and cons of each one and what I think their strong suits are.
Fernando Angelucci (30:19):
Gotcha. How about on the flip side, what are some of the common mistakes you've seen risk advisors make?
Greg Jones (30:29):
I would say the two that I see the most would be not going into full detail and doing the full underwriting themselves on the front end. So, like I said before, there's a lot of brokers out there. I mean, there's thousands of insurance brokers, right? I mean, you can go to anybody, you want to get insurance pretty much.
Greg Jones (30:50):
But if they are not going into that full detail and figuring out all of the things on the front end before they start quoting something with a carrier. There's a lot of things that can get missed. Right? Not actually doing the legwork to make sure are we covering the building adequately, are we running the right reports to make sure that this asset will be fully protected up to the investment level that the investor has, right? Are we including the right coverages?
Greg Jones (31:20):
Are we asking for the right endorsements or add-ons right. I would say that's probably the biggest mistake because that's where you find they rush through the process, they get a quote, something happens and then there's an item that wasn't covered, and then it's up to that broker to make that right. So I would say that's probably the biggest mistake I've seen. The other is just not actually, like I was talking about before painting that picture with an underwriter, the difference that you can get for a client through that is huge. It's really, that's a way to create value for an investor when you do it that way versus just spit balling out there to any carrier you can to get a quote. And it's also a way to potentially lose the client in the long run, because you're going to get the best pricing when you paint that picture, versus you're just marketing it out to everybody and taking a shotgun approach. It's very easy for somebody that really knows what they're doing to come in and create that value drive down that cost, and then you lose the client. So.
Fernando Angelucci (32:37):
One of the things that I have seen is trying to do everything yourself, as opposed to building out a team to help you with that. And you've alluded to it multiple times that you have a team around you that helps you fill these duties. What does that look like? What does your team look like? And what are they responsible for each?
Greg Jones (33:00):
So on the team is built out of there's multiple advisers in my firm multiple ones of us that focus in real estate. I think one of the real advantages is the way we've built out this office is we have professionals that are focused not only within real estate, but within various aspects of real estate. So you have guys that are really focused in the multifamily space. You have guys that are focused in commercial, meaning like office retail, industrial. You have others that are focused in condominium associations, right? So it creates a wealth of knowledge that you can pull from. So let's say you're working on something that's a little bit outside of your wheelhouse. You have that resource that you can bring in to make sure that nothing's getting missed through that process, right? There's expertise there. There's also a service team that handles a lot of the transactional pieces that happen within a real estate account. So when you're going through a refinance there's documentation that the lender needs to see based on what you have on your insurance policy, you know, evidence of coverage, et cetera. We have a team that one processes, those changes provides those certificates when they're needed, helps process the day-to-day things of those transactions that you're doing on the front end behind the scenes with the carrier, so that people like myself, the advisers can really interact more with their clients and do the consulting piece.
Fernando Angelucci (34:31):
Yeah, that makes a lot of sense. So let's move back to say new investor, new real estate investors looking to get involved, just saw this podcast. What advice would you give them when they're looking to buy their first investment property or start their first project? Let's say maybe it's inside of a rental, It's a fix and flip property.
Greg Jones (34:57):
Right. I would say as someone new that's getting into it, the, I think the most important thing you have to think about when it comes to insurance is partnering with the right broker, because a lot of people are generalists that'll say, sure, I write real estate. I also write restaurants and I write manufacturing and I'll write a trucking company and they're not ingrained into the industry. And there are, there are brokers that really specialize within an industry like myself, that's real estate. Right?
Greg Jones (35:30):
As a new investor, there's a lot of education that comes with that first investment, that first project, even the first few. Right? And so being able to partner with someone that is part of the team with you, that can say, okay, based on what you're investing in, or the project that you're doing, these are all the things you want to consider. Right? You don't have to go with all of them, but at least you have the information and you can make an educated decision.
Fernando Angelucci (35:58):
And then how about on the flip side, what advice would you give to somebody considering becoming a risk advisor or an insurance broker?
Greg Jones (36:07):
I would say if you're going to become an insurance broker or an advisor. The most important thing I think you need to be able to do is specialize in an industry.
Greg Jones (36:15):
For the same purpose. Right? There's obviously a lot of change happening within the insurance industry, right? I mean, online rating systems are on the rise. I mean, think about your home and auto insurance. Right?
Greg Jones (36:32):
You don't have to go through a broker to get home and auto insurance. You can go online, plug in your information, the quote will get spit right back out at you. It's turning it into very much of a commodity. Right? I think in the commercial space, there's still a lot of room to bring value to clients. Right? But the only way you bring value is if you can bring consulting and advice and you can't bring consulting and advice on 12 different industries, you have to really be able to understand how your client's business works and speak to that versus taking orders or reacting to what they're asking for when maybe what they're asking for isn't actually going to protect them the right way. And you want to be able to bring value. And that's the only way you can do it.
Fernando Angelucci (37:24):
I always tell people, especially new investors for real estate investors, it's good to be a Jack of all trades and master of none. But then you surround yourself with investor or with advisors that are the opposite.
Fernando Angelucci (37:41):
So, you know, I worked with you in the past. I know you, I know a lot of people that worked with you in the past, what can a real estate investor do to make themselves a good partner, a good client to you? So that is the interaction between the two is seamless. And you don't want to scream every time you see Fernando calling you on the phone.
Greg Jones (38:07):
Yeah. I would say communication is probably the biggest thing. Right? I was talking with a colleague about this a couple of years ago, and I was like, you can tell a difference between a client that views you as a vendor and a commodity. Versus a client that views you as an advisor and part of their team. Right? And the difference there is, they're bringing you into conversations about what the future looks like in advance. So I've got some clients that are really good at this, where we have quarterly meetings and we'll talk about this is what's in the pipeline. What do we need to be thinking about? Let's prepare for this in advance. They'll ask a lot of questions, and you particularly see this where if you've got an investor who's maybe changing their direction of their focus, right? So let's say I've talked to some groups recently where historically they've done a lot of work in the office and retail space.
Greg Jones (39:05):
They want to launch a multifamily division. And so they'll say, okay, we're changing direction here. What do we need to be thinking about as we start looking at a different kind of investment versus what we've done in the past? With those kinds of conversations, the process is much smoother versus the I have a portfolio of office and retail and, Oh, by the way, I forgot to tell you, I'm closing at noon tomorrow on a 80 unit apartment building. I need you to get this added for me, which if there was no conversation on the front end, who knows if the carrier that you're with, you could even add that location to, or you have to go and get something from scratch and you're on a you're on a deadline to do it. So I would say the communication and just having open dialogue about what's going on within the company and asking questions and keeping that line of communication open is the best thing a client can do.
Fernando Angelucci (40:03):
Yeah. I mean, that makes a lot of sense with almost any advise you work with. You've got to really make sure you're, you're communicating not only often, but well in advance of when you need things to be done by a certain deadline.
Fernando Angelucci (40:20):
So with that being said, how can, you know, how can people reach you and what should they know, or what should they prepare before trying to contact you or reaching out to you?
Greg Jones (40:34):
So I can be reached my contact info I believe is on our website www.CrumHalstad.com. I also can be reached by phone, email. I don't know if you'll have that information up later, but that's typically the easiest way to get ahold of me phone and email. As far as what to have prepared, I mean, typically I like to start just by having a conversation with, what is it you're looking for? What do you have? What's the plan? One of the things that I've tried to do that's a little bit different with clients is not just looking at what your particular need is right now, but also like what's the next 12 months look like? Right. So I was a good example of this. I was talking with an investment group that so far all of their investments have been in Chicago. Right? But over the next 12 months, they're trying to start investing in multiple States. And so, having an overview conversation around what the plan is, is really helpful because you want to set a platform that a client can grow from. Right? So as far as what they have prepared, just have a conversation and then we can kind of direct from there, what information we need.
Fernando Angelucci (41:55):
Yeah. That makes sense. Come prepared, that I know you like to get involved a little bit earlier in the process and what most investors will involve you in the process. Right?
Fernando Angelucci (42:06):
How many let's say I got a closing on December 30th, when should I call you?
Fernando Angelucci (42:19):
Yeah right as you go into contract. So it really has to do with, it's not so much what our timeline is, really. It comes down to what the carrier's timeline is, right? Because when we get that phone call that says, you know, hey, I'm closing in four or five days, there are some carriers that could be really competitive in that space, but they can't turn it around that quickly. They, because they already have so many files on their desks that they're trying to work through. They're not going to jump on the last minute one that just came in and push everything else they've been working on to the side typically. So as much in advance as you can is great. That being said, there's always options. I mean, I've done it before where I get notification two days before we put something together, it doesn't allow us time to go out to all of the options. Right? But it still allows you to provide some, right?
Greg Jones (43:14):
And then you talk at that point of, okay, so what's the strategy after we move forward with this, you know, do we try to remarket it down the road at next renewal? Start the process earlier, et cetera.
Fernando Angelucci (43:27):
That makes sense. Alright Greg, I really appreciate you coming on. Thank you for giving us the scoop in on Property Insurance and Risk Advisers. Everyone that is watching, they'll have a link to your contact information below as well as the website there, if with whatever you'd like to provide.
Fernando Angelucci (43:51):
And thanks again, everybody for tuning in to What's The Deal, the real estate podcast that gives you answers. If you have any questions or if you have certain topics you'd like us to cover, feel free to comment below, and we'll get back to you as soon as possible. And that is our Thanksgiving edition of What's The Deal. Hope everybody has a safe and happy holiday.
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