February 25, 2022

JF2733: Avoid These 5 Costly Mistakes with Multifamily Insurance ft. J.T. Lynch

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Are you getting good advice from your insurance broker? Do you have the right coverage for your properties? Insurance broker J.T. Lynch reveals five common mistakes investors make when dealing with multifamily insurance, and how to properly select and dissect a plan.

J.T. Lynch | Real Estate Background

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Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, JT Lynch. JT is joining us from Denton, Texas. He is a broker at Ramey King Insurance, which has specialized in multifamily insurance for over 35 years. JT also has four years of real estate experience. JT, thank you for joining us, and how are you today?

J.T. Lynch: I’m doing great. Thanks for having me.

Ash Patel: It’s our pleasure. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

J.T. Lynch: Sure. I actually started out in personalized insurance and then quickly realized that commercial is the way to go. Getting into the agency that I’m with – it’s a private family brokerage. It’s actually been in Denton, Texas since 1889, so it’s been around forever. My boss, he specialized in multifamily for over 35 years, and we’re all over the nation as well. The pandemic is terrible as it is; it’s actually opened up a lot more for our business because of the Zoom meetings, to be able to meet people farther away than just North Texas. It’s a great industry to be in, I love meeting all different syndicators and everyone that’s helping out in the whole process. It’s like a smaller type of family, so I love the environment.

Ash Patel: JT, help me understand that… Why are you now able to get more clients post-COVID?

J.T. Lynch: We did a lot of events, face-to-face events, maybe at a different location here in Dallas. But with Zoom, it opened people’s eyes to go, “Well, since we can’t go anywhere… Well, I’ll get on this Zoom. I heard about this Zoom right here.” Now people are coming in from Georgia and California. It made the world a lot smaller. Now it’s kind of a norm; people are doing more podcasts and Zooms, it seems like. When you’re going to an event, you can only go to one thing a night almost if you’re going in person, but with Zoom, you can do almost unlimited throughout the day. It’s just allowed us to reach more people to be able to help more people and more properties.

Ash Patel: Got it. Four years of real estate experience. What is that? What have you been doing?

J.T. Lynch: Multifamily insurance… I’ve got a passive deal going on right now looking to do more, possibly looking to get more involved; looking to learn as much as I can as well. I’ll be at the Best Ever conference coming up here on the 24th to the 26th, so I’m looking to learn as well, and get more involved. But right now, it’s mainly just the multifamily insurance space.

Ash Patel: But your real estate experience is on the passive side.

J.T. Lynch: That’s correct.

Ash Patel: Alright. What are mistakes that are made with multifamily insurance?

J.T. Lynch: Oh, man, there’s a lot. One of them is just not having your team together. You’re looking for properties, you finally find what you think is the right one, but then you don’t have an insurance broker that you’d go to and trust. So if you don’t have your insurance numbers lined up, we all know that everything is so tight these days that if you thought this property was going to be $300 a door, but now it’s actually more like $500 a door – well, that’s going to throw everything off from the start. So I would say get your team together first; not just your syndication team, but your brokers, anybody else that’s part of the deal – get them together first. That way, when you find the right deal, it’s easier to take down.

Ash Patel: No, what mistakes are made from an insurance perspective?

J.T. Lynch: From an insurance perspective, it’s not even knowing what to expect. You don’t know if the property’s in a flood zone, maybe it’s a property that’s built in the 1960s to the 1980s and you’re not looking out for aluminum wiring, or you’re not looking out for the Federal Pacific Stab-Lok breakers. Having your team in place, as I said before, with a broker that you trust, they’ll let you know things to look out for. Before you submit an LOI, I would tell you for instance, “Hey, this property, it looks like it’s in a flood zone, whatever. Expect to pay $5,000 more in premium because of that. It looks like on the T12 their insurance had increased quite a bit back in August. It looks like there could have been a claim, so make sure to ask the owner and broker about that.” There are different things that we can find before you even submit the LOI. Again, a good team member put in place will help you with those, because that’s the first mistake you’re going to make, and it can be a costly one.

Ash Patel: And T12 is trailing 12 months.

J.T. Lynch: Yeah, that’s your trailing 12 months of the different finances that come into play, like insurance, for example.

Ash Patel: Okay, I have to ask you. I interviewed somebody not too long ago where there was a tornado, and the roof flew off the building, and a lot of water damage. The insurance company didn’t cover it, because they claimed there was no tornado in that area, and the roof was faulty. How do you deal with a situation like that?

J.T. Lynch: Well, with something like that — first of all, you’ve got to make sure that you have the right coverage. If you’re not covered for wind, or named storms, or whatever that could come into play in that area, then that’s, again, another mistake. But if you’re on the coasts and you don’t have named storm coverage, the named storm comes through like a hurricane and does damage that you don’t really have much to fight against. So first is to make sure that you have the right coverage.

Ash Patel: Wait a minute, so there is specific coverage for when they name storms, like Sandy and…?

J.T. Lynch: Yeah, that’s correct. If you’re, say, on the coast near Florida, almost anywhere in Florida actually, or Houston, Galveston, that type of coastal areas – yeah, they’ve got a deductible for a named storm.

Ash Patel: If you don’t have named storm coverage, do you not get covered if the weather people name the storm?

J.T. Lynch: That’s correct. You could have a normal storm come through, just a normal thunderstorm that may do damage to the property – you’ve got a deductible for that. But a named storm that gets big enough to be named, that does damage and you don’t have the right coverage, then you could be paying for that yourself. It’s just like being in a flood zone and not having flood insurance. So you got to make sure that you’ve got the right coverage for your property and where you’re at. That’s the first step to that.

Ash Patel: Okay, that’s insane. How are we supposed to know that? Unless the insurance broker tells us these things, how do we know?

J.T. Lynch: The good news is your lender is going to help you as well. The lender looks at it as “This is my property until you pay it off.” So they’re going to want to make sure that they’ve got all these different items covered, so they’ll have a checklist of items depending on the property and where you are, of the types of coverage you need. Especially if you’re getting an agency loan, a Fannie or Freddie loan, or bridge loans are really popular nowadays, your lender is going to let you know exactly what you need for that property.

Ash Patel: Alright, so I recently switched a few years ago to a new insurance person, and they kind of yelled at me. They said I’ve got earthquake coverage on all of my properties. Well, the reason for that was the last broker said Ohio’s on this fault line, blah, blah, blah, and scared me. So I’m paying $20,000 extra a year for all my properties on earthquake coverage. Okay, well, who do I believe? You guys all steer us in different directions, so how do we know who to believe?

J.T. Lynch: It’s a tough thing. Obviously, we want you to be insured properly, If you didn’t get earthquake coverage and then there was an earthquake event, then now it’s on us for not even mentioning it. The proper thing is to mention that there is a possibility of an earthquake happening in this area and then ultimately, it’s up to you. There have been earthquake events in Oklahoma and Texas too, and there’s a lot of speculation as to why. Some people think it’s just because of a lot of the fracking that goes on here, so there are slight tremors. There are some properties that choose to get earthquake coverage just in case. That comes down to your risk tolerance. If somebody is more willing to take that gamble and not spend that extra money just because they know that there’s not a ton of earthquake events in the area, it’s all a gamble. Our job is just to line it up for you, let you know what the potential hazards are, and give you statistics and a good idea of what is good to be covered. But ultimately, it’s up to you. It’s all a gamble, really.

Ash Patel: There are a lot of horror stories from people dealing with insurance companies. What’s the worst horror story you’ve dealt with, with an insurance company?

J.T. Lynch: The story that you brought up, about the roof flying off the apartment complex and then saying that it wasn’t even a storm. I’ve heard of different scenarios like that, of just trying not to payout. Our job as brokers is to find you the best carrier that will fit your lender requirements. We’re also trying to find you the best premium as well, but that’s not always the most important, we want you to have the best coverage as well. So we’re going to go out to multiple carriers to find the best options. Part of that is going to a trusted carrier that we know is going to take care of you. I don’t deal too much with the claims process whenever there is a claim, but I do make sure that the right parties are talking to the right people, that you’re talking to the claims adjuster… And in the event that it’s not looking like the payout is going to happen as it should, then there are some other options there for you. It really depends on the situation that happened, but our job is to get together the right narrative of what happened, what you did or didn’t do to have it properly covered, to make sure to bring the correct narrative, to make sure it’s covered properly. There are a lot of crazy horror stories out there. Unfortunately, a lot of times it’s because the owner or the agent didn’t have it properly insured. It’s ultimately what it comes down to. We try to get it right from the start, and hopefully, we can avoid some of those.

Break: [00:12:23][00:14:20]

Ash Patel: JT, I’ve interviewed a lot of people that came from the financial industry and transitioned into real estate. When I ask them, “Why didn’t you recommend real estate investments when you were in the finance industry?” their answer is always “Well, there is no way for us to get paid on those investments.” Because mutual funds will give them all kickbacks and bonuses, real estate syndicators don’t do that. But they leave the finance industry, because they realize there’s so much more money to be made with real estate investments. Are you guys similar, in that certain companies will pay you higher based on what you bring them?

J.T. Lynch: No, not necessarily. One carrier may give you 5% in commission for each sale that you bring, another might give you 8%-9%. There are not that many carriers really that will write multifamily. There’s a ton that will write your business auto, there’s a ton that will write your single-family house, but there’s not a ton that will do multifamily. So as far as the payouts, the commission splits and all that, we really don’t even pay attention to it. We want the best option for the client as far as coverage and premium go, and that’s it. Because if we’re not getting the business at all, then what does it matter? If we’re getting business that is extremely expensive or not the right coverage – well, then that doesn’t help me down the road.

We want to do what’s right from the start, so the commission splits and all that, I don’t pay attention to it at all. [unintelligible [00:15:50] they do differ. Some of these carriers, they’ll tell you, “In order just to access me, to get quotes from us, you have to bring in a certain amount of premium every year.” Some of your small brokers that are just getting into this might not have access to these carriers, just because they’re not bringing in enough business yet. There’s a lot that goes into it, but I hope that answers your question.

Ash Patel: It does. Does that mean the vast majority of people could be influenced by the percentage commission they receive?

J.T. Lynch: It could be, but it’ll catch up to you really quick. Once you start seeing that quotes are much higher than your buddies down the road, and “Hey, you’re only bringing me three different options. I heard of another broker that’s going to multiple other places.” People are smart, syndicators are smart, they talk; like I said, it’s a big family. So if you’re not doing the right things, you can get away with it for a few properties, but eventually, they’re just going to go to where they’re treated right. So doing the right thing at the start is the best way to go for


Ash Patel: Can you talk to the Best Ever listeners a little bit about personal and business umbrella insurance?

J.T. Lynch: Yeah, absolutely. An umbrella policy is something that most lenders are going to require. The size of the umbrella really depends on the size of the property. If you think of 100 units versus 200 units, the 200-unit has more risks, because there are more people; not just tenants, but family members of tenants, friends of tenants, people coming and going. That could get into an accident on your property and you could get sued for it. The umbrella kicks in after your general liability limits have been exhausted, so usually, you’re covered for a million dollars insured liability per occurrence; but what if they sue you for $2 million? Well, your million dollars is covered through your regular general liability policy, and then your umbrella kicks in to cover you for the rest. Most umbrella policies are really inexpensive, so to get $5 million worth of coverage, it can cost you $2,000 extra in your premium. It’s a great thing to do. Again, your lender is going to require that amount that you’re going to need.

I have a personal umbrella policy for myself. I’ve got an eight-year-old, and my wife is expecting, we’re due in July; we’re not a huge family, but still, my umbrella policy is $120 for the year, something stupid like that, or maybe $180, and it’s a million dollars for our whole family, and it travels with us wherever we go in the world. In the event that something happens and we get sued over what our general liability limits are, that umbrella kicks in and it helps us out.

Imagine you’re driving down the road, you run through a red light and crash into somebody’s really nice car, and this person happens to be a surgeon who makes 500k a year. Now all of a sudden, they’ve hurt their hand and they can’t work for a few years. So your normal auto limits aren’t going to cover that type of lawsuit, so that’s where your umbrella kicks in to help you out. Again, it’s so inexpensive; just buy it, and then it’s added into your normal renewal every year. You won’t even know the difference and you’ll have that peace of mind, you’re protected.

Ash Patel: JT, here’s a silly question. You take somebody that’s done a handful of two to four-unit properties, and all of a sudden, they get a $5 million deal that’s 100 units; can they just go to their existing insurance broker? Or is there something different about those larger multifamily deals?

J.T. Lynch: That’s a great question. A lot of the captive agents like farmers in State Farm, a lot of them can only do two or four units; they can’t get much bigger. So when you’re getting into the bigger properties, you’re going to need an agent that is specialized in these bigger properties, that has access to these carriers that will write them. So I would say yes and no; it depends on the broker, it depends on who they can access in order to be able to help you out with those.

Ash Patel: Got it. What is your best real estate investing advice ever?

J.T. Lynch: I would say be an open book and be willing to help as many people as possible. As I said, this is a huge family and I was helped out tremendously when I first started. I just try to give back that way, and try to help as many people as I can.

When I go to a conference or when I’m on a Zoom call to meet new investors, I don’t tell them what I do off the bat, I try to figure out what they’re doing and how I can help them. I’ve been doing this a long time, so I’ve got a large network of, obviously, other syndicators, CPAs, attorneys, so there’s a lot of places that I can lead you. I’ve found that helping others first makes all the difference in the world. You’ll start getting referrals, and your business will travel in ways you didn’t even realize it could.

Ash Patel: JT, are you ready for the Best Ever lightning round?

J.T. Lynch: I am. Let’s do it.

Ash Patel: What’s the Best Ever book you’ve recently read?

J.T. Lynch: Richest Man in Babylon. Our boss had us read that. It’s been around forever, and it’s a great book; everybody should read that.

Ash Patel: What’s the Best Ever way you’d like to give back?

J.T. Lynch: Like I said, just making sure that I’m helping others in their goals, whether it’s introducing them to my network, or helping them with insurance; however I can give back to the multifamily family is the best way.

Ash Patel: JT, how can the Best Ever listeners reach out to you?

J.T. Lynch: The best way is through email jtlynch@rameyking.com.

Ash Patel: JT, thank you for joining us today and sharing some insights of the real estate insurance industry, the insurance industry as it applies to real estate.

J.T. Lynch: Absolutely.

Ash Patel: Thank you again for joining us. Best Ever listeners, thank you for joining us as well, have a Best Ever day.

J.T. Lynch: Alright, thank you.

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