Mar 2, 2022
How to select the right insurance for your real estate investment?
Matt Sutika is on a mission to help investors answer this important question. Formerly a No. 1 State Farm agent, Matt is now Chief Insurance Officer at Obie, simplifying real estate insurance for investors who want to protect their hard-earned investments.
He drops by in our podcast to talk about his journey to the real estate space and the importance of investing in quality insurance for your properties. You don’t need to be overwhelmed by all the information about insurance that you’re seeing all over the Internet. He is here to make them easy to understand.
Matt is also an award-winning entrepreneur and business owner in the multifamily and habitational insurance sector.
[00:01 - 04:14] Opening Segment
- From State Farm agent to syndicating in real estate
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- Here’s Matt Sutika’s journey
- These are the characteristics of an ideal client according to Matt
[04:15 - 14:44] Insurance in the Real Estate Space
- Insurance is important in real estate, but many investors remain underinsured
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- Matt tells us why
- Matt lays out the unique value proposition that they offer to their clients
- The changes in the insurance industry that investors should know now
[14:45 - 17:54] Closing Segment
- A tool or resource you can’t live without
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- Outlook
- A real estate mistake you want our listeners to avoid
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- Not talking with your insurance person
- You should do this so you will be more guided in closing a deal
- Your way to make the world a better place
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- Taking care of his newborn baby
- Reach out to Matt
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- See links below
- Final words
Tweetable Quotes
“...as we know in the real estate space, closings don't just go perfectly 45 days from the time you get your purchase agreement. There's a lot of stuff that goes and you really want someone in your boat with you that can be a part of the journey.” - Matthew Sutika
“The number one mistake [in real estate insurance] is not talking to your insurance person before you do due diligence and you give your report to what you want the seller to provide you before you go under contract.” - Matthew Sutika
“ Insurance really is a good data driver for what happened [in the property]. It can really show you a lot about the financials and all kinds of things right.” - Matthew Sutika
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Email matthew@obierisk.com to connect with Matt or follow him on LinkedIn and Facebook. Protect yourself and your investment by visiting Obie now!
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Matthew Sutika 00:00
The biggest thing that we do is first from an understanding, so most people that when working with us understand and I take them through this, you know, five to seven-year journey, right? And this is probably about 10% of the help because probably after I talked for about two minutes, the clients kind of started to think about something else, but the general is that just like anything else, insurance goes through cycles right now, you know, maybe that's a four-year, five-year cycle, right? Right now we're in the height of everything, you know, we've had also some pretty big factors with, you know, our 2021 or 2020 scenario in the country and, you know, and everything so we have this perfect storm where everything's high.
Intro 00:38
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson 00:47
Matt Sutika is the Chief Insurance Officer for Obie insurance. Obie specializes in habitational and multifamily insurance. Matt, welcome to the show.
Matthew Sutika 00:56
Hey, thank you for having me.
Sam Wilson 00:57
Hey, man, pleasure’s mine, same three questions I ask every guest who comes on the show. In 90 seconds or less, can you tell us where did you start, where are you now, and how did you get there?
Matthew Sutika 01:04
Yes, I can. I started as a captive State Farm agent in Indianapolis, I left that to grow an insurance company for a real estate firm called century 21. If listeners are familiar with that, so grew that which got me into the real estate and insurance combo. And then most recently, in 2020, moved on from just doing the smaller real estate to more getting into the large multifamily across the country. So that was my journey from you know, small captive to, you know, working for, with a real estate company to now working with syndicators and people purchasing real estate.
Sam Wilson 01:41
Interesting. And do you guys multi assets or is it just all multifamily?
Matthew Sutika 01:47
Multi assets. So we get we have a couple of departments, we can do the, you know, 1, 2, 3 unit, what I call like Mom and Pop rentals or large schedules or portfolios, we all over the countries, we have a department that does that you can if you actually the one to four-unit, you can go to our website and get an instant quote and bind yourself if you want any of the 50 states one to four units, which is nice, and then anything from the five to what's called like 75 units in that space, also what's called like lesser risk, which is like your shopping malls or your big commercial buildings, we have kind of the medium market. And then we have the 75 and up which is your larger multifamily. So we have three different departments, all 50 states. So technically from one unit, all the way on up, we can help you anything I say building-related and insurance, we're probably your you know, your go-to.
Sam Wilson 02:36
Right, that's really, really intriguing. Walk us through, if you have the ideal client, right, the ideal person that came to work with you, what would they do? And then why would they do those things?
Matthew Sutika 02:48
I think my ideal is partnership. So I love whether, you know, you have one unit or you are buying apartments all over the place. I love the field and you asked me my journey earlier why I got into the real estate and then why I got into you know, doing larger multifamily and things like that is it was the people I enjoyed, you know, somewhat of my industry can be treated as a commodity, you know, the Geico and, and Flo from progressive have created this, you know, save $1.15 minutes thing. And so I really liked the people. So that's always my answer is, you know, if you come to me as a partner where you want my expertise help, and you just really want to make insurance is there at your closing, you know, that's my ideal client, those who you know, want to go out to the 17 different brokers and shop it around or those who don't want to really, you know, treat you as anything more than that you're just the insurance guy for quote, that's probably not a good, you know, mix. And the reason why that's important is there's going to be times where we do save you money, but there's always going to be times where you really need us to go that extra mile or cut something here or do something here, stay till midnight, so you can close the next morning. And that's where partnerships really, you know, come into play. Right? If you know, on the easy stuff, you can go to anybody but a lot of times as we know in the real estate space, closings don't, you know, just go perfectly, you know, 45 days from the time you get your purchase agreement like there's a lot of stuff that goes and you really want someone in your boat with you that can you know, be a part of the journey.
Sam Wilson 04:15
Yeah, that's absolutely intriguing. I think you're absolutely right. One of the things that we see a lot right now is that people are either or we're seeing that people are underinsured. How does that happen? And then why do you think they got there?
Matthew Sutika 04:29
Yeah, I mean, the simple answer is a lot of people who are underinsured probably are your cash buyers. If you right now, if you have a lender on your, you know, your asset, most likely there's that's the first layer of protection. The lender is going to make sure that you are not underinsured that you have a lot of the coverages and that we're providing them most of the deals. I'm working right with the lender or their consultant to make sure the insurance is in place. So I don't see that as much on new purchases unless it's a cash deal or they have a lender who just doesn't care just basically like, hey, just, you know, get me a certificate, which is a very rarity. And then you also see it once someone's own the asset potentially for a little while, and a refi happens, that's where I really see the person who's underinsured. But if everyone does their job, the lender and the insurance person, you should be covered correctly, especially nowadays, you know, these loans are very well protected and they really do double check and triple check to make sure the insurance is correct.
Sam Wilson 05:27
So you were saying, in a refi?
Matthew Sutika 05:31
A refi. We’ll use a real life example, you're an insurance program and insurance broker, I did the first insurance and I had to go through all the lender requirements, and I had to ensure that $20 million, you know, for that asset, right, and I did it all, it was all on the, you know, the appraisal and everything like that, also, when you're going for a refi and you go and a local bank comes into play, and they're really not looking either looking at things over, or they really aren't as strict with the requirements. And that owner goes to you, right, and says, Hey, quote this out for me, and you quoted at $10 million, right? That's what you quoted it at, you're trying to because you know, what's to say, the owners, like, hey, I want to save money, that's probably why they went to another insurance person, right? And so you do at 10 million saving all this money, you send over the certificates to that new lender, who has maybe a local bank or something like that. And that local bank just approves it, you know, they're just, they're not really looking at it or doing the due diligence that first lender did at purchase. And now you have a $10 million insured building, instead of 20. Now everything went correct, right, like the lender approved it, the insurance person did what you asked, cut your insurance in half, but now you are underinsured. So just off the hip example. But things like that can happen. And it really comes down to when the checks and balances go out of whack and also in that same scenario, you changed insurance brokers, which caused the problem, right? If we would have done the ideal scenario, that owner would have just came back to me said, “Man, I got to reduce costs, how can we do that?” right, and then we give some options. And then what we might have the underinsured conversation, and we might see if the bank is okay with it, but at least then the insured knows what they're getting into. Hey, I can move you to 10, I think you should be at 20, we know that this bank will approve 10. But just let you know, you're insuring your place for half. So if this thing burns down, you know, only 10 million it's coming not 20. But at least then you are making a business decision as an owner compared to a price decision that ends up being a poor business decision, if that makes sense.
Sam Wilson 07:25
It really does. One of the things that we're seeing in the market right now is and, it's been happening in probably last year and more, but it's hardefning of insurance rates. How are you helping? I mean, forgive me when I say this, because obviously, you're very well educated, very well trained in your space. But you're an intermediary in the sense that you don't have control directly. Matt does not say, “Okay, here's the insurance rates, right, you can only say, here's what our insurers are willing to insure your property for this, what's gonna cost you.” How are you helping your clients deal with the hardening of the market? And then what can we be doing to maybe absorb some of that or make it easier as we move forward?
Matthew Sutika 08:00
Yeah, so you know, our biggest thing that we do is first from an understanding, so most people that when working with us understand, and I take them through this, you know, five to seven-year journey, right? And this is probably about 10% of the help because probably after I talked for about two minutes, the clients kind of started to think about something else. But the general is that just like anything else, insurance goes through cycles. Right now, you know, maybe that's a four-year, five-year cycle, right? Right now we're in the height of everything, you know, we've had also some pretty big factors with, you know, our 2021 or 2020 scenario in the country, and, you know, and everything. So we have this perfect storm, where everything's high. Back in 2018, 2019, insurance was free. Like, that's how it felt it was so cheap, right, we were getting all these amazing rates. And the only real problem is that if people when they're going out to look at a new risk, they're still looking at ‘18, ‘19 rates, and they're like, This one used to be 300, a door in Texas, and they're not seeing that journey to the next era. It's like the same person who complains the gas is not 99 cents anymore. They don't understand this whole, like hot topic of inflation and other things. Right. So that's the general action. The next thing is, as I mentioned, for a partner, if I'm doing a ton of deals for you, you know, we have ways to reduce premium from my end, maybe it comes out of my side, you know, maybe it doesn't, but I have ways to help a partner. And I'm willing to do that when I'm doing 1, 2, 3, 4, 5 deals. Like I mentioned, you want someone in the boat with you at that midnight hour that can maybe move the needle if have to, you know, we're a willing partner both ways. We're not just here to you know, leech on, write a policy for you and make money. Like if you're hurting a little bit, we might hurt a little bit. And I think that's the give or take in the relationship. And then the last thing is, you know, we're willing to put the effort in, you know, at the end of day, like you mentioned, we do go out to the carriers and we are subject to their rates. But what we're willing to do is we might go out to 500 carriers for a client to just do everything we can to either get, you know, the smallest reduction. And then also, you know, the last thing which I'll bring up is that, you know, we do have a lot of premium in these markets. And we do have really good relationships. So I do have a few silver bullets, a few favors on the back end with these particular carriers that if I have to, you know, ask or if I do ask, they usually helped me out now that might not move the needle from 100k to 50k. But, you know, I might ask for a favor and get it from 100 to 95. Because, you know, I just placed X amount with them the previous week. So there's a lot of facets, just overall to end with. We are 100% in this space, which does give us the advantage due to all those things I mentioned.
Sam Wilson 10:41
What's an annual escalator on average we should be budgeting in our underwriting for insurance. Let's, multifamily is hot. So let's talk multifamily.
Matthew Sutika 10:51
Yeah, so I do kind of a mix allocation. Right. So I think when things are priced well, you're anywhere from like the five to let's call it 9%. You know, and I'm talking about Yeah, the large multifamily Right. in markets like right now you're looking a lot more in the like 8 to 17 range, we try to keep everything if we physically can under 12. I mean, that is always our goal, carriers willing, if I had my way, these carriers would just do zero every year. But so that's kind of where we're at. So if you do like kind of a split average and estimated somewhere in that seven to 10 range, you'd probably be pretty close looking over like a five-year scale. Now in the single family smaller stuff, you can probably get away more in like the three to seven mark, you know, there's just there's small premiums not as big of a boost, but the large multifamily also, too, you know, I don't want to bore the listeners here. But there's a big difference between renewals in Texas and Florida compared to Indiana or Illinois, you know, I mean, from coastal, you know, our, you know, there's a lot of factors going on. So, individually, those are other things we would discuss, you know, you're in Texas or you're in Tennessee, you know, you're in a high crime area, you're in a weird, there's six hurricanes in your area last year, like what do you think's gonna happen? Right, you had 17 claims, like, you know, so those are the overalls. And then individually, we're talking to our clients based off their, you know, individual risk and kind of what they can expect. And a lot of our clients reach out mid-year and kind of ask us for some updates as they're projecting out for the upcoming year. And we're happy to do that.
Sam Wilson 12:21
Right. So the number I heard there was on an average, if you said, hey, you need to stick this in a spreadsheet, obviously, location-dependent, but anywhere from eight to 17% annually, is where we need to be kind of targeting the end, like you said, you try to keep it under 12. Even if we use 12, number’s higher than what we've been using, you know, in the last five years, that certainly is $100,000 policy that can add up fast. So…
Matthew Sutika 12:44
Absolutely, you know, and those are the numbers right now for the market. We're in in, you know, 2022 here, but I do think, again, like I mentioned with the you know, still looking at ‘18, ‘19 rates that probably held true back that, you know, maybe even I remember a ‘19 actually on renewals, sometimes I was lower than the previous year. So you're going to get that and that's why I think if you use that blended around the seven-ish, you know, seven, eight, you're going to be pretty good inaccurate. Also, lender requirements have skyrocketed compared to what they were a few years ago. So that's a factor that people don't really affect, you know, equate in there as well as it's not just his insurance rates going up. But it's also the lender requirements and what they're wanting covered. And you know, instead of a 5 million umbrella, and now they want a 50 million umbrella instead of you know, 180 days of indemnity. Now they want 365, instead of 12 months, right now, they went two years around. So some of it is lender driven as well, or bank driven, right, that's moving up the needle a little bit as well that it always looks like the insurance person, is this going higher, but sometimes it's the lender requirements as well.
Sam Wilson 13:50
Well, yeah, certainly. And that just stands to hold makes sense. Because if the lender is requiring more of the insurance company, hey, you guys need to take on more risk than the insurance company's gonna say, Okay, we're gonna offset that risk by increasing the cost of the policy to the borrower, or to the, you know, the insured. So, I mean, that all those things just kind of stack up. That's really, really interesting, Matt, thanks for taking the time to break down kind of the state of the insurance industry, what you guys are doing and how you're doing it. It's certainly fascinating. And again, thank you for the kind of giving us some tips and clues on what to do with a hardening market and how we should be underwriting you know what numbers we could be plugging in. Now, obviously, those are location-dependent but using that like you said, 7% plus is a number that we should at least be sticking in our spreadsheets for annual rent or not rent at escalate of annual cost increases on our insurance. So that's absolutely fantastic. Let's jump here into the final four questions. What is one tool or resource, think digital, think software, that you find you can't live without?
Matthew Sutika 14:45
Outlook, I am a, Outlook. I will hold out until Microsoft stops producing that but everyone laughs at me because we are a Gmail as a company and I am like the one Microsoft Outlook that they have to pay for monthly and I'll never give it up unless they make me.
Sam Wilson 15:01
That's funny, man, I love that. Great. Question number two, what is one mistake you could help our listeners avoid and then, how would you avoid it?
Matthew Sutika 15:08
The number one mistake is not talking to your insurance person before you do due diligence and you give your report to what you want the seller to provide you before you go under contract. I think that is often missed and it's an opportunity to lower costs. And also find out a lot about the five-second on it is that, you know, if you can get the last runs and the current policies during that period of due diligence, and you put that in there, one, you see what the loss history was, was there a bunch of murders and slip and falls and, you know, crazy GL claims, was there a bunch of fires, and then also on the current policies, you actually really get to see if the OMs were legit, or when they were putting their T-12 number in. So those two things are your key. And I see a lot of people miss that.
Sam Wilson 15:52
That's a great one. That's a great point. I love that. So you're saying before you take a look at an asset, you're like, hey, I love this, I'm about to put a letter of intent and that's when they should be calling you in before they send that LOI.
Matthew Sutika 16:02
Yeah, for the LOI. And even if you get your LOI accepted, you have that due diligence period before you're under contract. You know, when you tell them what you want, say I want copies of those five-year loss friends, and I want copies of current insurance policies. Insurance really is a good data driver for what happened you know. It can really show you a lot about the financials and all kinds of things right and you can really see, if you're on the fence and all of sudden you see six murders and a couple of fires you might pull out before you go under contract, you know, it could really switch you also know you're about to write a big check for insurance if you see that too. Right. So you, we can adjust your numbers real fast too.
Sam Wilson 16:37
Right? No, that's absolutely fantastic. I love that .When it comes to investing in the world, what's one thing you're doing right now to make the world a better place
Matthew Sutika 16:44
Right now for me, just top of the head is I have a four-month-old and that is my concentration of their I guess a selfish one but at the name drop my four-month-old pen, at least every podcast or the wife won't give me allowance this week, you know?
Sam Wilson 16:59
No, that's fantastic, man. Good luck to you getting any sleep. Last question for you, Matt. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?
Matthew Sutika 17:07
Social media is probably the easiest. If you just, under my name, Matt Sutika. S-U-T-I-KA. LinkedIn, Facebook. Feel free to send me a message or you can go to OB RIS calm and get a hold of me and then my cell phones 312-877-2692. Feel free to text her call me and then of course email, matthew@obierisk.com.
Sam Wilson 17:28
Thanks, man. Appreciate your time today. Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.