373. Insurance Mistakes Real Estate Investors Are Making (And What They’re Costing You)

Summary

Tax Smart Real Estate Investors Podcast – Episode 373

Insurance Mistakes Real Estate Investors Are Making (And What They're Costing You)
Guest: Michael Fried, VP & Partner at Strategic Claim Consultants
Date: April 14, 2026
Main Theme:
How real estate investors can avoid costly insurance mistakes, secure proper coverage, and navigate claims to better protect their assets.

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Episode Overview

This episode dives into the critical but often overlooked side of real estate investing: insurance. Hosts from Hall CPA speak with Michael Fried, renowned public insurance adjuster, about the common insurance pitfalls real estate investors face, why so many get shortchanged on claims, and the strategies to ensure you’re adequately protected. The conversation covers the adjuster’s role, policy optimization, claim scenarios across different asset classes, and real-world stories that underscore why insurance should be a top priority for wealth builders.

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Key Discussion Points & Insights

1. Michael Fried’s Background and Public Adjuster Role

[01:23-03:01]

• Michael Fried transitioned from working for insurance companies to becoming a consumer advocate after seeing unfavorable trends for clients post-Hurricane Ike (2008).
• Focused niche: representing real estate investors—multifamily, portfolios of duplexes/quadplexes, and single-family homes.
• As a public adjuster: advocates for policyholders, not insurers. “Hiring a public adjuster... is no different than having a CPA do your taxes.” (03:19, Michael Fried)

Key Quote:

“The IRS will do your taxes for you. It just doesn't end well. That's no different than the insurance company doing your insurance claim for you.”
— Michael Fried [03:19]

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2. Why Insurance Companies Underpay Claims

[04:07-05:23]

• Insurers make money on the “float”—delaying and disputing claims so that reserves earn interest.
• This business practice leads to policyholders being systematically underpaid or discouraged by lengthy delays.

Key Quote:

“Insurance companies make their money...on the float... The longer they can keep it in that account, the more profitable it is for the house.”
— Michael Fried [04:26]

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3. When to Involve a Public Adjuster

[05:38-06:48]

• Best time to involve a public adjuster: “before you call your insurance company.”
• Waiting can result in longer timelines, more complicated cases, and possibly higher fees.
• If engaged after an initial (partial/low) payout, the fee could be higher (~20-25% on recovered amounts vs. 10% from the start).

Key Quote:

“It probably costs you more...You're losing months and you're already probably not putting your claim in a better place… I like a forensic crime scene, not a suicide.”
— Michael Fried [05:38]

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4. Policy Gaps and Common Coverage Mistakes

[10:19-11:56]

• Many investors select lower premiums for less coverage, underestimating fire or disaster risk.
• Biggest gap: insufficient (or no) loss of rents/business interruption coverage.
• Tenants aren’t reliable caretakers; real risks require solid policies.
• Calls from listeners often revolve around denied loss-of-rent claims.

Key Quote:

“Not having coverage for business interruption is probably the biggest challenge I saw...It ultimately becomes a complete loss to them. They can't carry on their continuing business expenses...”
— Michael Fried [10:19]

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5. Mistakes and Solutions by Asset Class

a) Short-Term Rentals (Airbnb/VRBO)

[11:56-14:42]

• Real-world fire claim: able to liquidate both primary coverage and secondary Airbnb policy, maximizing recovery.
• Advice: Opt for extra Airbnb/STR protection if available.
• Risks: fires from grills, water damage from unattended leaks; policy terms vary by provider.

b) Multifamily

[16:51-18:41]

• Many only insure for 10% of annual rents—far too low after a major event.
• Construction, demolition, and rebuilding costs today are much higher than historical appraisals; coverage limits must match current values.
• Each building should be scheduled/valued individually.

c) Commercial & Hotels

[18:43-24:08]

• Coverage needs vary by state and risk (example: no wind coverage for hotels in hurricane-prone states).
• Clients may use deductible buy-down policies for high-risk perils (e.g., water or wind damage).
• Creative solutions: after claims, some converted damaged retail buildings into data centers, leveraging full policy benefits and earning large windfall profits.

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6. Why Investors End Up Underinsured

[24:08-25:01]

• Voluntary cost-cutting leads investors to choose premiums over necessary coverage.
• Carriers offer more stringent policies; finding better coverage requires direct effort and working with knowledgeable brokers.

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7. Umbrella Policies – Myths and Realities

[26:06-27:53]

• Most umbrellas cover liability, not property.
• Critical to know if your umbrella covers structural losses, or just liability (injury, lawsuits, etc.).
• Do not assume umbrella = property protection.

Key Quote:

“Umbrellas predominantly cover you against liability, not necessarily property coverage…You really have to still understand the coverage that you have in play.”
— Michael Fried [26:29]

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8. Renovations & Updates – Keeping Coverage Current

[27:53-29:35]

• After major improvements ($100K+), update policy ASAP (ideally as soon as permitted).
• During renovations, builder’s risk coverage is essential.
• When a contractor causes damage, filing under your policy (replacement cost) is often better than third-party claims (actual cash value).

Key Insights:

“If you pursue [the claim] under their insurance... all liability claims are paid at actual cash value, not replacement cost value.” — Michael Fried [29:37]

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9. Proactive Steps to Prepare for a Claim

[31:30-34:12]

• Document building condition (e.g., drone footage), especially roofs/exteriors — invaluable to counter insurer “pre-existing damage” arguments.
• Stay on top of policy renewal dates—don’t let coverage lapse!
• Autopay policies where possible.
• Build a team: know your policies, have reliable brokers, property managers, contractors.

Memorable Story:

[33:02] Owner who mailed premium payment had a major loss the day after his lapsed policy. After advocacy and documentation, insurer finally covered the loss.

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Notable Quotes & Highlights

• “The burden of proof is on you to prove the claim, which ultimately is what we do on your behalf.” — Michael Fried [08:19]
• “You can get it done right and get all your money, or you can get it done fast and get some of your money.” — Michael Fried [11:02]
• “Shop coverage, then shop price.” — Michael Fried [14:42]
• "It's designed to fail. It's designed for the consumer to not understand how an insurance policy is meant to pay out. It's complicated." — Michael Fried [15:55]
• "Hire the right people... they'll give you at least your time back, the most valuable asset there is, and could have a windfall cash because you did things the right way." — Michael Fried [34:32]

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Key Timestamps (MM:SS)

• 03:19: Why public adjusters matter & the IRS analogy
• 04:26: How insurers profit via the “float” & claim delays
• 05:38: When to involve a public adjuster
• 10:19: The most common gaps: loss of rent/business interruption
• 13:46: STR example—secondary Airbnb coverage
• 16:51: Multifamily mistake—underinsuring for loss of rents
• 18:50: Commercial/hotel policy buy-downs and workarounds
• 26:29: Umbrella policy limitations explained
• 29:37: Liability claim value vs. replacement cost claim value
• 31:46: Action items—how to prepare for disaster before it strikes

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Actionable Takeaways for Real Estate Investors

• Always prioritize the right coverage over the lowest premium.
• Validate loss of rents/business interruption is sufficient—especially for multifamily and STRs.
• Work with brokers focused on coverage, not just price.
• Update your insurance post-renovation or asset improvements.
• Keep documentation of your property’s condition.
• Consult a public adjuster before contacting your insurer for claims.
• Know the limits and nature of any umbrella policy you hold.
• Never let your insurance lapse—set up autopay and track dates.

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Contact Details for Michael Fried

• Email: [e-mail]
• Phone: [phone]
• Website: strongclaims.com or strategicclaimconsultants.com

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Final Thought

Insurance is as fundamental to asset protection as any tax or financial strategy. Doing it right, with proactive planning and expert guidance, is often the difference between weathering a crisis or suffering a major financial setback.

“Building wealth is one thing, but protecting your wealth is another thing – and both parts are important.”
— Host 2 [36:41]

Transcript

[Host 1 (Tax Smart REI Podcast Host)]

You're now listening to the Tax Smart REI Podcast, the number one tax podcast

[Host 2 (Tax Smart REI Podcast Host)]

for real estate investors. Hi everyone. Thanks for tuning into this week's episode

[Host 1 (Tax Smart REI Podcast Host)]

of the Tax Smart REI Podcast. We spend a lot of time on the show talking about building wealth through real estate.

[Host 2 (Tax Smart REI Podcast Host)]

We talk about cost segregations, 1031 exchanges, passive losses, the whole nine yards there. But we almost never talk about, or we rarely talk about how to protect your assets. And today we're going to fix that. That's why we're bringing on Michael Fried, who's vice president and partner at Strategic Claim Consultants. We one of the biggest public adjusting firms in the country, where he's managed and resolved over $1 billion in claims. When we dive into how you can protect your assets in just one minute,

[Host 1 (Tax Smart REI Podcast Host)]

you've probably never found a real estate newsletter worth reading, and that's because we hadn't created ours yet. The REI Daily is a newsletter you actually want to read whether you own one property or 100. We created this for you. Each issue delivers crucial tax saving strategies, legislative updates, as well as real estate market insights and everything you need to stay sharp and ahead of the game. Get the real estate and tax news that actually matters straight to your inbox. Subscribe to the REI Daily newsletter today at the realestatecpa.com subscribe that's it for now and right back into today's episode.

[Host 2 (Tax Smart REI Podcast Host)]

All right, and we're back. You know, Michael, thank you so much for joining us on the show today. I know you had made an appearance on a prior episode, but for those who may not have caught that or just may need a refresher, do you want to share just a little bit of information on your background and how you got involved in claims?

[Michael Fried]

Sure, of course. I started working for insurance companies and it was really after Hurricane Ike in 2008 in Texas that my wife and I decided it was time to make a switch and start to become a consumer advocate. We really saw trends changing, coverages changing, and not for the better. So we, we started a career, opened up a small family owned firm in Texas 2008 and ultimately started representing investors. That was our niche. It was multifamily apartment complexes, duplexes, quadplexes, even single family homes, but larger portfolios. Some had hundreds of assets and we found that they were constantly getting hit with hail or they'd have a fire, somebody might break in and break some pipes or steal claims. Just started to happen a lot faster, a lot more prevalent than we had seen and it really became a niche market for Us multifamily is really where it ultimately tapered to over the last, I'd say 10, 15 years. It was a lot of larger, larger asset owners, a lot of doors went from hundreds of doors into tens of thousands of doors. And we got to really experience firsthand some of the challenges that our owners were facing. And since then, I in came and went past president of the Texas association of Public Insurance Adjusters. That's an elected position among my peers. I've been on the board of the national association of Public Insurance Adjusters, and now I'm vice president partner of one of the largest public adjusting firms in the country.

[Co-host / Interviewer]

Mike, thank you so much for sharing that. That sounds awesome. Would love to, like, hear about. So, like, so you saw the niche, like, going into, like, helping out, like, those with, like, real estate investors with larger portfolio, I guess. Like, what kind of made you get into that? And then I'm sure you can play into this. What does a public adjuster do? What are you doing for folks, for those real estate investors that you saw the niche for?

[Michael Fried]

Great. Well, this is really the perfect podcast to explain it, because when I do let folks know and educate them. Hiring a public adjuster, which is a consumer advocate insurance adjuster, is no different than having a CPA do your taxes. And the analogy that I give is the IRS will do your taxes for you. It just doesn't end well. That's no different than the insurance company doing your insurance claim for you. It's really an inherent conflict of interest, and there's no benefit to the receiver when that happens. So hiring a public adjuster, it's all capped and regulated by each state. Generally speaking, it ranges around the 10% range to retain a public adjuster. It's a really insignificant number because I think that anybody who's ever had an insurance claim can tell you 100% of them are underpaid. It's just a matter of by how much.

[Co-host / Interviewer]

Yeah, it's like, that's what I keep hearing, right? And like, I talked to real estate investors and they say, oh, yeah, I'm totally getting screwed on this adjustment. No, this doesn't make any sense. Right. And so why is that? What's causing that? What's stemming from that? Right, I know. Like, actually, the great analogy, the IRS preparing your tax return. Right. Like, we know that that does not wind up well when they prep your tax return. But, like, why is it that way, Mike?

[Michael Fried]

Look, it's a business just like any other. Insurance companies make their money less so on premiums, but more on the float, and that's coined by Warren Buffett. I think everybody's probably somewhat familiar with that. And the float is when you have a claim and they find ways to deny, delay, or dispute it. And meanwhile, your money is set aside in what's called a reserve. It's in a reserve account. It's earning high interest for a very short period of time. The longer they can keep it in that account, the more profitable it is for the house. And that is the crux of the business. It's genius for one. Certainly not illegal by any means. It's just it delays your claim. And at the end of the day, it puts you in a position where you ultimately will accept less over time because you need that money now, and that is the structure. So it's a business decision just like any other.

[Co-host / Interviewer]

Right. And so in that frame, okay, so they're having conversation with their insurance. With insurance, it's going back and forth. Right. They're trying to figure it out. When do they come to you in that frame? Do they come to you at the beginning of the process? In the middle of the process? Yeah. When, like when do you jump in there?

[Michael Fried]

Well, let's. Let's talk about that. And that's one we had touched up on prior podcast with you guys as well. Really, the time to hire a public adjuster is before you call your insurance company. We can either steer the ship straight or we can recorrect it. I use a different term, but I won't use it for our listeners right now. But I can unscrew it, for lack of a better term, later. It doesn't cost you less to hire me later. It probably costs you more. One, because of time. You're losing months and you're already probably not putting your claim in a better place, which means we have a lot of re engineering to do, which cost me months. And ultimately, if they pay you a small amount and you want us to go fight for the rest of it, that fee does fluctuate a bit higher because we can only charge our fee as regulated by the state, on funds we physically collect for you. We can't charge you on money you've already collected, but that fee, which would have Otherwise been around 10%, if you hire me from day one, can be up to 20 or 25% of just the new money I'm fighting for and ultimately cost you more or the same. But you just lost months and the claim is not going the direction it should go, because I like a forensic crime scene, not a suicide.

[Co-host / Interviewer]

And so, okay, so in this vein too, just like, I'm just asking questions because I like to, I want to, I need to learn more about this too, just for my own, my own investment. I got more questions for you about that too, but in that vein. So what kind of like size of clients talking? Like are you just, are we just focusing on like disasters, right? Fires, tornadoes, hurricanes. Are we looking at like, I don't know, like, let's just say that there was an amount of damage, right? Is there a dollar special people should be considering like, I guess, like what should we be looking at here?

[Michael Fried]

Well look, we're a company of 60 plus adjusters and experts. Me personally, I generally handle claims that are in excess of 500,000, which is a multi family fire generally at the, at the floor. But we take on all sizes of claims. I wouldn't turn one of your listeners or viewers down if they had questions. And I think what I wanted to maybe mention earlier is after the last podcast we did, I got a lot of calls and a lot of it wasn't necessarily folks who I could represent, but folks who had great questions. And I think I became a resource for a lot of them. And quite a few have called me again since and be compliance. It's a great opportunity and I know that, you know, some of the questions they had were, you know, look, they're not paying me my loss of rents, but I've, you know, I've been out for months, you know, and I don't understand why they wouldn't pay it. And some of those answers, some are simple, some are complex, but it's all based off the policy. And those are, that was a bulk of the questions I got. But I took every call that came in and I was happy to take them. And like I said, a lot of the folks took it as an educational call, but I'm a free resource anyway. I'm a free phone call regardless of circumstance. And as a consumer advocate, those are the questions that I think help you become a better consumer and help you guys become better, you know, CPAs and financial advisors. And it really is, it takes a team, takes a tribe to, to win a claim. They're not coming out and stroking you checks just because you say you had a claim. Those days are done. I mean you have to prove it and the burden of proof is on you to prove the claim, which all ultimately is what we do on your behalf.

[Host 2 (Tax Smart REI Podcast Host)]

So it sounds like if someone is tuning in here or anybody who's dealing with an insurance claim, who falls into One of the types of situations where you'd be able to help it almost. It's almost like a no brainer to reach out to see if there's something you could do rather than trying to go it alone. Like just like you said before, it's better to work with a tax strategist or tax preparer to do your taxes than try to have the IRS do it for you. So it's almost like it costs you nothing to do your due diligence and see what your options are.

[Michael Fried]

That's exactly right. And literally I tell clients all the time, look, I'm the best free phone call you'll ever make, especially when devastation or tragedy happen, because worst case scenario, I'm going to point you in the right direction. I certainly have the folks and the team to help when we can physically help or represent, but I certainly have the answers to the test before you have to sit down to take it. And that's where I think the biggest value add was for your listeners who did reach out after our last podcast and it was eye opening to me. It was nice because I realized a lot of folks who may be real estate experts certainly aren't also claim experts and they're not financial forensic CPAs and they don't know how to navigate through some of the complexities of a claim. It's just been eye opening to say the least. And it was nice. Great opportunity for the listeners who called and for me to ultimately help a lot of the folks that did reach out.

[Co-host / Interviewer]

Oh well, thanks for taking those calls, Mike. I really appreciate this. And then so what, so going to our next question, perfectly into our next question, what gaps are you seeing with real estate investors across the board? We'd love to hear what you saw and what like the major issues that like people are not thinking about.

[Michael Fried]

Yeah, really? I see a, they're maybe taking a lesser premium for less coverage, not thinking a fire is going to happen to them. And then also I'm seeing very limited to no coverage for loss of rents or I'm seeing loss of profits coverage only, which is, which is horrible because that doesn't cover any of the continuing business operations, your policy as a investor. And I get it, margins are slim these days. But accidents happen, fires happen. Especially when you have folks, tenants living in your places, they don't take care of them like you would at your own primary residence. You can't expect people who don't have any ownership or equity to really truly take care of the asset. You can't anticipate that Fact, you really have to anticipate them not taking care of it. And with that comes high risk. And with those risks comes the need to tap into an insurance claim on occasion. And not having coverage for business interruption is probably the biggest challenge I saw. It was certainly the, the call I got the most from your listeners was loss of rents. And that's which really tapers into your, your financial background with the CPA firm is it ultimately becomes a complete loss to them. They can't carry on their continuing business expenses of paying a mortgage or paying interest and taxes. And it really becomes quite difficult. But that also tailors back to what I said earlier. That's why the carriers are slowly denying, delaying and disputing every aspect of the claim. Because you're going to get to a point where you're going to say, I just need the money. I have to do that now. And really, there's two ways to handle a claim. You can get it done right and get all your money, or you can get it done fast and get some of your money right.

[Host 2 (Tax Smart REI Podcast Host)]

I think everybody knows which answer they want to go to or which route they want to go down. Kind of drilling into some specific asset classes here. We do have, you know, people who tune into the show from all different asset class backgrounds. It's kind of maybe just breaking some of these down here. We do have some that invest in short term rentals. Anything specific you see for people who are in that space, like your Airbnb or VRBO type of client. Yeah.

[Michael Fried]

Just recently did a fire at an Airbnb caused by a renter tenant, and that was a neat one because they only had so much coverage through their primary insurance. And we were able to get that policy liquidated not only for their loss of rents, but for the building and the contents inside. But there was also a secondary policy involved by Airbnb. Airbnb. And we were able to tap into the Airbnb policy for all of the excess losses that were in addition to it. And I thought that was a neat opportunity. I don't know if that's. I don't have any Airbnbs and I don't know if that's a standard item that comes with owners. But that client in particular did have the excess coverage. I don't know if that's an optional purchase or not, but they took it and they were able to really maximize and recover up to 100, 100% or better, even after deductibles. Yeah.

[Host 1 (Tax Smart REI Podcast Host)]

Hey, real quick, if you've been a longtime, listen to the show, then, you know, we give everything away for free from how to use the real estate professional status and the short term rental loophole to save ten tens of thousands of dollars on taxes to upcoming tax changes. We don't hold anything back. And the only way we're able to help more real estate investors is if you rate, review and share the show. It just takes 15 seconds to leave a quick rating review or share with a friend who may find this information useful on their real estate journey. That's all for now. We'll dive right back into today's episode.

[Co-host / Interviewer]

That's good to know for anyone out there investing in short term rentals. Right. Like you see a box and it says, it says, hey, do you want to pay a little bit extra to for this Airbnb cover the Airbnb coverage. It sounds like you checked that box, right? Mike, check that box.

[Michael Fried]

Look, fires happen. Do grills, right? You know, outdoor gas grills or charcoal grills.

[Co-host / Interviewer]

Yeah.

[Michael Fried]

You can pretty much count on the fact that something's going to happen, whether it melts the siding on the house or whether it, you know, they, they just don't put out the charcoal fully and it tips over, the wind blows and that, you know, then you have ashes and sparks and you know, it could be anything. Leave the water running in the sink shower, you know, you get a leak and this stuff just happens literally every day. Check them.

[Co-host / Interviewer]

I've heard a lot of stories from people who like have lots of flooding. Right. Someone doesn't turn off the water, like lets it drip. Right. No one checks it for a few days. Any, any suggestions there from a coverage perspective? People who like, hey, like have like, like guest leaves and they leave the faucet dripping. Right. And they all of a sudden there's water damage because no one's been there for a week or so. Right. The cleaners didn't come by just quite yet. Right. What are your thoughts and suggestions for those folks, really?

[Michael Fried]

Give me a call and let me see your policy. Before you call me though, make sure your policy is available. I can't really give you any general answers without knowing what type of coverage you have. And everything I do is tapered based off your coverage. Every claim has its own DNA, so I don't necessarily take the same track twice. If the coverages are different, you may have coverage for something and not something else. And that's exactly how I would drive the claim to keep the ship straight. So have your policies ready when your agents and brokers, gosh, the best thing you can do is not shop price. I mean shop coverage and then shop price because you're going to need it. Look, the landscape's changing. Risk is becoming so much more prevalent right now. One reason or another, Claims are getting worse, but they're also getting a lot more expensive and it has a lot to do with construction materials, labor shortages. Now you're dealing with war and tariffs and other problems. So having the right coverages are of the utmost importance. You're an investor and as an investor, it comes down to dollars and cents. Not just short term, but long term. And making these decisions now is clearly just the right decision.

[Co-host / Interviewer]

I heard someone once say that insurance is basically paying for low risk asset access to capital. Would you agree with that?

[Michael Fried]

It could be. I guess it depends how you could tap into it. But again, I look at it as more. It's there when you need it. And if you know how to work your policy, it works for you, not against you. And I just, it's a, it is designed to fail. It's designed for the consumer to not understand how an insurance policy is, you know, meant to pay out. It's complicated. I've been doing this 23 years and it's still complicated. And frankly, coverages are getting worse, not better. They're limiting. Deductibles are getting higher. Everything's percentage based now and it's not a percentage of your claim, it's a percentage of the coverage. So if you have a million dollars in coverage and a 2% deductible, you got a $20,000 deductible.

[Host 2 (Tax Smart REI Podcast Host)]

That's pretty intense.

[Host 1 (Tax Smart REI Podcast Host)]

So.

[Host 2 (Tax Smart REI Podcast Host)]

I know, I know. We just covered some short term rentals, like some of the mistakes short term rental investors make. I know you also mentioned that you work very closely with a lot of multifamily investors and certainly those folks do tune into the show. So what mistakes do you see on the multifamily side?

[Michael Fried]

It has more to do with loss of rents coverages. What we're seeing lately on a lot of our apartment folks is, is everything is scheduled by building and not having enough coverage, having coinsurance, maybe not understanding that you need to really ensure these things as much to value as possible. Because when you bought that asset, what it costs to tear down and rebuild is significantly more than you paid for it nowadays. So it really does come down to the amount of coverage on a per building basis to us. And then generally speaking, we're seeing as low as 10% for loss of rents. So building that might be insured for 750 is only carrying 75,000 in loss of rents. And that's not a big fire that knocks out a complete building. Maybe you could move some of the folks to open units and other vacant spaces. But you're now down 8, 10, 12, 24 units and you've got $75,000 in coverage to last 12 months and that's you're taking a loss. So looking into making sure this is how much rent I make per building per year, I need this much coverage. Most people probably think they'll never go through a fire or never have a tornado that wipes out a full building or multiple buildings, but they do. It happens.

[Host 2 (Tax Smart REI Podcast Host)]

I know you do. I know you work on the public adjusting side to get people the maximum amount they can get from their current policy. Do you also do like consulting on what types of policies to get to ensure that they have.

[Michael Fried]

Yeah, it's not. I'm not a broker. My wife actually is a. Was a broker. So. Yes, but she did that because we own the business together and it helped us to consult our clients. But we work with brokers all over the country that really know our MO and that's better coverage. Not necessarily the lowest price possible. It's protect your assets and protect your family and protect your businesses. So we do work with folks. But I can also look at your policy and tell you if you've got enough coverage based on the asset or not.

[Host 2 (Tax Smart REI Podcast Host)]

That makes a lot of sense.

[Co-host / Interviewer]

Yeah. So you mentioned like multifamily. What about commercial or like hotels? Have you done anything in that space really? Or what have you seen in that space?

[Michael Fried]

We definitely do. I find myself working a lot of hotels. The investors that we have that own hotels own them in multiple states. And I think the biggest challenge that we see is just the coverages and the policies that are on a state by state basis for being different. Just because something works in Omaha doesn't mean that it works in Florida or on the coast. We've got a client with almost a billion in assets and he doesn't have coverage on three of his hotels because they won't insure him against wind in the Carolinas, Texas or Florida. So it is a bit of a challenge. So they wouldn't insure those properties at all because that policy insured against wind. And so he's got three standalone properties that are all major flags. I mean, Hilton's Holiday Inns. I mean, these are, these are real big flag hotels and they now have their own standalone policy. But he got what's called a wind buyback deductible And I thought that that was. Talk about risk averse. This is one a client who spends the money to have the better coverage because he has claims with that many properties. Some dub dumb always seems to iron their shirt on the sprinkler head in the room and you know, yank it off the hangar and that thing explodes on the 14th floor. That's, that's common unfortunately. But that happens, it happens to him quite often. So that's one where he's got a deductible, buy down, a hundred thousand dollar minimum deductible against water damage. And he's got this, this buy down policy that I don't think it cost him that much, but it covers him, I think 350 grand in total and really covers three losses in full and a fourth loss, half a deductible. And he uses it every year. And I think maybe it cost him 100,000 to get it, but he's saving that 350,000 by having it. And that's, that's kind of betting, hedging your bet for lack of a better term. And that's good, that's good. Risk advice is if you can get a deductible buy down policy in some high risk zone or high risk type of loss. So his is against water. They wouldn't sell him one against wind, but he was able to get one for water. And his deductibles are real high against wind. He self insures for the most part if something small happens, something that can be repaired. But if a roof rips off in totality or even in part and water comes in, that's a catastrophic loss, you know, we would deploy immediately, get out there, work with either our roofers or his roofers, whoever he's got in that area, and triage the scene. We have the mitigation vendors that work within our parameters to make sure that no liens are filed on the client. And we're verifying that coverage exists before anybody gets started anyway. So it's how to get a claim executed at a high level. Hotels, yes, Multifamily, commercial. I think we talked briefly before we started that. A couple of my commercial investors that had some really small retail locations, rural, they were, I don't want to use the names necessarily, but they were dollar stores, dollar generals, dollar trees, and then maybe a barber shop and a pizza restaurant. You have this 40,000 square foot shopping center out in the middle of maybe reasonably rural area. And a fire happens, tornado happens. Two of my clients actually took this opportunity to rezone and repermit and look into switching to data centers. Which really wasn't on my radar at the time. It is now obviously. But he was able to, well, we were able to get him his full policy limits because of the fire, but then he sold the land as he ran in parallel getting permits to tear down, rebuild and put up a data center. Had no intention of doing it. Just went and did the, I guess the development work as a developer wasn't his background either particularly, but did it and got an offer within, I want to say 72 hours of, of permit for two and a half times the value of the land anyway. And he made outlet abandoned, got his insurance proceeds and sold the land for more than it was worth today and significantly more than he had bought it for because he actually bought the buildings and the land, you know, together. Obviously didn't pay that much for it probably due to location. And in total, I mean it was just a massive windfall.

[Host 2 (Tax Smart REI Podcast Host)]

So are you seeing a lot of, you know, this might be somewhat of a off topic question maybe, perhaps. But you know, we've been hearing a lot, we've been speaking to a bunch of different people and we keep hearing a recurring theme of data centers. We all know that AI with the uptrend in AI, data centers are becoming more and more important and cloud storage and all that stuff. Are you seeing a trend in data centers at all? Like an increased trend in capital going to data centers?

[Michael Fried]

Yeah, absolutely. We hadn't had any calls on data centers. A lot of times they're sprinklered inside. So when there is an issue they do a dry sprinkle oftentimes where it just puts out the fire. But that ultimately will damage stuff just as bad as water. So I don't see a lot of claims out of data centers. They haven't been coming our way at least. Doesn't mean they're not happening. But that's, that's where everything's headed. If you have a lot of square footage and you're out in the middle of nowhere and you've got access to water, I think that it's probably something that you might want to consider. I wouldn't say my expertise is how you rebuild it, but I will say it's definitely a trend we're seeing.

[Host 2 (Tax Smart REI Podcast Host)]

That makes a lot of sense. So kind of shifting gears just a little bit. I know we may have covered some of this already, but you know, why are in the insurance policies that a lot of investors are getting? Why are they lacking? Is it just cost cutting on premiums like, is it bad broker advice or like not updating the coverage after renovations? Or is there some other reason why they're just not having enough coverage to get, you know, for what they need?

[Michael Fried]

A lot of times I see it's voluntary. I just wanted to save a few bucks and it made sense because, you know, maybe I had a couple of units that were vacant when I was renewing and, you know, the numbers just didn't correlate. But carriers are also writing more stringent policies anyway, so it's kind of a catch 22. You really have to go out of your way to ask for better coverage at the best price as opposed to just best price and coverage thereafter. And knowing to ask that question on the front side is of very high importance.

[Host 2 (Tax Smart REI Podcast Host)]

Yeah, yeah, I think we see the same thing, like to an extent with tax services, right? Like, people try to go for sometimes the lowest cost option when not really getting what they truly need, just to kind of cut some corners, and then it ends up costing them more money later on down the line to fix it when they could have done it the right way from the beginning. And, you know, this seems like an appropriate quote for this episode, and it's one of my favorite quotes. Benjamin Franklin. An ounce of prevention is worth a pound of cure. Right? So it's like in this case, sometimes it's best to go with the coverage you actually need to make sure you're protected rather than just going for the lowest price option to save a few bucks. And yeah, I don't know why people do that all the time. I mean, I get it. Everybody wants to minimize costs, especially if they have investors, they want to protect their investor return. But then when there's a catastrophe or there's some type of major damage, they can actually be doing the opposite of what they're intending to do as a result of opting for that lower cost policy. So, yeah, that makes a ton of sense. Go with the policy you need. Go with the coverage you need, not just the lowest cost policy, because it's the lowest cost policy.

[Michael Fried]

Absolutely. It really makes all the sense when

[Co-host / Interviewer]

you think about it, Mike. So a lot of people like, well, like, yes, they'll get their premium and their coverage, but they also hear a time, all the time about umbrella policies. Right. How does that factor in? If you get insurance, like property by property, but then you also get an umbrella policy at the top, do you still need that download policy or are you still covered up top? Like, help us break that down a little bit too, because they're Always hearing that and try to figure out what to do.

[Michael Fried]

Yeah, look, most investors will have some sort of umbrella anyway. But umbrellas predominantly cover you against liability, not necessarily property coverage. Now you may have property coverage written into your umbrella, but it's not necessarily guaranteed. So just because you have this umbrella coverage of $10 million, does it cover you against wind or fire? Does it cover real property damage? Or is it just in case somebody gets bit by a dog that wasn't supposed to be there? Is it a worker that's working on the property falls off a ladder, car drives into it? You really have to still understand the coverage that you have in play. I've got umbrellas, but mine are liability. So it's really important to know what is within your umbrella. But it isn't a one size fits all. Yeah, it's a good question. That's one I wouldn't have thought of bringing up or asking. And I think that most of your listeners, because they have more than one property, have an umbrella to some extent because the agents and brokers are going to sell you an umbrella. And liability is equally as important. I mean, people get hurt and they sue you. They're going to take that property if you don't have the right coverage. So that is real. Now I focus on real property, building, personal property, loss of rents, loss of business structures, if you will, and contents, I guess to simplify it. But there are adjusters that do liability. It's generally third party and usually through a law firm because liability is a. Has legal consequences.

[Co-host / Interviewer]

Gotcha. No, it makes sense actually. So I appreciate that. So one thing too is that like, so we're talking about like insurance policy. Like one thing that you always hear right is that like, hey, when's the last time you checked your policy, Right? When's the last time you checked? Because someone does, let's say I put like we see this all the time in the short term rental world, right? So they, they buy a property, then do 100, $200,000 of improvements on it, right? Because they want to make this into almost a resort, like stay. But they never update the policy for that, right? So when someone does something like that, they make a massive improvement renovation to a property, when should they then go their broker have the conversation at least to like open that up and have like a deeper, like basically renew or figure out what they need to change

[Michael Fried]

for really, as soon as it gets permitted, you can have a builder's risk policy in your umbrella. That certainly is something that could be there because builders risk, unfortunately during renovations are a common time for fires to happen. You know, you get electrician in there welding a copper pipe while smoking and you know, throws a cigarette over her shoulder and catches the studs on fire. That stuff just happens. Or he's welding and overshoots the weld. I mean that's, that's common H Vac guys, we see rooftop mounted H Vacs, they still have to weld those lines. They're doing electrical work up there. And roofs are ultimately catching on fire or the attics get smoked out. You know, those are, those are real claims and there's really bad claims at that. But there's also potential liability involved, which I don't want to necessarily go down a rabbit hole with you guys. But there is the question of does it make sense to go after the H Vac contractors insurance when that happens or to file it under your own. And that one is a bit more complicated. We may save that one for our next follow up podcast. But it is a real world issue unless we have time to do it today or touch it.

[Co-host / Interviewer]

I love rabbit holes. Let's do it.

[Michael Fried]

Let's go down a rabbit hole, boys. All right, so when you have somebody who is negligent or at fault, whether accidental or maliciously, that's called a liability claim. If you pursue it under their insurance, the upside to that is that it's through somebody else's insurance. The downside is all liability claims are paid at actual cash value, not replacement cost value. And that hurts you as an investor. Meaning if you have a 25 year old apartment complex and you were just in the process of updating it, renewing your roof and your plumbing and your drywall and flooring fixtures, they don't owe you for what you're putting back. They owe you for the 25 year old building that you had. And that's how much a liability insurance or a third party insurance is actually going to pay under your insurance claim. And the difference I guess being where if you file it on your insurance, they will pay you what replacement cost is today, assuming you have replacement cost coverage. Most do. And they will ultimately then subrogate it against the at fault party on your behalf so they can get their money back, that makes a smooth claim for me, a smooth claim for you, smooth claim for your insurance company because they can be the hero in this case. They can pay you all the money they owe you and then go collect it from H Vac contractors insurance policy in the background. So it doesn't always make sense to say, hey, you caused this you file a claim and you pay me because you're going to get less. With absolute certainty you're going to get less because it'll never pay replacement cost. It only pays the actual cash value. And those are the two differences of insurance policies, by the way. You either have current replacement cost or you have actual cash value. And actual cash value is the amount of replacement cost less depreciation based on age. So good question, good little rabbit hole down there. Don't always file it against the third party, is the answer. It really is case by case specific. And get some advice first for sure.

[Co-host / Interviewer]

So our final question today is specifically for our listeners. Before loss event happens, what should they be doing today? How can they get ahead of these types of disasters? How can they build in the business interruption, loss of rents, after fires. What do they need to do today to try and get ahead of these types of situations?

[Michael Fried]

Know your properties, know the condition of them. If you have a drone, you could fly a drone over it. Make sure that your roof's not missing shingles or has ponding water or holes in it by having this footage. If your roof and exterior are in good shape, save that footage because it's going to be disputed later when you have a claim to say that that was pre existing damage or you know, we're not paying this because of lack of maintenance, we can show that we have this drone footage of the exterior to say, hey, not only is this not a lack of maintenance, here's footage from six months ago where no shingles are missing, you know, no ponding water on my roof. Now I've got these leaks coming in, I've got three units down, shingles are blown off. This just happened. That's one good way to do it. Know your properties, know your coverage, know your policy, know your renewal dates. Don't let a lapse happen. I mean, I'm dealing with one right now. That guy literally had a loss the morning of a big loss, the morning that his policy was to renew and his payment came in the next day. You know, he mailed his payments in. So it turned out that after some fighting they ended up covering it because mail was slow and they had a track record of mailing their, their checks to them. It wasn't just always auto paid. And this happened actually during the freeze in Nashville. So it was very recent. The mail was set back almost five days because the freeze happened on X day. And three days later his fire suppression broke inside of his hotel. And during that time was his renewal. And as it turned out, the Data is there because the fire suppression's got alarm monitoring. It knows when you lose power, it knows when there's a discharge. And we have to read all of those reports that come in and it literally 12:01 in the morning, no coverage. 8:00 in the morning, a fire suppression breaks millions in damage. And again, luckily, at least with that insurance company and with this case, the check arrived three days after all of this happened because mail resumed, but they ended up covering it, but not after initially denying it, saying, you don't have any coverage, your policy lapsed. And sure, you can bet there was a lot of panic in that owner's voice.

[Co-host / Interviewer]

Yeah, I can imagine. My heart would have dropped into my stomach for sure if I had seen that. Sorry. You didn't renew in time because you mail your checks. I'm like, okay, so easy recommendation, set up autopay, right? Let's see.

[Michael Fried]

Know your policy, know your coverage, know your buildings, know your assets. You may rely on a property manager. I know when I had multifamily assets where we recently sold a portfolio that when we had them, we knew the property. But I'm also in this business, so I think that I was very risk averse because I deal with risk every day and have for the last two decades. So we knew the building, we knew what our pain points were, we knew what needed to be done before we had to do it. Definitely knew what our policy was, knew what benefits there were. Again, I know enough to know to hire experts. I hire CPAs to do my taxes. People hire me when, when they have insurance claims. You know, that's you got to hire the right people. And I can tell you, I learned by doing this, it just makes sense and it saves you more money in the long run and probably makes you more money in the long run by hiring the experts that know what they're doing, they're going to give you at least your time back, which I think is the most valuable asset there is. But also could have a windfall cash because you did things the right way. You had the right policy and you had the lower deductible. You had a contractor in place that was ready to go and not just using, you know, an insurance company suggested vendor. They don't work for you, they work for the insurance company and they're going to report back to the insurance company. So, you know, have your folks in place, property managers, insurance agents, brokers, know who you're working with.

[Co-host / Interviewer]

Okay, awesome. No, Michael, I appreciate it, man. We really appreciate your time today. And Michael, if we're gonna drop a lot of this in the show notes. But where can people find you if they want to ask questions? Right? Like, and it sounds like a lot of people gave you calls last time,

[Michael Fried]

so appreciate you taking those emails would be better. I'm certainly available. I fly a lot because I go see my clients a lot when there's a loss. I'm usually the one that kind of goes and sees and maintains my folks. Email's good. My email is Michael F. That's M I C H A E L F as in Frank Strong claims.com that's S T R O N G C L A I M s dot com. I'm going to give you my phone number here on the show. Just ask the email or text. But it's 561-632-4841. Our website is strategic claim consultants.com or strongclaims.com they both take you to the same place. Strong Claims being a little easier to remember, but Strategic is the company name.

[Host 2 (Tax Smart REI Podcast Host)]

Awesome. So we're gonna go ahead and we're gonna drop all of that into the show notes. For everybody who does have questions or does want to work with Mike on claims, please do send him an email like he asked. Be respectful. And Mike, want to thank you again for joining us on the show today and I'm sure we'll have you back to discuss another topic related to claims because building wealth is one thing, but protecting your wealth is another thing and both parts are important. And insurance is a major aspect of owning major assets like real estate. So want to make sure you're putting yourself in the best place to win. So again, we'll drop that all into show notes. And thanks again for joining us on the show today.

[Michael Fried]

Thank you guys. Yeah, it's really, really a pleasure. Love seeing you guys and I love listening. So thank you.

[Host 1 (Tax Smart REI Podcast Host)]

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