On today’s show, we have an interesting topic. It’s about how to protect your rental income. I have worked with this person for quite a while and I wanted to bring him on the show because he has actually been part of a new company that is offering a rental income product. It might be something of great interest to you, especially depending on the size of your portfolio and where it’s located.
If you missed our last episode, be sure to listen to Wealth, Wall Street and Real Assets with Buck Joffrey.
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Rental Income Protection – Sky Mikesell
It’s my pleasure to introduce Sky Mikesell. Sky is the CEO of RentSure Membership, which is the only rental income protection product to the United States. He has been investing in real estate since 1997 and has been involved in other 1,000 real estate transactions in seven different states. Sky, welcome to the show.
Thanks, Marco. Thanks for having me.
Thanks for coming on. You called me up probably a few months ago to tell me about this new product and this new company called RentSure Membership. I found it fascinating, especially considering that I was involved in, I don’t want to say a similar product, but it is a similar type of product several years ago. I’d like to talk about that, but before we go there, tell us a little bit about your journey into real estate and how that transitioned over into RentSure.
To share with you I will just give you a quick backdrop on my background and experience, what lead us to this moment. I grew up in Portland, Oregon on the West Coast there and I started buying real estate when I was actually nineteen. I was a plumber’s helper saving my money and looking to buy my first house and, eventually, I bought my second house, and slowly started growing my portfolio. About six or seven years into it, I transitioned my portfolio out to the East Coast and moved to Charlotte, North Carolina where I still remain today.
I started turnkey operation when I got out here. We bought. We renovated. We leased houses and we sold them. That’s how I met you originally, and a few of your clients, in fact. That’s how we started. I guess that was ten to twelve years ago all in all. We did quite a few transactions in the Charlotte area. Then about three years ago, we started buying in other areas around the country that we felt like made sense, in addition to Charlotte.
I would say, Marco, about a year, a year and a half ago, two years ago, I can’t tell you the exact moment, and this sounds silly, but I bought a vacation rental for myself and my family. I was putting a new tile in and it was 2 AM. I’m on my hands and knees laying tile in my vacation rental because I was so excited about my new vacation rental. It hit me, I said, “Sky, the thing that has cost you, all your investor friends, colleagues, and clients, the most money in the last twenty years you’ve been doing this has been two things: the default vacancy and the unexpected maintenance.” Those are the two things that have been the cashflow killers.
We’ve been able to find good properties. We’re happy when we found good properties. We renovated them properly. We even found good tenants for some of them. But when the tenants defaulted, that killed everything. I said, “That’s the business I am going to go in.” I woke my wife up that night at 2 AM. I said, “Great news. We are starting a new business. We are going to go in to the rental income protection business.” She said, “Please don’t spend any money.” That’s how we started.
Fast forward a few months, I started researching and found a group out of Toronto, Canada, which was the original founder of RentSure Membership. They had a re-launch RentSure in Canada and we are up and running up there. I flew up to meet with them and just learn more about their business. I had no intentions of taking it over by any means. I just wanted to learn and understand it as I did my research. When I left, they asked me to launch RentSure in the United States as that was the direction that they were headed. I came back to the US and then January of 2016, we began preparations to launch in the US, which was pretty involved. I guess about three months ago now, we did a hard launch in the US and started working with clients here. That’s the journey and here we are.
Your pain point became a need and you turned that need into a business, which is great. Tell us what rental income protection is, because I think there is some ambiguity to what it is and what it isn’t.
Rental income protection is definitely a funny description. We’ve heard it described as numerous different things, everything from eviction protection to default protection to rental protection. Rental income protection is very, very simple. Basically, it is this. If you are a landlord and your tenant stops paying you rent, which happens from time to time, if your tenant stops paying you rent, our company will step in. We will evict the tenant for you, the landlord. We will pay for the cost of that eviction. Most importantly, we will start paying you the rent that you are expecting from the tenant. If the tenant decides to trash the property on their way out, then we cover up to $10,000 in malicious damage coverage. That’s really what our rental income protection covers: default, eviction cost and malicious damage.
You made the comment that you evict the tenant, but technically you are not evicting the tenant. It’s the property management company that’s doing that function, right?
The way our structure is built, because we are actually the ones paying the rent to the landlord or to the property manager, we actually take control of the eviction process. We have attorneys set up in all 50 states. We actually do run the eviction from start to finish. Property managers no longer do the rent collection, chasing the tenant, or even file the eviction so much. We literally take over the entire process for them.
How well does that work when investors are actually working with property management companies and now you come in and tell them that they don’t need to be doing the eviction? How does that go down?
Property managers are actually one of our fastest growing clients right now here at RentSure. One of the reasons is most property managers are thrilled, they spend so much time in collections, chasing tenants, going to court, and dealing with the whole chaos that ensues around an eviction. This basically allows them the time back to do things that are actually money making for them, rather than chasing the tenant. Of course, the owner is happy because they are getting the rent. In some cases, if the property manager chooses to be the one who buys a RentSure Membership, they are also getting the payment. It works great for the property managers.
I know that you don’t call this an insurance policy or a guarantee of any kind. Can you explain that for our audience?
I am happy to. We are a membership. The name of our company is RentSure Membership. In the US, we operate as Nationwide RentSure and NationwideRentSure.com is our website. RentSure Membership is a membership based organization. Why that is important is because there are other membership based organizations. We are backed by an A+ insurer. The name that you’ve probably heard of is Lloyds of London, which insures specialty risk products. They’ve insured everything from movie star’s legs to any other specialty risk type of products. Lloyds of London owns the insurance company that is underneath us. As a membership based organization, the way it works is you become a member of the organization and with that comes the benefits of rental income protection, eviction protection, and malicious damage protection.
Let’s equate to something that we might be more familiar with here. Some of the examples that we can give you here are, let’s use Petco, for example, the pet store. You can go into this pet store and you can actually buy pet insurance from this pet store. We know the person on the other side of the counter is not a licensed insurance agent. We know that they are technically probably not allowed to sell us insurance, but what they are actually selling you is a membership. They are selling you a membership to Petco. Part of that membership comes the benefits of, if your pet gets injured then you can bring it in and there is insurance underneath Petco, underneath the membership that covers the cost of killing that pet. Our organization is setup pretty much in the exact same way. We are a membership based organization with insurance underneath us, but the benefits are the rental income protection.
You started talking about what it does cover, maybe just bullet point that again. What does it cover? Maybe if you want to say what it doesn’t cover, tell us that too so we know where the line is drawn.
I am very candid about what the small print is. Our small print is very easy to understand. You are not going to read a 300-page certificate of benefit like a car insurance policy where you are not sure exactly what you are covered for. Our program is very simple. Let’s start with the three bullet points. The three bullet points: as a member, again, if your tenant defaults, we will do the eviction. We will pay for the cost of the eviction. At that point, we go ahead and start paying the rent to the owner or whoever owns the membership, whether it’s the property manager, whether it’s the property owner. Whoever owns that membership is who starts receiving the rent. Let’s fast forward three or four months. The tenant gets removed from the property. We get the tenant out. We deliver possession of the property back to the property manager or to the owner of the property. At that point, they have another opportunity to file a demand and that demand is, “The tenant crashed my property. I would like my malicious damage covered.” We’ll cover up to $10,000 in malicious damage.
In the landlord/property manager world, we know that there is a difference between normal wear and tear and malicious damage. Normal wear and tear is nail holes on the wall. Malicious damage is fist holes in the wall. In that scenario, we obviously do not cover nail holes, nor frankly does the security deposit. Nail holes are what comes with the territory of normal wear and tear. Malicious damage is the fist holes, and we will absolutely cover the malicious damage caused by the tenant on the property. That’s everything that it does cover. Of course, the small print is the criteria in where you get the tenant in and all of that.
What doesn’t it cover? Obviously, if a tenant loses their job and they have to break their lease early because they have to move or they get a job transfer and they have to move, is that something that is or isn’t covered under this rental income protection?
That’s a good question. If this is designed for tenant default and/or tenant abandonment, and that’s the way it is set up, if the tenant is current on the rent and they give proper 30-day notice and they just move out, despite the fact that they have broken their lease, they left current, it does not cover that. However, if the tenant does the midnight move-out because they lost their job and they abandon the property with no notice whatsoever, then we’ll pay up to 90 days on abandonment. Basically, if you put in a demand today saying, “My tenant abandoned the property last night.” Then we will start paying the rent on the property and we will pay it up to 90 days on abandonment. On default, if the tenant defaults and we evict them, we will pay up to 11 months of rent on default or $100,000, whichever comes first.
What’s the time from when you file a claim until the point where you actually see that first missed rent payment come in?
As property managers and landlords, we used to own a property management company years ago, but as property managers, we knew that when we would file eviction on a tenant, some of them would come in with their money. The eviction paperwork scared them enough that they would eventually come in with money. Knowing this, when we designed the RentSure program, the way it is step up is, we are in the month of March right now, let’s say the tenant defaulted on the first of this month. By the 8th of this month, the property manager/landlord said, “Time to file a demand,” which is like filing a claim. You click the demand button on our website and the process begins. The eviction processes can get rolling immediately. Immediately that process starts.
Within 60 days of the date that you clicked that demand button, you will receive your first check. We are in March, so that first check will be, let’s say, by May 15th. If you’ve filed your demand on March 15th, your first check will be by May 15th. That first check on May 15th will be for the month of March, March’s rent, month of April, April rent and then May’s check will come by the last day of that month and every month thereon after until the tenant is removed. Let’s fast forward. Under the same scenario, we are now in the month of June. We finally got possession of the property back, house is empty, locks are changed, and now the 90 days starts. Now, we’ve got 90 days left. We will pay a maximum of 90 days following giving possession back to the property manager/landlord. If it took us five months to get the tenant out and took the property manager 30 days to clean up the property, another two months to rent off the property, they are getting paid the entire time. If the property manager exceeds that 90 days following possession, we don’t pay anything past that.
The property management company is still involved in everything but the eviction?
Exactly right. They are still the property manager. They are there when we deliver possession back. It’s their locksmith changing the locks. It’s them that are getting the keys to the property when possession is granted. It is them that is working for the owner, getting the property cleaned up, getting the property ready for rent. It’s them telling the owner that malicious damage did occur and they need to go and file a demand for the malicious damage. The property manager is still very much involved. This really just takes the eviction off of their plate, which is probably, if you talked to property managers, it’s probably the one part of their job they don’t love.
This product is interesting. Would you say this is best suited for a certain type of property or maybe properties in certain types of neighborhoods? I don’t want to get into profiling here but, obviously, there are different types of demographics and income levels and whatnot. There is just a wide array or gamut of properties and neighborhoods. Is this best suited for certain types or is this good for all? You could say it’s good for every type of property in every kind of neighborhood, but that is not necessarily true.
Interestingly enough, Marco, the statistics of default don’t change across the board. I don’t want to say this in a derogatory way, but tenants often behave like tenants. We have properties under membership that are renting for $5,000 a month and we have properties under membership renting for $600 a month. We are prepared for default across the board.
I think one of the faulty premises in our business of being landlords and owners of an investment property is that we’ve always believed that the tenant risks are just part of the cost of doing business, when in fact it doesn’t have to be that way anymore. As an investor, personally and I will speak for myself, On the West Coast I had rentals that were valued at half a million dollars, rented for a couple of thousand, $3,000 a month. I always had an allocation for default. Some people call it vacancy allocation, but really it’s a default allocation. It didn’t matter the size or the price. By the way, that $3,000 rental, I was renting to two doctors and I did end up evicting both of them.
My audiences for this show are all over the board. We’ve got newbies that are just getting started. We’ve got people who have small portfolios under five properties. We have professionals and seasoned investors who have much larger portfolios and everybody in between. How does someone determine whether this is for them or not for them? This is actually one of my questions. Who is this for and who is this not for? Because I am having a little bit of hard time trying to understand who this is ideally suited for.
That’s the million dollar question. This is a premium product and if folks don’t believe that they will have an eviction in the next four or five years, this is probably not a product for them. I spoke with a private landlord, he managed a dozen rental properties, just the other day. He has not had an eviction on any of these properties in thirteen years. Again, I didn’t want to believe it but he assured me he hasn’t had an eviction in that length of time. As I told him, I said, “This is just not for you. If you haven’t had an eviction in over a decade, this product is not for you. Do the numbers.”
As a turnkey provider, I always just tell my clients, “Numbers don’t lie.” Numbers are always going to tell you the truth, as long as you are honest when you write down the numbers. If you could do the math on the eviction, you know that eviction is going to cost you $500. You know it is going to cost you three to four months’ worth of rent. You know it’s going to take the property manager a couple of months to re-rent the property. We look at that, and pick any rental number you want. Pick an $800 rental number. In six months, we are talking $4,800 in just rent, plus the cost of eviction. We are talking over $5,000.
That brings us right into the cost of the membership. How does a membership get charged? Membership is tiered based on how much rent is being paid, but the lowest tier up to $900 of rent is basically, as long as the clients are working through Norada, then it is $30 a month at that level. If they go straight to our website, it is $40 a month, but the Norada price is $30 a month. Basically, you figure that out, on that level, that’s $528 a year. With the average cost of eviction running a little over $5,000 nationally, you can pay for rental income protection on your property for a very long time with $528 a year. This really goes back to the landlord and how they know their portfolio is structured. We have small hedge funds that buy 40 or 50 houses a month and we have private owners who buy one house a year. For each of them, they have determined this was the right fit for them. For every portfolio, it looks different.
Is this priced on a per-unit basis? If you have a single family home, a duplex, fourplex, it’s really priced on a per-unit?
That’s exactly right. This is a per-unit basis.
It makes me think back to the days when Aon had a similar type of product. They were around for about a year and then they just decided to stop offering it. I am not exactly sure why they did. But I remember at that time there were people who were questioning the product and a lot of people bought it. I personally know people who actually filed claims and got paid and it helped them out. I think it’s a good product. I think there is a need for it. I am not sure it’s for everybody. Maybe tell me what I haven’t asked you that I probably should be asking you about this, because this is fairly new to me again. I am sure it’s new to a lot of people who are listening to this for the first time.
This is new here in the United States. This is an interesting product. There is no question that it is something that is going to take a little bit of time for folks to get comfortable with. We have been in a very orthodox property management world for as long back as I can remember. I have been in the business for 20 years and of all the orthodox property managers I have known over the years, this is something that I believe will be challenging for some of them to wrap their head around.
Let me give you some examples. In Australia, rental income protection has been around for 25 plus years. Over 75% of the landlords in Australia have rental income protection on their property. In the UK, Germany, Czech Republic, you’ve got over 60% of landlords have rental income protection. We are one of the last developed countries to get rental income protection. Why has it taken so long to come to the United States? It is complicated here. This is not an easy feat being in the US.
We have what we refer to as 50 different countries on our land. We have 50 different states operating under their own laws. In those 50 states, we have 2,200 jurisdictions where in some states judges can change eviction forms because they feel like it. In some states, it’s criminal not to pay rent. In some states, it takes six to eight months to evict a tenant. The courts are in the tenant’s favor, not in the landlord’s favor. Every single state is different, which makes eviction filing in an automated way very complicated.
You referred to Aon and that was one of Aon’s challenges. One thing that you will find out about Aon is that they did set up in the US. They brought on a lot of people. They had a lot of members signed up, but they had a couple of issues. They didn’t have a real software behind them. That was one of their challenges. They hired a lot of people throughout the country to manage the program. We are not set up that way. I’ve had folks ask me, “What happens if I don’t have an email address?” I am like, “You can’t sign up.” Our system is fully automated. Everything from the eviction process to the payment process, we are fully automated. You can do everything on the website and that’s one of the things that has allowed us to be able to set up in all 50 states right at the gate.
The product is going to be accepted in the US. We got 48 million rental units in the United States right now and the number of home owners continues to decrease as the number of renters continues to increase. This is no doubt going to continue to be part of something everyone is going to see. We expect in the next five to seven years, people will see it at the closing table from their lender. We will expect that property managers will start requiring it as a part of their property management agreement. We expect that landlords that want to do this professionally as a business, this being only in rental properties, will not operate without it, just like you don’t buy a house without fire insurance.
Fire insurance is one of those really funny things, Marco, because if you look up the stats on fire, the number of fires in the US is a 0.003%. The number of houses that burn down in the US is a very small number. But you look at the number of defaults that occur on a monthly basis throughout the country, 5.3% default and yet nobody has rental income protection but everybody has fire insurance. You will be one of the early leaders in this area for understanding it and acknowledging the need for it. In ten years, you can tell everybody that you were here.
Eviction is just a form of risk. You can pay someone to take that risk off your shoulders and that’s the essence of insurance. You are paying someone to take the risk off of you.
That’s exactly right. You are mitigating a risk that you know is there.
If you feel that it’s likely to happen, then this is a product that might make sense for you. I think I am going to give it a try myself. I am probably going to pick up a policy, if that is what you call it, and just go through the process myself and put it on one of my properties and just see how it goes. Then I can speak more intelligently about it. Your company is offering a discount for Norada clients and the audience to the show?
Correct.
How does that work?
The way the membership works is, let’s go ahead and use that $900 rent as an example again. On a property that you have rented for $900 a month, then the membership annual cost works out to be about $528 a year. That is broken out over twelve months. The first month is $1.99. Then there’s eleven months following that of, from our website it’s $40 a month. If they go through you, Marco, and through your website, then that price actually drops $10 a month for the eleven payments. All of the programs will always start out at $1.99 every single year and then they always have eleven payments at whatever the monthly rate is. For your audience and in their case, as long as they rent through you, they will get their discount of $10 per month. Basically, they save $110 per year per unit by working with you.
If people want to get more information, where is the best place to go to get more information on the company and the product?
They can always go to NationwideRentSure.com. I assume that you got something on your website as well, which will link them to our site. Normally, it’s best if they go to your site and then find ours from there to make sure they get their discount code.
Anything else you want to add?
Thanks for having me on. I really appreciate it. I look forward to working with you.
Thanks, Sky. Thanks for your time. This sounds pretty exciting. We’ll wish you the best of luck and thanks for coming on.
Take care, Marco. Thanks again.
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