Bob continues a series of podcast episodes dedicated to the topic of security deposits. For most landlords, security deposits continue to be a highly challenging aspect of leasing rental properties. Laws are changing, tenant move-in costs can be prohibitive, and security deposit deductions can often lead to conflict. Bob discusses these challenges with Derek Merrill, Co-founder and CEO at LeaseLock, a company promising to eliminate the need for security deposits.
A full transcript of this podcast episode is below.
[2:20] Introduction to Derek Merrill, LeaseLock and the concept of "zero deposits" through their Lease Insurance products.
[8:00] Landlord/tenant laws having an impact on alternative approaches to security deposits..
[12:00] Are flexible financial aspects of leasing here to stay due to COVID-19 pandemic?
[16:15] Derek explains the competitive differentiation of Lease Insurance when compared to surety bonds and other solutions.
[21:00] The process of filing claims through LeaseLock is discussed as opposed to deducting charges from security deposits.
[24:35] Derek describes a full scenario of how Lease Insurance works from start to finish during the course of a tenant's lease.
[34:00] Derek shares a story about the mission for LeaseLock and the positive impact they are having on tenants who are in need of financial assistance in obtaining a rental property.
[37:40] Final words on what the new generation will demand in terms of the speed and ease of leasing a rental property.
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Bob Preston: 01:11 Hello, Brainstormers this is Bob Preston here, your host broadcasting from our studio at North County Property Group in Del Mar, California. If you're new here, please subscribe so you have ongoing access to all of our great episodes. And if you like what you hear, please pay it forward with a positive review on this podcast episode of Property Management Brainstorm. I'm continuing a series dedicated to the topic of security deposits. For most landlords, security deposits are one of the most challenging aspects of managing any rental property. It can be conflict laden at the end of the lease. And in most states, there are rigid regulations and ever-changing laws, which must be followed on when and how the deposit needs to be returned to the tenant. Another aspect is sometimes you might have a rental default issue with a tenant. So, we're going to have a guest on the show today, Derek Merrell. He's co-founder and CEO at LeaseLock a company promising to eliminate the need for security deposits, Derek. Hey, welcome to Property Management Brainstorm. Excited to have you on, on the show. Interested to learn more about your topic today, but I think a good place to start is just tell us a little bit about yourself and the concept behind LeaseLock.
Derek Merrill: 02:23 Yeah, so, um, I come from the technology side of things I've, um, my background is really, uh, born of entrepreneurship and, uh, really building new products and bringing them to market, um, particularly on the software and technology side is what gets me going. I grew up with computers, um, went to Berkeley, um, kind of at the tail end of the dot com bust. Um, but saw that, um, everything going on there is very exciting. So, um, naturally I got into early stage kind of high growth startup world and co-founded two venture backed startups prior to LeaseLock both exits. I call them kind of singles and doubles. And as an entrepreneur, you keep doubling down. Um, and so I've had a couple of, I've counted, a couple of solid doubles in my background too. Never home run, but yeah, I haven't had the home run yet and I'm looking for the grand slam. Um, so, uh, it's been fun. Um, I always say that I really don't work. I've never worked a day in my life, um, because I love what I do. I just love to build. And I feel so blessed that I have the opportunity to do that through this, this vehicle. But, um, this is evolved. I was in the ad tech space and I was looking to kind of build technology and disrupt a new industry. And so I picked insurance, um, and I started building some things. I'm a product builder by nature and kind of surround myself with the engineers to go and kind of hack and then prototype and see if there's a need in the marketplace for it. And then, um, so I was building a few things and I got introduced to my co-founder Reichen Kuhl. In 2014 through a startup accelerator here in Los Angeles or based out of Santa Monica called Mucker Capital. And they said, Hey, we got this really sharp guy. Um, he, we put a little bit of money behind him. Um, he's got this really awesome idea. Um, and he's got a great background in legal and insurance and we see you Derek on the technology and operating side. Um, you guys might be a good force together. Would you want, you want to talk to him by the way, it looks like it might be insurance backed. Um, and we know you're looking there, I'm like, of course. So, I talked to Reichen and I mean, from the get-go, the first conversation, it was just kind of the light bulb moment went off for me. Um, Reichen got turned down for an apartment in New York city a few years prior to that. And he was a very qualified resident in fact, offered to prepay the whole lease and they couldn't do it. They wouldn't do it.
Bob Preston: 04:59 Really. We never turn that down.
Derek Merrill: 05:02 Yeah. That's money. So that was a signal that something was clearly broken right in that transaction, you know? And so Reichen had a chip on his shoulder and he's like, you know, there's something wrong here. So, he, he went through that, um, accelerator program at Mucker and I joined with him in 2014. And we've been on this journey to build these socks since then.
Bob Preston: 05:24 And the whole concept of zero deposit.
Derek Merrill: 05:28 Financial instruments beyond that, that get in front of executing a lease.
Bob Preston: 05:32 Yeah. Sort of reduce the hurdles from the time you see a property and you want to lease it to the time you're actually moving in.
Derek Merrill: 05:38 That's what it's about. Right. Isn't that what, uh, that, that prospect is. They want to live in that, uh, unit in that home. And you as a property owner, want to, um, get, uh, qualified folks in there that can pay the rent. So we've yeah. So we've, we've gone through this process to really perfect the product and make it a very, very simple one.
Bob Preston: 05:57 Well, what is the product? Maybe we can start with that.
Derek Merrill: 05:59 It's a very simple format. The residents paying in a about 30 bucks a month and that waives all the requirements of any deposit or guarantor, anything, it, all of its gone. So they don't have to come to the table with a bunch of money. They get their lease signed and they're in. So the value proposition on the consumer side is very, very clear. Uh, and by the way, that's all integrated right within, uh, that, that native, um, online property management software system that you pay along with rent, there's no separate application or credit card you gotta pull out, it's all native integration. Now on the property side, there's a win as well. In that we provide over $5,000 in what we call lease insurance coverage on every single you lease. So, if there is a default, there's a skip in eviction or there's excess damage, we are there to cover it with that $5,000 in lease insurance. And we've really kind of coined this, created this new category called lease insurance. It is combined the rent guarantee space and the surety bond space into one unified product. That is the simplicity of it is both sides. When you have this really affordable move in for the resident, um, eliminating all that friction, gets them in there fast. And then you have more protection through this lease insurance, $5,000 in lease insurance for the property. And there's a couple different flavors of the pricing and the coverage, depending on the markets, but $30 for the $5,000 coverage is really kind of the bread and butter.
Bob Preston: 07:29 So is that $30 total, $30 per month?
Derek Merrill: 07:31 $30 per month. It's kind of like other insurance products. Um, and that maintains that insurance coverage for the property. As long as that resident is occupied there, that that coverage stays for the property.
Bob Preston: 07:43 Okay. And the tenant pays the $30 per month?
Derek Merrill: 07:45 $30. And it displaces that any upfront, um, whether it's a $500 deposit, or maybe you had a conditional that would've had to pay one month's rent, that's gone, or a co-signer gone, guarantor.
Bob Preston: 07:58 Rental, default insurance gone. Okay. So we'll get into a little bit more of the nitty gritty on that here in a minute. I'm wondering if there are any changes out there in terms of tenant landlord law, that might be a driving force in the direction of making LeaseLock a popular choice as well. I mean, my understanding is that certain states or city ordinances are driving some of these adaptations.
Derek Merrill: 08:16 Yeah. Um, we're seeing that come down the pipe, um, right. It started in some of these markets like Seattle markets and, and, and other similar situated jurisdictions, um, where it really was around affordability. And because let's right, be honest, multifamily has had this rising rents, very, very great market, um, in that aspect for the last decade. And so you have these challenges with the affordability and the place they go is around deposits, right? It prevents people from getting housing. And so they create all these restrictions around, Hey, now you have to, there's a cap and now you have to split it into installments and you have to return it by a certain date or you're subject to all these lawsuits. So they're just creating a lot of these regulations. Lawmakers are rightfully so, um, to help with that affordability challenge, but it creates it just a burden on the operation side for property managers, because it just ends up being a cost center. So you're actually seeing a lot of thinking moving away from deposit, just cause they don't want to deal with the burdens of it. But now you're really at risk of absorbing bad debt because you have no deposits on hand.
Bob Preston: 09:30 Are you seeing the impact of COVID-19 as a further indicator of change is coming or perhaps making your solution more attractive? I mean, it just occurs to me that people come to us say, Hey, you know, we can't afford your property anymore. We're going to move into lower cost housing, or they're still going to be up against perhaps a security deposit maybe first and last month's rent. I mean, it's not cheap to move into a new place. So, solutions like yours could potentially make it more attractive during this time where a lot of tenants are devastated financially.
Derek Merrill: 09:56 Big time. Um, we're seeing this COVID environment have huge, huge tailwinds for our business for two reasons. If you think about the supply side, right? The property owners, what happens in times of uncertainty, there's a flight to safety insurance is a safety buy.
Bob Preston: 10:16 Safety net. Yeah.
Derek Merrill: 10:17 Yeah. So, we're seeing that light bulb moment went off in terms of, we always like to joke, you know, and we're so grateful for this, you know, COVID really was a free Superbowl commercial for LeaseLock. That's running daily to multifamily and the San Diego property management and operator side. And because it's really a, you know, a woken them to, wow, I am really at risk here of this changing future environment that I'm entering into. And it looks like it's not going to be a V. I mean, the market will tell you otherwise, but from a real perspective of the economy starts and stops here. It looks like it's changed significantly. And so now that that really a flight to safety with insurance and we’re lease insurance, right. And when you think about $5,000 on every lease that gives you warm, you know, all the warm fuzzies now on the demand side that is, has even a bigger impact because of affordability. People are wiped out, it looks like they're using the cash that they have with this, um, unemployment and the cares act, um, to pay their rent, which has been good. Um, but any savings, they had anything cash, they had to create mobility, um, toward deposits is gone. And so now you have this really it's, it's really now a requirement to help renters get over these hurdles that prevent them from getting into the apartments that they should.
Bob Preston: 11:42 I'm a believer that landlord tenant law is going to change forever. I mean, I think that there are just some more common sense aspects to all this that we're learning from COVID-19 that are to have a long-term play as states start to look at the impact this has had on tenants, uh, financial hardship and affordability kind of like you've already addressed. In fact, I don't know if you're familiar with NARPM on the National Association of Residential Property Managers, but I wrote an article that's going to be published in July. And it was about the financial impact of COVID-19 and some of the property management policies. We still see out there in terms of zero tolerance, right. We have zero tolerance for people who are not paying their rent on time. And it's sort of like, well, you know, you hear this thing. Well, Hey, we're all in this together right for COVID-19. And then you hear people still talking about that as property managers, you're kind of going, wait a minute, we're all in this together. How does that fly? Right. We have eviction moratoriums. We have, um, these financial hardships for tenants that are real, not just, you know, you can't, you can't just go out and demand that they pay their rent in today's market. So what are the alternatives? And I think things like this are going to have a long-term play and the, you know, and being a landlord and probably a landlord tenant line on every single state.
Derek Merrill: 12:48 Yeah, no, we, we see, um, it was the first thing we did. We picked up the phone and call it our biggest operator clients. We work with the top fifties, right. Um, uh, managers and owners, right? Gray Star, Pinnacle, um, hundreds of thousands of, of units under management. And then the owners that they, that are the asset owner, their clients. And so, you know, what they told us, they told us, look, we want, we're going to go into occupational preservation mode. And we want to help residents because this was no fault of their own. They were good paying residents before this, and we're going to have to help do things like, um, resident relief programs. They're doing things like payment plans. Right. And push deferred, rent out.
Bob Preston: 13:32 Rent forbearance plans and agreements, sir.
Derek Merrill: 13:34 Yeah. Stuff like that. Yeah. Stuff like that. And so that's the, really the stance that we saw and it was really kind of, it was really great to see, cause it was, it was really what America is about. Right. Um, it was really helping, cause it was no one's fault of this. Now, if you extend that forward. Right. And, and you know, the eviction moratoriums now, what do they hold true to that when these things get lifted and we'll, we'll see. Right. But that's what they communicated to us. Um, and again, I think a lot of the federal stimulus helped residents at least have the minimum money to pay the necessities and they did choose to pay rent. And that's, that's a fascinating thing.
Bob Preston: 14:13 So let me ask this, and then we're going to dive into the nitty gritty a little bit. So you, your program does provide for some degree of protection against rent default, does that include COVID-19 financial hardship?
Derek Merrill: 14:25 You know what, um, no one had a crystal ball. We did not have an illusion for a pandemic. Right. And, and, uh, and, and I think no one could have envisioned that this would happen. So, um, any policies that, yeah, I mean, so we actually it's covered cause it's not a named exclusion. Um, and, and that was on existing leases that were covered. Um, prior to COVID like any insurance product we're backed by big, the big, a rated billion dollar re-insurance carriers. They go and they say, okay, now we need on future business, moving forward, we're going to need to include a pandemic exclusion because you would agree. And we talked to our clients that we're not pricing a pandemic into our covered. The rates would be extraordinary. Um, and we wouldn't, um, that's not what our product was meant to cover. It was meant to cover, um, displaced the normal risks with, um, you know, uh, a default.
Bob Preston: 15:23 Okay. So I guess it sounds like it is covered on people who already had policies in place, but then it's been reformulated perhaps with the pandemic in mind. So are there limitations to those? Are there exclusions? How does that, how does that work out?
Derek Merrill: 15:36 Yeah. You know, it, it moving forward and it just like any, um, operator would do is you're going to go through your normal screening to make sure someone is, has the income to afford to live in that unit. Right. Um, we don't really see it too much of a risk moving forward, even with the exclusion and our clients don't either because they have to still meet their normal screening, show employment. Right. Cause you can't, you have to show that you can afford to, uh, to be able to pay rent. So it really hasn't been an issue for us moving forward in that way.
Bob Preston: 16:07 Okay. We're getting a little ahead of ourselves, cause I know I want to ask some really specific questions about the product and how it works. So let me just bring up, there are some alternatives out there, similar to what you guys are doing. One of them you've already mentioned Surety Bonds. So, what's the difference between LeaseLock and Surety Bonds?
Derek Merrill: 16:21 One word, math. So it actually is, um, very simple when you kind of boil it down to math and we all know Surety Bonds have been in existence for about a decade through sure deposit, um, brought it to market. Um, there's been another, uh, uh, formats that have done some slight tweaks to the, to the pricing and the coverage, but it all is pretty much pretty, very similar. The issue with Surety Bonds is there's not enough premium collected upfront to cover the average claim at scale, total premium, going into that fund and claims coming out, that's a loss ratio and somebody has got to pay for that. And guess what? The re-insurers won't, that's not sustainable. So, what you have is a lot of these providers coming to market that kind of put a new logo on sure deposit. They are really, um, create a new kind of modern application out of system. But at the math is still the same. They're not sustainable. LeaseLock is different because we are not a Surety Bond. So, we've done the math to structure this and bring a new insurance product to market called lease insurance, not to be confused with renter's insurance. Renter's insurance, right, covers property and some liability, right. We cover the lease contract and the rental stream associated with that contract in excess damage, if that occurs. So when you, when you asked about is the $30 monthly. Yes it is. And renters love that because it displaces the big upfront. So that's a win over there. And we see it in the data of increased lease conversions versus pre-leased post locked data. So there's no issue with that. It's the way that the modern consumer works. They just want to kind of pay as you go. But that $30 that we get in monthly affords us this ability to have this larger claims fund that is much more sustainable to pay out the, the average claim that multifamily really needs when there is something that goes wrong with the rent stream or there's excess damage. So we've really done this in a sustainable way. Working, we sat down at the tables with the top operators over a three year period, since we launched in 2016 with our first version, we've really gone on a three year exercise to understand that and bring something that would be sustainable.
Bob Preston: 18:37 Okay. Terrific. That's really good description there. So, there are some other alternatives out there I had on my show a about month or two ago, uh, Casey Winter from Obligo, perhaps you're familiar with them and they have a little bit different of a solution. Um, I won't go into, you know, what that solution is, but how do you differentiate LeaseLock from someone like Obligo?
Derek Merrill: 18:54 Yeah, very clearly. Um, Obligo is essentially writing an IOU and the issue that we hear about that, right? So they, they displace, uh, that upfront deposit. I believe there's a, a small monthly fee of some sort. And, um, then they can authorize a direct, uh, poll from the renter's account, kind of post move out. Uh, the that's risky, or at least our clients are telling us because, um, sometimes when you go fetch those funds, they're not there. Um, so now you're really depending on an IOU format, um, for that model to sustain itself. And we're just hearing that that's a tough, that's a tough sell to the, at scale to the big operators to rely on that behavior where with us, it's backed by a rated insurance and you're going to get the $5,000 if you need it. And we've gone through all the pains to structure this as insurance, to get the gray stars. And, um, these top operators comfortable with deploying this cause we want to get rid of deposits. Uh, so that that's kind of where our, we have a very different philosophy on how to we approach this market and how we install it.
Bob Preston: 19:58 Well, the offer the, the additional rent protection like your deposit per year, zero deposit covers more than just security deposit. I think Obligo, uh, pretty much it's just hey, no security deposits, right? You, you, as a landlord, get your funds, you know, right away or, you know, get, get the refund done right away. And then we, we kind of handle the rest. So, it's a little, a little bit different for sure.
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Bob Preston: 21:00 Um, one of the insurance products that we use in our business as a property management company, we have a vacation rental side of the business, and you may know where I'm going here. We call it damage protection insurance. It's a little bit different. It's protection when somebody stays in one of our vacation rentals from incidental or accidental, uh, act, you know, accidental damage to the property. We have one property where I'm a vacation renter, a little boy came up with one of his toys and scraped it across the high def TV, you know, the, the, an LCD TV. And so, um, had to be replaced and damage protection insurance paid for that. Now, one of the challenges with that kind of insurance is that we have to file a claim, right. And so in the meantime, who, who pays for the damage? So it's one of the challenges we've had with insurance related products. I'm kind of curious how that works with LeaseLock.
Derek Merrill: 21:48 Yeah. Um, we're a technology driven company and engineering is our largest team at LeaseLock we're powered by insurance. Um, and this is kind of the modern new InsureTech kind of category. Um, that's under this broader FinTech, uh, sector that's really taking hold and disrupting the world. And so what we're doing is we're using our deep integrations with property management software systems to look at the data related to the move out ledgers. Right. Cause that's as fast as you're going to get it right. Like, um, they go do an inspection. They itemize that it's all recorded in those systems of record. Yup. We go tee up almost an automated claim. And so we do everything up into kind of that last click, um, where that central receivables team and at our biggest enterprise clients, they have central receivables teams rather than having this operated at a per property basis that they can just fire off that claim. And we pay within 14 days.
Bob Preston: 22:42 All right. So the claim would be, if I move out of tenant, um, and there's damage to the carpet, um, they didn't clean the property. We have all these different deductions that have to be taken out of, uh, tenants you know, what used to be the security deposit. We would file that claim. And then that gets paid within 14 days.
Derek Merrill: 22:58 Exactly. We just tell properties, follow your normal. They call it FAS, final accounts statement where you're itemizing, what is owed the final balance, right? Based on rent and damage. And legally you have to supply that right to the ex-resident, um, in a certain amount of time. So they have the chance to pay it, right. Um, you have to give them, and so that's the same rules as LeaseLock. Give the resident a chance to pay what they owe because they signed a lease agreement. This is not insurance to them. Uh, and, and then when they don't, when there is a balance there, after they've been given the opportunity to pay, then it gets shipped into a claim. And so we automate all that right. Within the native workflow.
Bob Preston: 23:39 Okay. So, the tenant applies for this, the insurance I'm assuming, is that correct?
Derek Merrill: 23:44 No. So, the tenant is not part of the insurance at all. The tenant is just a deposit waiver fee of $30. Yeah. And that's, it's kind of a two sided model in that way. Cause we don't, the resident is unlike Surety Bonds, not party to the insurance at all. Right. They're just paying as part of a program to, uh, to waive that deposit in some of our operators, even getting more savvy and they're like, look, we're just going to, um, we're not even going to have a deposit waiver program. We're just going to account for this on our back-end accounting, separate from base rent. Um, they do things like amenity fees, separate from base rent. And so they're calling this another financial amenity. Um, it's all added up and surfaced as a total. So, the renter that they see on their rent bill, that's an implementation too, but it's the resident is not party to the insurance.
Bob Preston: 24:33: Okay. Maybe a good place to go would be take us through kind of soup to nuts scenario. I'm a property manager. I could be wherever, you know, your average landlord, whatever. And I've been showing a property. I've got an applicant who I'm ready to approve. I'm ready to go to lease stage, take it from here with LeaseLock.
Derek Merrill: 24:49 This is probably the simplest answer because we hide all the complexity underneath the hood. Um, you market your property as zero deposit. You're going to get a bunch of leads. They're going to apply through your standard screening process. You approve them, you wipe away any requirement of deposit or guarantor that you would have had otherwise. Um, they're paying along with rent that $30 fee, and you're now covered for $5,000 in lease insurance.
Bob Preston: 25:15 Okay. And are they paying that to us? The $30?
Derek Merrill: 25:18 We collect it yeah. Through your normal, um, whatever your normal property management, um, payment workflow is. Um, there's no separate billing process. It's all, they would pay it along with rent. Like utilities could be a line item, right. You would see deposit waiver. Um, and there's a couple different ways that that can be surfaced. Um, but by and large that's, um, that's how that that's displayed.
Bob Preston: 25:42 And how has that property then activated to turn on the insurance? Is that then done by the landlord? Is it happen automatically by including the tenant in the program?
Derek Merrill: 25:52 Yeah, it's seamless. We just turn on the configuration on the back-end for that property. And from that day forward, it's a zero deposit property and it's, um, it's built native into the workflow. So there's really nothing. There's no separate side processes. There's no separate application. There's no, you know, there, there's no off system things that get in the way. And that's really the big operational difference between LeaseLock and the surety bonds and the big step up here. And that's why some of these leading operators are seeing that's the clear differentiation between LeaseLock and the rest is we know that all roads go through that native workflow. And if you're not in Yardi, you're not in the Real Page suite, you're not an Entrada. Then in your off system, you are going to get a dismal adoption. You're going to create a confusion. You have a myriad of leasing staff messaging, different things. You're going to get bad reviews because it wasn't transparent with what the resident was getting, um, at the front, uh, during move out and it just fails. And it's not a way to completely change the transaction, which we are here to completely change and simplify, make it faster and more affordable. The rental housing transaction, that's our mission.
Bob Preston: 27:12 Okay. And then during times of vacancy, so if I have one tenant move out a property, you know, I've got to get it rent ready, again. Maybe it's vacant for 45 days, 60 days, whatever, what happens during that period of, of the vacancy?
Derek Merrill: 27:23 Yeah. You would run your normal operations, right. Instead of having a $500 dollar deposit, you, you might be operating of, um, you would have $5,000 with LeaseLock. Um, once you submitted that claim and we paid 14 days later, so you have just, um, we, we made sure that we are, uh, tightly coupled around that standard kind of move out process all the way through accounting. Um, and ultimately through third party collections, cause properties still own the debt, right. If it's beyond the claim limits that we provide, they can still go submit that to third party. So, we try to be as native in that workflow as possible.
Bob Preston: 28:08 Okay. So it sounds like you're counting perhaps on the San Diego property management software platform to, to provide information as to when properties are occupied or when they're vacant and then what the landlord would owe in terms of the kind of ongoing monthly payments to LeaseLock. Is that correct?
Derek Merrill: 28:25 Yeah, because that's the system of record that they run all of their accounting processes and all of their operational policy. So, we're just following similar suit at, you know, with these enterprises.
Bob Preston: 28:36 Gotcha. Okay. I noticed AppFolio is not on your list and I know they are kind of known for not necessarily playing well with others. Is that a, is that something you guys are working on? Is that something you might have in the future?
Derek Merrill: 28:49 Yeah, no. We have a relationship with AppFolio, we do. And, um, we're, we're located in Marina Del Rey. They're just up the road up, uh, Santa Barbara. Um, so Khalida right there. So they're our neighbors. Um, and so we know those guys, we, we, we love working with them. Um, and we do have properties that are, um, that are on AppFolio. So, we can't handle those.
Bob Preston: 29:12 Alright. Fast forward now to the end of the lease and the move outs. So the landlord property management company does a move out inspection. Um, maybe the tenants there, they identify some areas of damage that there have to be charges for with LeaseLock what happens then?
Derek Merrill: 29:27 Um, you, uh, they move out, you give them the final account statement that says what they owe, right. Rent and damage. That's very clear, give them an opportunity to pay that. They still own that. Right? So, um, one, the insurance shifts once they don't pay, once they don't pay that's when the property goes and files a claim with LeaseLock. Now, if we pay a claim, we do own that debt, right? That's subrogated to LeaseLock. And, but part of our business model is not to go after the resident.
Bob Preston: 29:58 Okay. So as a landlord, then am I obligated, for some period of time to try to collect from the tenant before I can make a claim with LeaseLock?
Derek Merrill: 30:06 Just that normal standard notice period, which is close out your final account statement. The big corporate guys run that through an audit might take 24 to 36 hours to run that through an audit through their receivables team, mail out the notice. Uh, and then there's like 30 days usually standard between mailing and receipt, and then giving someone a chance to pick up the phone and write a, make a payment, uh, or mail a check. So yeah, about 30 days is standard. Um, just given all that, the normal workflow, legal workflows that, um, are there to clear out a balance.
Bob Preston: 30:38 Okay. So then in the meantime, if the landlord is trying to get their property rent ready, again, they're paying out of pocket until they can get their claim filed and reimbursed for that, uh, for those damages?
Derek Merrill: 30:50 Yeah. That's true. Um, where they might have had, you know, at scale, the big property managers, you know, you're talking about 500 bucks. So on average.
Bob Preston: 30:59 Yeah. So that may be, that may explain your target market because, um, you know, the way I run my business, I mean, most of our owners own, you know, between one and seven properties and for them to pay out of pocket, say there's a couple of grand, you know, who who's going to pay for that. Right. The owner doesn't want to pay out of pocket. They think that the tenant should pay for it. So it's a little bit different, but if you're talking about sort of a high-rise corporate tens of thousands of units, then that makes complete sense because they would have deeper pockets to be able to handle those kinds of turnover charges.
Derek Merrill: 31:26 Yeah. And the alternate is, yeah, I'll have 30 days of kind of a tighter capital that would have had a deposit if collected a one month. But the benefit is now you have multiples more to come behind it, to cover you as those extreme losses. When you are missing three months of rent are what kill you. So there is a little bit of trade off in that working capital for the belief is the upside you have in this $5,000 that will cover those big meaty losses will far outweigh, you know, that 30 day kind of working capital tightness.
Bob Preston: 32:01 So an implementation, is it a requirement for most of your clients that the tenant do this? Or what if a tenant says now, you know what, I, I don't want to do it this way. I just want to give you the $500 deposit. Can they do that?
Derek Merrill: 32:10 You know what? Yes. They may opt out. Um, so it is not a mandatory or required product. Um, and I'll let you guess how many people do you think opt out percentage wise?
Bob Preston: 32:20 Oh, probably just a few, maybe 2%, five to two to 5%. Maybe.
Derek Merrill: 32:25 You're about right. It's a, it's about 95% conversion and we go back and we say, well, why did these five? Cause we talked to the properties, what happened to these other 5%? And you know what they tell us, Oh, we got a new leasing agent. They came from a non-zero deposit property and they took out the zero-deposit charge code and they put in a deposit.
Bob Preston: 32:45 Didn't know what it was forgot to offer it, whatever. Yeah, well, yeah.
Derek Merrill: 32:50 No, they went out of their way to take it out. And the resident actually would have, we would go back and say, well, what did the residents, they actually would've preferred LeaseLock, but it'd be the, the agent just wasn't trained, uh, not to take it out. So it's, so it's fascinating that, um, it's a, it just happens automatically. And from a resident standpoint, they love it.
Bob Preston: 33:12 Where are you operating at this point? Are you like to, to offer insurance products? Do you have to be authorized in every state? And are you there yet?
Derek Merrill: 33:19 Yeah, we're in all 50 States. Um, and we are, uh, an insurance company and we, um, have the backing of the large, A-rated carrier out there. So, um, the product is
Bob Preston: 33:32 So name names here, who are some of the care? Like, is it, are there, are there multiple carriers? Is there one particular underwriter?
Derek Merrill: 33:38 Yeah, we have a syndicate of carriers behind us. So we've gotten to the scale where it's not just one. Um, and yeah, we like to have an assortment there, um, it just creates, um, you know, more, more stability, but they're all A-rated carriers, you know? So that speaks to their balance sheet.
Bob Preston: 33:55 Hey, Derek, I always like to ask my guests to tell a story. I like to do this when I meet new people. And I don't know if you're prepared for this, but is there a story you could share with our listeners about kind of something in your background or in your life, either your personal life or business life that's had an impact on, on you, maybe how you go about your daily life now or how you practice in business?
Derek Merrill: 34:17 Um, yeah, I mean, I can tell one, that's kind of close to home here. Um, you know, we talked about, you know, our mission at LeaseLock is, is one around, you know, our explicit mission says, you know, we help the world find home. Cause at the end of the day, when you get up in the morning, you know, you want to figure out, okay, what am I doing here? Um, what's driving me. And, um, I worked in ad tech before. So sometimes it's a little bit tough to wake up in the morning and, and figure out what gets you excited about that. Right. So, um, it found it it's really great to be able to, um, work on a product and deliver it to market that has such a great mission. We used to directly leasing offices would send, um, people that were screened and had a high deposit or our guarantor requirement to leaselock.com. So, we looked kind of like a, one of the Surety Bond or rent guarantees before into, in 2017, 16, 17. And so we, they would go through an application process. We would ask, write like 10 pages of different questions, social security, run, a credit check, uh, financial, uh, documents. I mean, it was terrible. Um, but you know, it was our first version of understanding.
Bob Preston: 35:30 Yeah. You sort of have to do this, the prescreening if you will to provide.
Derek Merrill: 35:35 Yeah. Yeah, exactly. Cause we didn't, um, we wanted to kind of, yeah, exactly. Like know what, what, what risk we were backing and we weren't integrated and our insurance didn't really trust us yet. So we had to go and show that we're backing good risk. Um, and we developed our own underwriting model. Um, we actually, uh, just kind of looked at actual cash flows through people's checking accounts. Um, and there are services out there, FinTech services like Plat that allowed us one click log ins just to pull data and do that. So it makes it easier to so long story there. Um, is we, we were a model where we had a direct kind of communication with a resident. Um, and there was a mother, she was a divorced single mom and she had two kids and she was really in between things and, and you know, she's talking with our support person cause they're gathering documents and they always tell us these heartwarming stories around their situation. And this kind of, we found that we were her last resort. Um, she was in a bind and she didn't get this lease approved and could move in, uh, get the keys. She was going to be in the car with her two kids that night. And so we did everything we could to just get her approved. Um, and that was in the very Genesis early beginnings of understanding the, what we were doing and how we were mission driven, at least lock. And we felt really good about that. And we've continued to figure out how we could extend this mission, um, by, you know, really just offering this at scale.
Bob Preston: 37:08 Well, it's a cool story. As you can imagine, I talked to a lot of people in the industry around property management, being a landlord services that are provided. And it's amazing how many people have found their way into this market, into this industry based on personal experience, kind of like the one you talked about with your co-founder earlier, like, Hey, he was trying to get apartment in New York, couldn't do it. Something's messed up here. What can I do to help solve this problem? And there's hundreds of stories like that, but in different segments, really cool technology, great information. Thank you, Derek so much for coming on the show. Any last parting words you'd like to have for our tenants or you can provide any tips or, or any information?
Derek Merrill: 37:45 No, I, I would just continue on what you said as a close and it's really not about what we want. It's actually what the market demands moving forward and the new generation of renters. They're the ones growing up with enabled with these lightning fast transactions and experiences that the Googles, the Amazons, the Facebooks, the, Apple are delivering. Guess what? That's table stakes now. So you actually need to elevate and think were two steps ahead just to be at par. And so that's what I'm going to kind of leave people with is it's think about right. That it really is a new environment. Um, in both what COVID is accelerating. I saw something in Wall Street Journal said, COVID accelerated the world into 2030 in three months.
Bob Preston: 38:35 Leasing a property shouldn't be that different than this is a little bit of a search, but like booking a hotel room. I can do that or over the phone, assuming that there's room at the hotel.
Derek Merrill: 38:46 That's a perfect, perfect way to put it.
Bob Preston: 38:43 Hey. And if someone wanted to learn more about LeaseLock being a client of yours or having you, you know, having you guys as a partner, how would they do that? Where would they go? What number could they call? What website?
Derek Merrill: 38:52 Email me. Um, I'm at Derek, firstname.lastname@example.org.
Bob Preston: 38:58 It's a direct line to, to the man here. So guys who are listening out there, take Derek up on his offer, learn more about it. It sounds like a really interesting solution, Derek, thank you so much for coming on the show. This is a terrific episode, lots of good information. And thank you for all the thoughtfulness you put into your answers here today. It was super, super good information. And so as we wrap up today, I'd like to make another quick plug to our listeners, to click on the subscribe and give us a, like, please also pay it forward. If you would, with a positive review to help encourage more great guests like Derek to come on our show. And that concludes today's episode. Thank you for joining the Property Management Brainstorm show. Until next time we will be in the field, working hard for our clients to keep properties managed, properly, maintain top tenant relations, and we will catch you next time.