Welcome to the 5 Minute Prime Podcast. Quick actionable tips to master personal finance and real estate investing. In just five minutes a day, we'll help you build wealth and achieve financial freedom. Hey you Prime Investors, Martin Maxwell here. Welcome back to the 5-Minute Prime Podcast. Last fall, just about every landlord in North Carolina got some version of the same text. Did you see this? 68%. The insurance filing asking for a 68% increase on dwelling policies. And if you rent a house out in North Carolina, dwelling is your policy, not homeowners. That filing was aimed straight at us. Group chats lit up, spreadsheets got rerun with a new expense line. A few investors I know shelved their Carolina deals on the spot. Here's what almost nobody texted about. What happened next? And what happened next is the whole episode. This spring, the state settled that filing. Not at 68%, at 5% a year for two years, call it 10. And the first 5% hasn't even started. It takes effect October 1st. One caveat, and it matters more the closer you are to the water. That 5% is a statewide average. The settlement moves territories differently, and Coastal Carolina does not move at the state average. Look up your own territory before you pencil in five. 68.3 asked, 10.25 granted. The headline missed the outcome by more than six and a half times. And the state put a dollar figure on that gap. Against what was asked, the settlement saved North Carolina property owners more than $268 million. Though that's the department's own math, scored against a number it was never going to grant. Take the direction, not the dollar. So how does a miss that big even happen? Because a rate filing was never a price. North Carolina is the last state that runs home insurance through a rate bureau, an industry body that files rates on behalf of every carrier in the state. Last October, that bureau filed two stacked increases, 28.5%, then 30.9% on top of it, compounding to the 68.3% ask everybody screenshotted. And to be fair to the insurers, their side of the argument is real. Storm losses are up, and the reinsurance they buy to cover catastrophe years has gotten brutally expensive. So they open with their whole case, priced at the ceiling. Then the Department of Insurance did what it exists to do. It pushed back. The two sides negotiated for months. And the ask came out the other end at a fraction of the sticker. Not always, though. Some states approve close to the ask, and Carolina's own past settlements landed nearer the number than this one did. What's reliable isn't that the ask shrinks. It's that the ask isn't the answer. So don't budget the headline, and don't budget zero either. Budget your renewal plus a cushion. A filed ask is not a rate. It's an opening bid, the asking price on a house that everyone in the room knows will close lower. The insurers open high, the regulator pushes low, and the rate is whatever survives the process. Underwriting your deal to the opening bid is like budgeting your grocery bill off the most expensive item in the store. And if you panicked at that headline, that's not on you. The filing was real, the number was real. It was also designed to be read, and every operator forum spent a season repeating it. The system produces terrifying opening bids. You just don't underwrite to them. Now here's the part that cuts the other way. Because if your takeaway is, fine, I'll pencil in 5% instead, North Carolina has one more letter for you, and you've probably already signed it. A big share of Coastal Carolina policies aren't written at the state's benchmark rate at all. They're written on something called consent to rate. With your signature, your insurer can legally charge up to two and a half times the manual rate, and most owners did sign, at closing, somewhere in the stack between the deed and the disclosures, and you can decline to sign one. Know what that means first. Your carrier either writes you at the manual rate or it lets you go. And out east, being let go usually means the beach plan, the state's insurer of last resort. That's not some fringe backstop. It already writes more than half the wind coverage on the barrier islands, but it's often narrower cover for more money, and it can't write you on consent to rate at all. So shop it first. Don't decline blind. Here's the thing about that letter though. The law makes it unusually honest. It has to show you both numbers. The premium your policy would cost at the state's approved rate, and the premium you're actually being charged. Two figures, side by side, on one page. Which means the settled 5% isn't automatically your bill either. The settlement moves the benchmark. Your premium sits wherever your insurer priced your roof, your zip code, and your consent. Come renewal, your number can rise more than 5%, less than 5%, or not at all. So the number that decides your deal math isn't in the headline. And it isn't in the press release. It's on the renewal letter in your mailbox right now. Same rule when you're buying. Never underwrite a Coastal Carolina purchase off the rate you can look up. Quote your own policy on your own timeline, because the seller's premium might be grandfathered somewhere you can't follow. We learned that one the hard way in Punta Gorda. And one wrinkle worth circling on your calendar, that first 5% lands October 1st. A renewal that closes in September prices off the old benchmark. One in November prices off the new one. If your renewal is sitting right on that line, you've got a real decision. And we break that exact one down as a scenario this week. And this year, that letter is the whole ballgame, because the other side of your ledger isn't moving. Our own rent data has raleed dead flat year over year. Charlotte, up half a percent. When revenue is flat, the expense line is the only thing in the fight. So read it. One more thing came out of that settlement, and it's the part I actually like. North Carolina added new mitigation credits for fortified roofs in its eastern territories. For the first time, the state that scared everybody with a 68% headline is paying you to make the risk smaller. We watched this lever work just last week. The Punta Gorda insurance quote that doubled, and the wind inspection that clawed a chunk of it back. A fortified roof goes a step further. It's a certified construction standard. Sealed roof deck, ring shank nails, lockdown edges, with a certificate that ensures price. In Alabama, that certificate is worth 20 to 55% off the win portion of the premium, by law. Two states will hand you up to $10,000 in grants to build one. It runs maybe a thousand, fifteen hundred dollars over a standard re-roof you were going to do anyway. And now Carolina credits it too. That's the pattern I keep coming back to. The headline number, you can't touch it. The benchmark, you can't touch that either. But the premium itself bends to operations. An inspection, a certificate at your next re-roof, two competing quotes before you sign this year's consent letter. That's forced value on the expense line, and it's yours in a way the rate case never was. It matters for the screen too. Insurance is the line that's been squeezing storm state cap rates down toward the red on our own plus five test. Force the premium down, and the whole deal moves with it. So here's your challenge tonight, and it's a 10-minute one. Pull two pieces of paper, your renewal and your consent to rate letter if you've got one. Find both numbers, the state rate premium and yours. Measure the gap. That gap is your insurer scoring your specific roof. If it's wide, don't argue with the price. Change the thing being priced. Quote a wind mitigation inspection. Ask your carrier, by name, what the new fortified roof credit is worth at your address. Get two competing quotes before you sign anything. Then take the premium you can actually get, not the panic number, not the fantasy number, and rerun the deal through the cash flow calculator on reiprime.com. If it only worked at 68 or only works at five, it never worked. One line to keep a filed ask is not a rate. The ask was 68, the rate was five. And the number that runs your building is on neither page. It's on your renewal. I'm Martin Maxwell. This has been the Five Minute Prime Podcast. I'll see you next episode.