Leavenworth Insurance - An Interview with Eric Kossian

10 questions for Eric Kossian of Leavenworth Insurance

Here is my second installment of my "10 Questions" series. Eric Kossian of Leavenworth Insurance is a insurance broker in Leavenworth, WA. He is located on Highway 2 in Leavenworth next to Jerry's Saw Shop. His motto is "We love to save you money!"

1. What does an insurance broker do?

Geordie, an insurance broker locates and shops insurance products to protect clients from the financial risk of loss due to such things as fires (property), accidents (liability), death and unsecured retirement investments and income. While most agents think in terms of selling product that is incorrect; we are in the business of asset protection. Some examples of personal assets could be an owned home, cars, income- your ability to produce it, your life (yes, it is a financial asset), and investments. We then use a wide variety of insurance and annuity products to safe guard assets. A good insurance agent asks you lots of questions about everything in your life. This exposes risks which are currently being self insured. A good agent then shows the client options to reduce risk by reducing or moving all or part of the self insured financial risk to others. Having been an Underwriting Specialist for a huge insurance company, I have a keen eye for risk.

2. What special insurance products do you offer for the Leavenworth market that other agents or companies might not offer?

While I office and live in Leavenworth, my clients and my advantages are statewide. I can insure most log homes at the same rate as frame construction ( a big savings). But specifically, the most frequent & obvious area I can help people is eliminating the risk (1 in 5 chance, nationwide after a claim) of not having enough insurance to cover the replacement cost of your home. Almost all “replacement cost” policies are capped and the rest is your out of pocket expense. However, I have found a company that removes the cap and will simply replace your home in the event of total loss (and they almost always cost less!) But generally, I provide better risk analysis. Last week, among the clients I insured were 2 multimillionaires and a young fireman who owns 4 homes. They all had significant gaps that could have cost them hundreds of thousands in the event of a claim and I was able to show each of them things on their existing policies where they could save money. It was very satisfying to help them and I actually get paid to do help! They also have simple investment and retirement income risks that are easy to avoid which I am helping with. Why take unnecessary risk if you don’t have to? Make sure you have the “big things” covered.

3.What kinds of clients can you help the most?

The more one owns the more I can help.

4. What things in a home or things about a home make it difficult to insure?

Homes generally qualify for preferred insurance if they have had updates to the electrical (Romex wiring and 100 amp panel min.), plumbing (no pressurized galvanized pipe), the roof is in good shape, there are no major foundation issues (large cracks, major settling, post & pier or rock & mortar foundation). They also cannot have any type of home business (unless approved 1^st)- including renting out their home for a nightly or vacation rental. Finally, they cannot be more than 5 miles from a fire station or on a road that is inaccessible in winter.

5. Where do you see people being the most underinsured? What liabilities are we not insuring?

There is a long list but the two that effect the most people are: 20% of homes are underinsured, Auto liability is often too low (and is cheap) and many people should have a $200 a year, 1,000,000 excess liability policy. In addition, people often have their assets (their home and retirement assets and their life asset) structured in manner that is risky and not the most conducive to wealth building.

6.Will the massive claims from hurricane Katrina have an effect on insurance in Leavenworth, WA?

Indirectly, yes. With billions being paid out, that is lost investment income for insurance companies. That can affect rates nationwide. That why some many preferred companies will no longer write policies within 40 miles of the gulf and Florida coastline.

More likely to impact Leavenworth home insurance rates is the satellite photo & computer aided modeling insurance companies are doing in California. It will eventually spread to Leavenworth. It has been highly accurate in predicting future losses based on fuels & topography.

7. If I have to snowmobile to my property in the winter how does this affect the insurance?

You will pay an extra $1000-$1500 per year for non preferred homeowners insurance.

8. How is insuring a condo different than a house?

Condo insurance insures only the contents and liability ( the structure is insured by the association). There are several things I recommend for condos and board members.

9. Do you offer insurance for people building a home?

Yes, people who own property and have a contractor who is going to build their dream home need to get Course of Construction insurance. It covers the dwelling and their liability.

10. If you could ask 10 questions of anyone alive today, who would it be and why?

Being a historical buff and the fact that I am writing this at 10:30pm all the people that are coming to mind are all dead! Ha! There is so much more I want to learn about so many things, I would ask the 1^st person permission to ask 1000 people a hundred questions. I love to read on a variety of subjects so at any one moment the person selected could be an astrophysicist or a kindergarten teacher.

Leavenworth WA real estate - Should you be investing?

Are you curious about investing in the Leavenworth or Lake Wenatchee real estate market? Seems like everyone is interested in real estate investments these days. I see or hear about three types of “investors” most often in our local market. I use the quotes because most of these are “would be” investors who can’t find what they are looking for in the Leavenworth or Lake Wenatchee real estate market. (I read this article from Broker Agent News, (Top 7 Tips,) after I started my post. Notice the similarities including the use of quotes around “investor”.)

The first is the fix it and flip it investor.

Most don’t have the skills needed to fix the houses with real potential. There aren’t many homes in our market that just need a little paint and new flooring. Much of what is available needs some real love and perhaps even moving a wall or two. Another problem is the high price to get into the market. While $250,000 doesn’t seem high in Seattle or San Francisco, it seems high to a Leavenworth or Wenatchee resident for a house that needs a lot of work. Finally there is the turnaround time. Our time on market, even for great homes, can be a little tough on investors looking to get their money back. If you expect it to sell in a few weeks after you have fixed it up, you may be in for a surprise.

Second, we have the typical landlord investor.

These folks are looking for a property, especially multi-family properties such as duplexes or tri-plexes that have good cash flow. This means that the income coming in from rent is greater than the expenses for management, upkeep, and the mortgage payments. The houses are paying for themselves and the investor only needed to have enough for the down payment. Here’s the bad news- it ain’t gonna pencil. A few years ago you might have found rental properties in Wenatchee (but not Leavenworth) that had good cash flow. Not today. Why? Because real estate prices have gone up, but rental rates really haven’t. Robert Kyosaki, the author of the Rich Dad, Poor Dad series had a good idea. Write rental agreements with language that automatically raises rents yearly. How many times have I heard from landlords that they know their rents could be higher, but they didn’t want to lose their great tenants by raising the rent. Guess what? The investor buyer doesn’t care so much about the quality of the renter as much as the quality of the rent.

Third, we have the vacation home buyer.

This person wants to buy a vacation home and rent it out when it is not in use. This isn’t a bad strategy except for the following caveats.

1. Make sure the zoning allows it. In Leavenworth, “nightly/weekly” rentals are only allowed in areas with Commercial Zoning. For the most part, this means a condo, although some older houses are located in commercial areas. In unincorporated Chelan County the zoning isn’t as big of a problem.
2. Be prepared for Management Fees and Condo Association Fees. Managers for vacation rentals locally are charging 40-60% of the rental rate. Some will even charge you a cleaning fee to use your own property. Additionally the monthly condo fees can be a few hundred dollars. These fees make Cash Flow a difficult proposition.
3. When are you likely to use the property? If it’s just an investment- great. Most folks hope to come over for a few long weekends and holidays. Christmas, New Years, Spring Break, MLK Day, Oktoberfest – these are the big money makers for vacation rentals. The quiet times? Mid week (Tuesday through Thursday) and the in between seasons. Can’t golf or go skiing because the weather won’t cooperate? This is the quiet season. There is a great article about making money from vacation rentals here.

What is my advice for the real estate investor? First of all look to the long term. There aren’t many get rich quick deals. If they exist, they require lots of money and certainly talent. There is however lots of money to be made by investors who can wait a year or two. Second. Look beyond cash flow. What about the other sources of profit? Depreciation, mortgage deduction and market appreciation. One of my favorite ideas currently is land that doesn’t quite cash flow. Find a house, often a manufactured home, on a great lot that has lots of value. Rent out the house for a few years with minimal improvements. Does the renter pay the mortgage? Of course not, but when’s the last time you got rent on bare ground? In two or three years the lot has increased 20% a year and you can remove the structure and sell the ground. Similar to this is Rent, Fix and Flip. Buy a fixer upper with potential. Rent it out before you fix it and after a few years of building equity then flip it. We have great appreciation right now, take advantage of it by holding on to it. I think land is a great place to invest right now. Not necessarily large subdivisions, but little short plats of 2 to 4 lots or just keeping a small in town lot or a lot in an existing subdivision.