Next steps after the first leap in the Seattle area

7 Replies

Happy soon to be Turkey Day, BP! First post after some lurking the forums. I'm looking for advice as to next steps for me. So, where am I?

The fun stuff:

I closed on my first property in August of this year (a 2-plex in Bremerton, WA)!

Could I have done better? *probably*

Did it get me in the game? *yes*

It was more of a proof of concept that brings me a little over $400/mo in cash flow. The tenants are a perfect, and came highly recommend by the prior owner. I'm looking to slowly bring rents up to year-over-year as we renew leases. Maybe I'm crazy, but since the tenants are great, I'm opting for the easy (albeit lower) ROI. If I have to turn the units we will be talking a different game.

Where I'm at:

Currently living in Seattle proper and rent-hacking 5 rooms with my GF. This keeps my personal expenses pretty low with rent being sub-$500/mo. I have great credit. A decent job paying a little over $55K with the opportunity to transfer anywhere in the state and a flexible schedule. And somewhere around $30K I'm looking to deploy in another property.

Current plan:

Currently working with an agent and trying for an owner-occupied 3.5% down FHA on as much as I can get my hands on (preferably as close to North Seattle as possible). I'm currently looking for 4 or 3-unit property in, or around, Everett, WA. (But I'm even considering 2-plex at this point). It has been tough since I'm just at the cusp of income and savings that keeps me out the majority of 3 and 4-plexes that come on MLS.

I want to go as big as possible with the FHA since it is kind of a one-time-deal in the area you purchase, and I want to maximize my internal-rate-of-return while eliminating my monthly rent. But, at the very least, with a 2-plex I would be "paying myself" each month instead of someone else.

What would you do given the information I've provided?

A. "The current plan the best use of your time and money. Stay on target! You are doing great!!!"

B. "Nix that 2-plex idea, and start looking for a 4-plex after Jan 1st when you get a 7% raise and qualifying will be easier."

C. "Stop doing things all by yourself! It is time to look for an experienced partner to invest with. You have the funds!"

D. "Don't blow all your money just yet. You'll need part of it for a rainy day. Sit back and let that passive income flow." 

E. "Sell everything you have and move out of that god-forsaken, rain-soaked city to another market where your money will go WAY farther!!!"

F. [Fill in the blank]

Bonus. "Post this in [blank] sub-forum. Your way past 'starting out'."

Ultimately my goal is larger multi-family properties (20+ units).

P.S. I love living in the rain-soaked PNW :)

B. Strongly recommend B. Only issue I see is it could be hard to get an FHA offer accepted in this market. I started off with 4 units in 2013 and am up to 35...all in good ole Everett

F. [Fill in the blank]

Sorry mate, couldn't resist :)

I'm also in the PNW, just a couple hours south of you. Tough market, everything on this beautiful site says not to bet on appreciation, but with cap rates so low and the 2% rule basically impossible in most of our areas it's hard to find cash flow, at least from what research I've done so far. 

I'm considering a move to Seattle in the next couple of years for work, but yeah man, those sky-high prices are a major concern... Buying FHA with 3.5% down is a nice idea, but holy cow, how much PMI are you paying out every month on the 2-4 plexes up there? That, on top of the bubble-icious prices make it sound super scary to get into the multi-unit market in that area, unless areas outside Seattle are a little less intimidating?

I've been wondering a lot lately about what I would do if I were working in Seattle. Part of me is tempted to say rent in seattle as cheap as possible, while saving up to buy investment properties in areas nearby Seattle where prices are more reasonable. Either that or buy a tesla to take you to work every day and buy as far away as you want while you sleep through your commute. :)

I can't say what you should do because I don't know your personality, strengths etc. Real estate has many good paths, but only some are good for you. However, regarding getting a nice FHA deal - what I did by accident you can do on purpose. Target HUD homes. They must only allow owner-occupant offers when it is first on market - this helps to keep the bigger investors from outbidding you. Something like the first 8-10 days

Hi @Grant Fosheim I'm kind of leaning towards B. as well. But I do see the challenges of FHA offer.

@Rachel Luoto , I'm definitely going be looking into the HUD homes after what you said. Any advice on how to locate them? How did you fall into one?

@James R. Copeland The prices outside Seattle are are a *little* less intimidating. I like the place I got in Bremerton, and would probably keep looking in that area if I was not trying to do the low money down FHA. The ferry ride is gorgeous, the week before last I saw orcas on my way back to Seattle.

I probably overpaid for my first property too.   I bought near the peak of the first housing bubble,  but fast forward 11 years and that property is mostly paid off, its probably worth 50% more than what I paid (after being worth less than what I paid for 6 or 7 years) and everything is renovated, and the rents are nearing double what they were when I bought.

unless you are going to budget for a PM,   having one property in bremerton and the other in everett sounds like an awkward situation involving a lot of boat rides and sitting in traffic.  

I don't pay as close of attention to the kitsap side of the sounds, but I'd probably be looking for the 2nd property over that way.  But agree there isn't a lot of inventory right now and you are lucky to find anything 2-4 units halfway decent for an asking price anywhere near 5% cap.  

Can you jointly qualify for something with your GF's income?    (this could work very well or very badly;   I suppose it depends on the two of you) 

If you can't find a 2-4 unit in bremerton maybe find a fixer house and 'house hack' instead of 'rent hack'.   Get your equity from fixing the place up for a few years and having some roommates,  while being 10 or 15 minutes away from your investment property instead of 2 hours. 

Hi @Marlon Deppen you can find the homes directly on hudhomestore.com but they are also listed on the MLS. The only thing with Bremerton, since we are discussing, is there are a lot of VA buyers to compete with.

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