Is cash flow possible in Seattle

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Is cash flow possible in Seattle

Chen Tong
Member since 2021 · 1 post · 3 votes

I want to purchase an investment property in Seattle. Searched many deals but wasn't able to find one any where close to 1% or 2% rule. The cash flow all come down negative. Is Seattle area still worth buying? 

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John Barrett
Rental Property Investor · Everett, WA · Member since 2015 · 458 posts · 386 votes
5y

@Chen Tong you really are not going to be able to use the 1% or 2% rules of thumb in the Seattle MSA.  Seattle and the surrounding markets have experienced very high level of appreciation over the last few years. Those rules are more applicable for markets that are centered on cash flow (generally low appreciation). 

You can still find deals that make sense on the MLS though you will need to be patient (wait for the right opportunity) but prepared (ready to submit a strong offer on a property that meets your criteria). Given the low level of inventory there is a lot of competition for every property. At some point it will change and become a buyers market, however that appears to be a ways off.

As such, this likely means you will need to change your investment strategy.  Look for ways you can use what's currently available on the market to generate higher returns (greater income or lower operating costs) or offset your living expense while capturing market appreciation. This could be via house hacking or renting by the room style models.  Regardless of what's going on in the market, you always have choices.  Choosing to save money and wait for a better opportunity is also an equally valid choice.  Just focus on what will work best for you and move you towards your ultimate goal.

Best of luck,

John

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  • Brian SherPro Member
    Developer · Waxhaw, NC · Member since 2020 · 12 posts · 13 votes
    5y

    @Chen Tong I am still a Rook but to me it seems like there is no deals in Seattle, at least on the MLS portals like Redfin. I feel like most are getting deals off market. I have been trying to reach my goal of calculating 100 properties in 90 days or less and most have been negative. I decided to cheer myself up and look at other markets, I guess I was doing it right. Lol.

    Seems like the market is so hot that even regular first time homebuyers are looking at vacant property because building a house might actually be cheaper.

    2Reply
  • Anjoli Elizabeth Rowe
    Rental Property Investor · Madison, WI · Member since 2019 · 15 posts · 10 votes
    5y

    @Chen Tong

    I've been looking outside of Seattle in the Bremerton area (my husband and I are moving there with the military) and have been really disappointed with my finds. Deals certainly seem hard to come by...I'm not surprised you aren't seeing anything good in Seattle. It's probably worse than these neighboring areas.

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  • Brian SherPro Member
    Developer · Waxhaw, NC · Member since 2020 · 12 posts · 13 votes
    5y

    @Chen Tong  or maybe we're not thinking like Rich Dad, " how can I afford this" I have been hearing a lot about ADU's and DADU's lately. I am sure there is a lot more creative ways to cash flow on these properties. I would love to hear from some of the veterans in our area about what they are doing in the post 2020 market. 

    1Reply
  • John Barrett
    Rental Property Investor · Everett, WA · Member since 2015 · 458 posts · 386 votes
    5y

    @Chen Tong you really are not going to be able to use the 1% or 2% rules of thumb in the Seattle MSA.  Seattle and the surrounding markets have experienced very high level of appreciation over the last few years. Those rules are more applicable for markets that are centered on cash flow (generally low appreciation). 

    You can still find deals that make sense on the MLS though you will need to be patient (wait for the right opportunity) but prepared (ready to submit a strong offer on a property that meets your criteria). Given the low level of inventory there is a lot of competition for every property. At some point it will change and become a buyers market, however that appears to be a ways off.

    As such, this likely means you will need to change your investment strategy.  Look for ways you can use what's currently available on the market to generate higher returns (greater income or lower operating costs) or offset your living expense while capturing market appreciation. This could be via house hacking or renting by the room style models.  Regardless of what's going on in the market, you always have choices.  Choosing to save money and wait for a better opportunity is also an equally valid choice.  Just focus on what will work best for you and move you towards your ultimate goal.

    Best of luck,

    John

    5Reply
  • Sherief Elbassuoni
    Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes
    5y

    @Chen Tong, @Brian Sher, and @Anjoli Elizabeth Rowe, the MLS still have deals, but as @John Barrett mentioned above, they need some work and they are not so low hanging fruits like other markets. 

    We typically need to force appreciate the property (rehab it) to get decent numbers.

    We also typically need to house hack the property to get high returns (ADU, DADU, rent by room, MIL,...)

    When you look at the big picture, numbers still make sense since some properties double in values in less than 10 years (high appreciation market).

    Always open to more conversation over phone or coffee if that's helpful!

    4Reply
  • Antonio CuccinielloPro Member
    Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
    5y

    So the 1% rule or 2% rule are just guidelines. There are other ways to make a property cash flow, you just need to manipulate the formula.

    So, knowing what I know about Seattle, the home prices are probably higher and the rents don't match up.

    The formula is for cash flow = income - expenses. 

    If you find a way to increase the rents, you might be able to cash flow.

    Another way is to reduce the expenses. If you put more money down, your mortgage will be cheaper. If your mortgage is cheaper, then your expenses drop. At some point in the formula, the income will exceed the expenses and you will find cash flow!

    732-402-6988
    0Reply
  • Trevor Turner
    Rental Property Investor · Clarksville, TN · Member since 2018 · 3 posts · 4 votes
    5y

    @Chen Tong

    As everyone said, you aren't going to find MLS deals in the Seattle area. However, if you are willing to expand your boundaries, there is more potential. You can still find some deals on the MLS near Olympia/Tacoma, but you will need a strong offer. The possibilities grow the further outside of Seattle you get.

    I recently closed on an SFR in Bremerton. Pure cash flow of about $300/month. It was an MLS deal that had been on the market awhile due to septic tank issues which scared a lot of buyers away. Got the septic tank replaced and it worked out well for me. Look for properties that have been on the market 30+ days. Those are the properties that most likely have something wrong with them that scare buyers away which can work in your favor.

    If you're willing to go even further, try Aberdeen/Hoquiam. This is where Brandon Turner started. Homes are cheaper, but they typically need a little bit of work. On the other hand, the competition isn't nearly as crazy and the rental inventory is low over there. 

    3Reply
  • Michael HaasBusiness Member
    Real Estate Agent · Sammamish, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 725 posts · 3k+ votes
    5y

    @Chen Tong , @Brian Sher , @Anjoli Elizabeth Rowe what are your assumptions for Cashflow? Unlike GRM or other metrics, cashflow is highly dependent on your loan amount and terms, as well as your CAPEX, Repair, and Vacancy assumptions. I typically run house hack numbers at 5% down, 8% CAPEX, 3% Vacancy. Those estimates could be seen as a little aggressive by some, but if you use low-cost handymen and do a basic rehab of the property when you buy it you should be able to keep those CAPEX and repair numbers pretty low.

    With those assumptions cashflow deals are out there, even on the MLS. All our rental properties cashflow except for one (a development play) cashflow very well, and we did 17 deals for house-hacking or investing clients last year, all with cashflow at as little as 3.5% down (FHA). There's a TON of investors in Seattle, and we all wouldn't be doing this if we weren't able to find at least modest cashflow on deals.

    As Sherief called out, adding value is key. It doesn't have to be a rehab necessarily, but you should always ask yourself "how can I maximize the rents from this property?" and "what angle might the seller, or other investors, be missing here?" Other ways to add value: Airbnb / STR part of the property, add a bedroom or more (but don't rehab the whole structure, add a basement ADU or backyard cottage (DADU), do a lot split, do an addition (we have an abbreviated permit process in Seattle for many additions under 700-ish sq ft)

    Off market deals are definitely worth exploring, but its also worth calling out that there are plenty of pros out there that spend 100% of their time hounding for these deals. It's a long process to find an off market deal, and that search is best suited to long term investors willing to nurture a farm neighborhood for 1-5 years, with the bulk of the results typically coming towards the end of that period. 

    Lots to type up I know! I talk a heck of a lot faster than I type, so feel free to message me to setup a phone call if you'd like to dive into this in even more detail. Cheers!

    [email protected]408-439-7873
    HouseHack Seattle | Michael Haas & Team572 Reviews
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