High home prices, Low rental market

15 Replies

I have been searching for homes in Ellensburg, Washington recently to keep things manageable and close to where I live.  There is a University here with proven rental market. The issue is that the home prices here are so high that it's extremely difficult to find a good cash flowing buy and hold property. 

My questions are:

Anyone in Washington State noticing the same thing with rental income market compared to high home prices?  

What is your advice besides to just keep waiting for the right home to open up?

Thanks to all for your support!

I am not from or familiar with Washington. however I can tell you this is a common question and problem. 

You are probably looking in the wrong areas. I bet within a hour and 1/2 drive there are deals that will cash flow nicely. Also often it is about how to find really good deals. Search the site there are lots of threads on how to find deals. There is a blog post of 100 or 101 ways to find deals.

@Ian McDonald  

 I live in Seattle and know the struggle you are facing very well. @Ned Carey   provides some excellent advice about searching surrounding areas. I put in about 10 offers on places in Seattle searching for my first property before I realized I was going to have to search outside the city to find the CF i was looking for. Now we invest in Everett, about 30 miles north.

I know Ellensburg doesn't have the same suburbs of Seattle but it is worth looking into. Also, look into multifamiles rather than singles, there is more CF in that segement.

@Ned Carey  

Thank you for the advice.  I have started looking in the surrounding areas and it does get a little better.  I notice that the farther you branch out you run into smaller towns that don't have as much industry, stable jobs, etc.. meaning the rental market also is even lower than where I am at, therefore rendering the same situation in ratio.  Looks like I need to get out of Washington State to get a decent deal.

@Grant Fosheim  

Much Appreciated.  Multi-family is definitely a way I want to go.  Only 2 available in Ellensburg right now that are far over priced.  Time to get out and look around!

Seattle to Ellensburg 109 miles. Seattle to Tacoma 35 miles. A friend and I rode our road bikes 39 miles in Tacoma today never on the same road twice. Vacant houses everywhere, many being renoed right now. Rents at a buck a sq. foot, up to 1200 sf. bigger than that a little less. Makes it easy to figure. Come get em.

@Ian McDonald  many people on west coast choose to look at the Midwest cities. There are pros and cons like anything, but if cashflow is what you want then Midwest has it. 

@Ian McDonald  I'm in Marysville and also was considering purchasing in Enumscratch for rentals.....until I saw everyone's asking prices!!  CRAZY!  Maybe new construction or purchasing some land and developing a manufactured home park would be in my future, but was was for sale last year made no sense, just cents LOL!

Originally posted by @Grant Fosheim :

@Ian McDonald  

 I live in Seattle and know the struggle you are facing very well. @Ned Carey   provides some excellent advice about searching surrounding areas. I put in about 10 offers on places in Seattle searching for my first property before I realized I was going to have to search outside the city to find the CF i was looking for. Now we invest in Everett, about 30 miles north.

I know Ellensburg doesn't have the same suburbs of Seattle but it is worth looking into. Also, look into multifamiles rather than singles, there is more CF in that segement.

 Everett/Lynnwood has lots of good opportunities.

Typical market cycles are 9-12 years long.  Probability says we are reaching a peak in the market... surely we have reached the midway point... this is why places are not cashflowing.  Now in Seattle specifically with the influx of Amazon we should see this uptrend continue but for how long.

In Seattle I am seeing sellers listing at 0.5% rent to value ratio (3000 monthly rent on a 600k MFH/SFH. This will not cashflow unless your are using a non-prudent amount of downpayment.

Wow, didn't think prices would be that high in Ellensburg to not CF. Is it really the prices are too high or is it the rental rates aren't that high? I know in Seattle the rents are ridiculous but the home prices are also high so it's very hard to find CF properties. I'd definitely look within an hour around you and if not then look into becoming an absentee owner.

Originally posted by Lane K.:

Typical market cycles are 9-12 years long.  Probability says we are reaching a peak in the market... surely we have reached the midway point... this is why places are not cashflowing.  Now in Seattle specifically with the influx of Amazon we should see this uptrend continue but for how long.

In Seattle I am seeing sellers listing at 0.5% rent to value ratio (3000 monthly rent on a 600k MFH/SFH. This will not cashflow unless your are using a non-prudent amount of downpayment.

 Yeah, so we try to identify the most optimal combination of high cash flow and high appreciation potential.  A little bit away from the city, but not too far away. :)

Originally posted by Lane K.:

Typical market cycles are 9-12 years long.  Probability says we are reaching a peak in the market... surely we have reached the midway point... this is why places are not cashflowing.  Now in Seattle specifically with the influx of Amazon we should see this uptrend continue but for how long.

In Seattle I am seeing sellers listing at 0.5% rent to value ratio (3000 monthly rent on a 600k MFH/SFH. This will not cashflow unless your are using a non-prudent amount of downpayment.

 I read this article.. http://fortune.com/2015/02/15/predictions-for-2015...

And I see the part about Amazon.. immediately thought about the correlation to Seattle real estate...

"Expect Amazon to stumble. Between the brawl with publisher Hachette over e-book prices, drones, and the Amazon Fire phone’s flop, losses are heading Amazon’s way."

Ian, don't discount the smaller towns that don't have as much industry & stable jobs right off the bat.  It will take more landlording/management energy and you are much less likely to see appreciation, but if you find the right deals to cash flow, you will have a tenant paying off the debt and will be increasing net worth.  It's not for everyone, but it's worth at least contemplating.

I have the same problem in NYC area. The options at least for me have been:

1) Invest in turnkeys in other markets typically in the Midwest right now.

2) Build a team in other markets to invest typically a great investor agent, property manager, contractor etc. Most likely including making a few trips out to your target markets.

3) Learn to utilize more advanced strategies that do not necessarily require renting such as buy-rehab-flip. Of course this requires some knowledge, a great contractor, a strong grasp of ARV, an ability to put money in or find private capital and prices that stay where they are or keep going up

4) Invest in a market that is a few hours away so you can drive there and do the same as step 2 but with a little less risk becasuse you can go there quickly if need be. 

@David Truong  

Good Question.  I would say that the majority of the properties are just too low of rent.  The issue always seems to stem from running the 50% rule on the property to achieve a conservative expense estimate.  An example would be a property I have been eyeing that is $126000 that would be $630 in mortgage and $1200 rent per month.  Once you add in the $600 for 50% rule you have already negative cash flowed on it.  That is the story on most all them. 

I am beginning to wonder if I could really spend $600/month in expenses if the property is A.) in good condition with little repairs needed and B.) self managed due to the close proximity to my primary residence and small portfolio to deal with. 

I would hate to buy that property and have a cap ex come out in 4 years that wasn't accounted for. 

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