Methods of looking for good deals in greater Seattle areas

7 Replies

Hi, I am looking for good multifamily deals in greater Seattle areas that meet my investment criteria: positive cash flow, 12% cash to cash return, and 8% cap rate. However, I am not able to find such deals through popular real estate sites (Zillow) or my brokers. Any suggestions? Thanks! 

@Xiaolong Yin welcome to BP! I recommend joining the Washington Landlords and do some networking. The meetings are/were quite active and you will meet some helpful folks. I have also looked on sites like Keller Williams Commercial and Coldwell Banker Commercial; and found leads but not more. I don't need to tell you the market is very tight. All the best!

@Xiaolong Yin welcome to BP! I recommend joining the Washington Landlords and do some networking. The meetings are/were quite active and you will meet some helpful folks. I have also looked on sites like Keller williams commercial and found leads but not more. I don't need to tell you the market is very tight. All the best!

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Originally posted by @Bjorn Ahlblad :

@Xiaolong Yin welcome to BP! I recommend joining the Washington Landlords and do some networking. The meetings are/were quite active and you will meet some helpful folks. I have also looked on sites like Keller Williams Commercial and Coldwell Banker Commercial; and found leads but not more. I don't need to tell you the market is very tight. All the best!

Thank you Bojrn! I will look into local landlords group and start networking. Appreciated the guidance. 

@Xiaolong Yin I would recommend starting by doing a lot of research on the properties currently listed on the market. The criteria you have listed is great in that it is very specific. At this time the market for multifamily properties is extremely hot. As such, you are not very likely to find something meeting this specific criteria listed on the MLS as the strong demand for this asset class pushes down the returns.

I would suggest spending some time determining what strategy you will employ to generate the return you are looking for.  This could be finding off market deals, distressed properties or possibly development plays.  The key take away is that you'll likely not be able to find what you are looking for on the market and will instead need to have a plan for how you will create value in the underlying asset to generate the return you want.

Best of luck,

John
Thanks John! Your feedback makes sense and I will definitely explore them. 

Originally posted by @John Barrett :

@Xiaolong Yin I would recommend starting by doing a lot of research on the properties currently listed on the market. The criteria you have listed is great in that it is very specific. At this time the market for multifamily properties is extremely hot. As such, you are not very likely to find something meeting this specific criteria listed on the MLS as the strong demand for this asset class pushes down the returns.

I would suggest spending some time determining what strategy you will employ to generate the return you are looking for.  This could be finding off market deals, distressed properties or possibly development plays.  The key take away is that you'll likely not be able to find what you are looking for on the market and will instead need to have a plan for how you will create value in the underlying asset to generate the return you want.

Best of luck,

John

Send the numbers for the properties you are looking at and lets see what we can come up with. You should not base your decision to purchase a property based on the marketing package from the broker because what is more important is the ability to manage the property better, increase the rents and when you increase the rents you  immediately change (increase) all your profits almost exponentially.

I keep telling this story over and over for the past few days on BP. A broker called me two weeks ago and had a 10-unit property for sale for $1,950,000 or $1.9 million (can't remember). I immediately told him the price per unit was too high, but I sent the broker's phone number to a broker friend. My broker friend got all-excited and immediately put the property in escrow. Then, I did the math and realized that I made a mistake and the following charts show that with a $500,000 down payment my friend will earn maybe more than $1.5 million in 5 years.

You have to do the math. I included a rough not not accurate number for principal paydown and did not include depreciation tax credit nor inflation, but I always use projections on the low side and my properties always exceed my projections and expectations.

Send numbers for some of the properties you looked at even in the past and lets see if you made some mistakes by not buying some of them.

Hello @Xiaolong Yin ,

There may not be any multi-family properties that generate the cash flow and return you are seeking in Seattle. There are none in Las Vegas. But, be aware that there is a significant difference between paper and actual returns.

A few years ago, we studied vacancy costs for the three major tenant pool segments in Las Vegas. The results are shown in the table below.

For example, suppose I owned a C Class 4-plex generating an 8% return. I will assume that the property costs $400,000. If I ignore debt service, management, maintenance, etc., the annual paper rent would be $32,000/Yr or 8% cash/cash. If I subtract vacancy cost (4 x $3,200), the net rent reduces to $19,200/Yr, or a 4.8%. Also, consider maintenance costs. With a 4-plex, you have 4 water heaters, toilets, appliances, HVAC, etc.

Properties are not islands. When you buy a property, you also lock in multiple other costs, regulations, and more, as shown below.

When you buy a property in Seattle, you also buy the regulatory environment. Seattle has a pro-tenant, anti-landlord regulatory environment. For example:

All of these regulatory costs reduce your profitability. I am aware of these costs and regulations because we have had multiple clients use 1031s to sell their Seattle properties and buy in Las Vegas, which is landlord-friendly.

In summary, when you are evaluating a property, do not rely on the paper return. Determine vacancy cost, the cost of regulations, and much more for your property and tenant pool, and include all these costs in your calculations. You will be surprised at the difference between paper and probable return. The best place to get such cost information is to interview multiple local property managers with a significant population of units under management similar to what you are considering.