Covering debt service in expensive markets (Seattle)

9 Replies

I am looking for multi-families in Seattle. 4-6 units, give or take. Like many expensive markets, even if I can negotiate a better price, spruce up, and raise rents...I see pretty negative cash flows.  I'm sure this is a basic question, and I'm willing to look at a deal over the long term, but considering the high prices, the negative flows aren't trivial.

Open to advice, calculators, etc.  We've got $ to invest. 

Thank you


@Jason Giroir I can feel your pain. I have clients that are adamant for investing where they live (Southern California). The issue is the deals that they are looking at are so compressed when it comes to CAP rates that if you take on any debt it turns the deal upside down. For example, I was brought a 5 unit deal in LA county at a 3.75 CAP. The Cap rates in the Urban areas are gearing more towards funds, REITS and major companies that are purchasing them with Cash because they don't need to see a major return, they are virtually just parking their cash.

I would recommend expanding your circle of where you want to acquire properties.  With technology now it is becoming easier to acquire properties farther away and having a solid team to run the day to day.  

Good luck in your search!

Don't lose the value of debt service. You have the cash and that's the more difficult part. Accepting low CoC returns simply to have an "investment" isn't worth the opportunity cost. Look into expanding your farm area, leads, or network.

You'll definitely factor appreciation into these negative cash-flow deals. They simply can't work another way. The DSCR is not just an annoyance from the lender it's a good safety net. Unless you have unlimited funds to keep supplying the asset, especially during a downturn, how do you plan to survive the coming recession? Who want to invest in a deal that's in danger of additional capital call at any time?

Hence the properties are bought with enough cash down to get to a reasonable cashflow. Otherwise you're literally just gambling, not investing. 




On 5+ units, Take your NOI, divide it by 1.25. Divide by 12. Put that number in payment. Put in interest rate, and am and solve for PV. That will give you the loan amount that you can expect on the property based on actual numbers. My guess It's not cash flowing in your numbers because you are Probably taking the purchase price and doing LTV ratios. In reality, You are probably looking at 50%-60% LTVs in those markets.

There's a 6.4% CAP quadplex for sale in Georgetown right now - we passed on it because we're finding better returns on our other seattle properties. Unless you've got really rough financing though that should cashflow.

What’s worked for us in seattle is being patient and creative. There’s a lot of wealth here so if you want a good deal you have to wait for it, or look where others aren’t looking/aren’t willing to look. Good luck!

@Jason Giroir live where you want and invest where the numbers make sense. If you want to invest close to home, try looking at markets within a three hour drive. Your rental property should always cash flow.

Originally posted by @Jason Giroir :

I am looking for multi-families in Seattle. 4-6 units, give or take. Like many expensive markets, even if I can negotiate a better price, spruce up, and raise rents...I see pretty negative cash flows.  I'm sure this is a basic question, and I'm willing to look at a deal over the long term, but considering the high prices, the negative flows aren't trivial.

Open to advice, calculators, etc.  We've got $ to invest. 

Thank you

I'm from Seattle and now invest in Arizona because of the following spreadsheet

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area