Overpriced Multi-Family listings in Washington & Oregon State

Multi-Family and Apartment Investing
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Overpriced Multi-Family listings in Washington & Oregon State

Lara Nicole
Member since 2021 · 23 posts · 20 votes

I've noticed a steady increase in most Washington & Oregon state MFs to the point where these properties don't even come close to meeting the 1% rule & would actually be breaking even or taking a loss if purchased.

Are there any other cities/counties in the PNW (or elsewhere) where there's still some prospects for healthy cash flow?

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Chris BlackburnPro Member
Developer · Salem, OR · Member since 2014 · 193 posts · 111 votes
5y

I think there is so little on the market- everyone is hoping for a 1031 exchange that can afford to pay too much.  I will tell you that the cost of replacement is amazingly expensive.  With the SDCs, increase in labor costs, increase in material costs, energy code changes, land-use changes, existing buildings are a BARGIN.  Everything is getting more expensive:(

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  • Spencer Gray
    Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
    5y

    We are seeing similar issues in other states as well (Midwest and Southeast specifically). 

    Most deals we underwrite don't pass a DSCR test of 1.25 and therefore cannot be leveraged at our typical 70-75% LTV.

    There are still deals out there, you just have to go through and underwrite more than ever to find one. 

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  • Chris BlackburnPro Member
    Developer · Salem, OR · Member since 2014 · 193 posts · 111 votes
    5y

    I think there is so little on the market- everyone is hoping for a 1031 exchange that can afford to pay too much.  I will tell you that the cost of replacement is amazingly expensive.  With the SDCs, increase in labor costs, increase in material costs, energy code changes, land-use changes, existing buildings are a BARGIN.  Everything is getting more expensive:(

    3Reply
  • Brandon VukelichBusiness Member
    Real Estate Broker · Tacoma, WA: 🏢 27 LTRs 🏡 3 STRs · Member since 2018 · 549 posts · 458 votes
    5y

    We haven't been near the 1% rule for years in the PNW, in most attractive/hot neighborhoods.  Might find something in Central WA, small towns like Ephrata, etc. But even places like Moses Lake fall short of 1%. When you say "break even" I suppose it depends on how you're leveraging the deal.  They will cash flow with enough money put down but yes, tough for 20-25% down scenarios.  You are competing against a lot of investors banking on the continued double-digit appreciation and not buying so much for the CF.  Plus 1031'ers.  I'm sure there are some C-class properties out there somewhere that may meet the 1% target, it takes a lot of hunting.

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

    @Lara Nicole I would argue that it's the rare property in Washington state that does meet the 1% rule.  The majority of markets that have high appreciation (specifically west coast) generally do not achieve 1% in monthly rent.  That said, it doesn't make investing in those properties a bad idea.  It is simply a function of what your personal risk vs return profile.

    The challenge is to find properties that you have a strong plan for improving the current performance.  While this may not mean you will achieve 1%, it can be a great strategy for building monthly cash flow and significant wealth.  I would encourage you to look at the sub-markets surrounding the areas you like best.

    John

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  • Susan Carson
    Member since 2021 · 4 posts · 2 votes
    5y

    Living in Central Washington, Soap Lake area, I can tell you that many investors have been flooding our area due to the high increase in rental rates compared to the average commercial and residential sale prices. Many telecommuters have been escaping from Western Washington to the area without completely leaving the State 

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

    @Lara Nicole, the 1% is more of a guideline more than a "rule". For this market, we need to look at the big picture. A lot of this small multi-family has a double-digit appreciation. Many investors keep them for a few years, then do a cash-out refinance.

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  • Bobby Larsen
    Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes
    5y

    1% rule in PNW? I can’t even remember when that was possible unless you were in tertiary markets and even that is impossible now. The 1% rule has historically only worked in areas that are very landlord friendly where expense ratios are higher. Or, if you’re buying C- properties. 

    The 1% rule ignores expenses so keep that in mind. For 50+ unit properties, you’re probably operating between a 35-40% expense ratio in California, PNW, and most of the western US. Whereas in other parts of the country, you’re probably operating with a 40-60% expense ratio.

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