Rental ROI Bellingham, WA vs Surrounding Areas

Bellingham, WA · Member since 2015 · 10 posts · 3 votes

Hey All,

I'm looking at getting into purchasing my first multi-family residence in Bellingham, WA. I'm curious to hear what everyone's thoughts are on the Bellingham market? I've been running the numbers, and to me it seems to make more financial sense to purchase a multi-family property in the Mount Vernon or Oak Harbor area. Looking at the multi-family properties available, I feel like the Bellingham market is overpriced at the moment. Agree/Disagree?

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Patrick Britton

Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes

10y

@Account Closed In short, yes the Bellingham market is a little on the higher priced side of things. However, that goes for the vast majority of properties in Northwest and Western Washington.

Referring only to Bellingham right now, we are operating at basically a 0% vacancy rate. Based on sales over the past two years the average capitalization rate is just under 5%. There doesn't seem to be a trend upwards or downwards in that capitalization rate. So while prices have increased, the capitalization rate seems to be keeping up.

While 9 out of 10 listed properties are not worth a second look, every now and then there is a sweet deal to be found, even in Bellingham and even right near Western Washington University. In fact, there was a very large duplex right next to Western that was for sale at a 7.5% capitalization rate. I did a huge amount of due diligence and tried my best to cut those numbers but in this particular case, the listing agent actually did her homework and all the numbers were verified. This property was about $475,000 though, perhaps a little expensive for a duplex and it was only on the market for a few days.

If Bellingham is a little rich for your blood you may consider Ferndale, Blaine or perhaps even Everson. Blaine in particular is interesting because it has a large number of federal employees making excellent income working at the border. Most of the agents and officers rent properties because they are uncertain if they will be transferred to another part of the country.

I just took a close look at the MLS and of the 12 multifamily properties available in Bellingham, there are three or four that are possibly worth consideration, but the average price is about $450,000.

Perhaps consider what sort of multifamily property you would like. There is quite the difference between a 10 unit building providing $400 rent per unit per month and a duplex giving you $2000 per unit. For instance, it can be argued that the quality of the tenant for the latter will be higher. However, a single vacancy will cut your gross rental income in half.

In short, there are some multifamilies in Bellingham that are priced reasonably, at least relative to their net operating income. However, you will be paying for this... With an average entry price of about $450,000, is it worth it? Keep in mind though, that they aren't building very many multifamilies in Bellingham anymore and while you should never assume a guaranteed appreciation, I think you would be hard-pressed to see a decrease in sales prices over the next few years.

Alternative locations such as Blaine, Ferndale, Everson and certain areas of Skagit County can have excellent opportunities very often overlooked by investors who think of buying only in Bellingham.

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Jess Robinson
Investor · Bellingham, WA · Member since 2010 · 12 posts · 7 votes
10y
I agree, Aron. Cap rates remain around 5 in Bellingham; varying up or down depending upon dwelling age and location. And the area around WWU commands a premium. Until recently, Canadian investors were competing in the market but with the exchange rate down to $.71, Canadian buyers have disappeared. Personally, I think Mount Vernon and Burlington are good markets. They're becoming bedroom communities for Snohomish County commuters. Oak Harbor has always made me a little nervous because the viability of the rental market is mostly dependent upon the Navy base there. I keep wondering when/if D.C. will pull the plug.
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Account Closed
Rental Property Investor · Everett, WA · Member since 2013 · 389 posts · 222 votes
10y
Hey @Aron Vesper,
Great question! I am interested to see the responses. I went to school at Western up in Bellingham and have always been astonished by the low cap rates up there. I live in Seattle and invest in Everett but the high cap rates in Mt Vernon are always that shining object trying to pull my attention away. Perhaps @Patrick Britton can shine some light on the subject as I know he is up in the Bellingham area.
1 Reply
James MillerPro Member
Investor · Snohomish, WA · Member since 2015 · 139 posts · 42 votes
10y
Everything on the mls in oak harbor is over priced right now. Thats not to say there are not deals to be had. A couple months ago a really nice duplex sold for 255k that should rent for 1150 per side. I just got a list made that I plan on starting a direct mail campaign to soon. So I'll keep you guys posted if I have any luck going off market.
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James MillerPro Member
Investor · Snohomish, WA · Member since 2015 · 139 posts · 42 votes
10y
When you say multifamily are you meaning 2-4 units or bigger?
0 Reply
Aron Vesper
OP
Bellingham, WA · Member since 2015 · 10 posts · 3 votes
10y
Yes, a 2-4 unit property.
0 Reply
Troy Fisher
Specialist · Kirkland, WA · Member since 2013 · 1k+ posts · 817 votes
10y
@Patrick Britton compiles a lot of stats about the market up there, and follows what's going on, I wonder what his thoughts are on the area?
0 Reply
Jan HensenPro Member
Rental Property Investor · Bellingham, WA · Member since 2015 · 6 posts · 1 vote
10y
@Aron Vesper, thanks for asking that question. I've been curious about the same and also hesitant on Bellingham for that reason and the rental inspection requirements, red tape that has been coming to town.
But I am also a firm believer in owning rental property close to your base, its the best way to self-manage.
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Account Closed
Bellingham, WA · Member since 2015 · 3 posts · 1 vote
10y
Hello Fellow Bellingham investors!
Good to read there are others in my area - I'm also interested in multi-family and it seems pricey, but I have not been here long enough( 6 months) to grasp the Wa marketplace.
Would any of the posters be interested in a N. Puget sound meet up for our area to exchange info and ideas?I know there is a Kirkland meet up but it seems like a long way to trek for a couple hours.
Sue
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Patrick Britton
Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
10y
@Account Closed In short, yes the Bellingham market is a little on the higher priced side of things. However, that goes for the vast majority of properties in Northwest and Western Washington.
Referring only to Bellingham right now, we are operating at basically a 0% vacancy rate. Based on sales over the past two years the average capitalization rate is just under 5%. There doesn't seem to be a trend upwards or downwards in that capitalization rate. So while prices have increased, the capitalization rate seems to be keeping up.
While 9 out of 10 listed properties are not worth a second look, every now and then there is a sweet deal to be found, even in Bellingham and even right near Western Washington University. In fact, there was a very large duplex right next to Western that was for sale at a 7.5% capitalization rate. I did a huge amount of due diligence and tried my best to cut those numbers but in this particular case, the listing agent actually did her homework and all the numbers were verified. This property was about $475,000 though, perhaps a little expensive for a duplex and it was only on the market for a few days.
If Bellingham is a little rich for your blood you may consider Ferndale, Blaine or perhaps even Everson. Blaine in particular is interesting because it has a large number of federal employees making excellent income working at the border. Most of the agents and officers rent properties because they are uncertain if they will be transferred to another part of the country.
I just took a close look at the MLS and of the 12 multifamily properties available in Bellingham, there are three or four that are possibly worth consideration, but the average price is about $450,000.
Perhaps consider what sort of multifamily property you would like. There is quite the difference between a 10 unit building providing $400 rent per unit per month and a duplex giving you $2000 per unit. For instance, it can be argued that the quality of the tenant for the latter will be higher. However, a single vacancy will cut your gross rental income in half.
In short, there are some multifamilies in Bellingham that are priced reasonably, at least relative to their net operating income. However, you will be paying for this... With an average entry price of about $450,000, is it worth it? Keep in mind though, that they aren't building very many multifamilies in Bellingham anymore and while you should never assume a guaranteed appreciation, I think you would be hard-pressed to see a decrease in sales prices over the next few years.
Alternative locations such as Blaine, Ferndale, Everson and certain areas of Skagit County can have excellent opportunities very often overlooked by investors who think of buying only in Bellingham.
7 Reply
Richard Rinehart
Business Executive, Investor · Bellevue, WA · Member since 2013 · 54 posts · 18 votes
10y
Great info @Patrick Britton thank you
0 Reply
Julie MarquezPro Member
Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
10y
Great information here! I invest in the Mount Vernon area, and I think it's a great market for rentals. Now I wonder about east Skagit area: Sedro Wolley, Concrete, and east. It's cheaper out there, but does anyone have any thoughts on those places for small multifamily and single family home investments?
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Patrick Britton
Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
10y
@Julie Marquez Apologies for late response, not sure why I missed your post.
Like any city, certain areas are "better" than others. And this is true of Sedro Woolley, Concrete, Mount Vernon, etc. I would make the claim that Concrete attracts many people who are looking for a 2nd home or vacation property. But that does not mean that there aren't people requiring rentals in that area, or anywhere else for that matter. But it might not get gobbled up as quickly as something in Seattle and vacancy might be a larger issue (not that it would be large necessarily).
One of my clients was casually looking at a duplex in Concrete that was asking a "paltry" $115,000. Sure, it needed $40,000 worth of repairs, but so long as total rent was about $1,000 or more (in total from both of the units), then your mortgage should be paid for.
But on that note, even though the price point is lower than Bellingham, so too are the rents. So in terms of cash on cash return I haven't really seen much over 6%.
in short, I think you can find a decent investment property anywhere, but there may be fewer opportunities in smaller cities and require further due diligence and rental verification. Just be aware that while property may cash flow relatively well, when it comes time to sell the property it is easier to sell in a more densely populated area, especially if close to certain amenities like universities than it is to sell in the county or countryside.
5 Reply
Mary Kay Robinson
Investor · Bellingham, WA · Member since 2016 · 20 posts · 10 votes
10y
All good information. As of this morning there are only 5 multi-family listings that 2-4 Units. the City of Bellingham wants more multi family units as it puts together its 20 year Comprehensive Plan due June of this year. Finding land though for all those units is the big challenge. With increasing population and tight land supply (ergo housing units) the median priced SFR in Bellingham has increase 21% in 4 years. And stats from the Runstad Center at the University of Washington currently show a .5% vacancy rate for apartments. Clearly there is a need for more rental units and housing overall.
That being said, yes Bellingham is a bit spendy for those multifamily units but the outlook for rents is strong which translates to more cashflow. As to Mt Vernon - yes there are some deals there - have to be careful about the flood zone area. Lenders will require flood insurance if it is needed and that can cut into your net income. Oddly the largest employer in Mt Vernon is Boeing! Skagit County is also seen as more business friendly than Whatcom County (our county Executive moved his company from Whatcom to Skagit County recently) So Skagit County is definitely an attractive market there. There are 12 multi family listings there but 9 of those listings are roughly 6 months or older - one is pushing to the 2 year mark. So clearly there are some pricing issues with those listings.
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Tim CornwellBusiness Member
Real Estate Broker · Bellingham, WA · Member since 2015 · 51 posts · 23 votes
10y
excellent analysis Mary Kay!
[email protected]360-223-0190
Tim Cornwell - Redwood Group-eXp Realty528 Reviews
Website View Page
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Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
10y
I heard that a lot of money is coming from China is that trickling down from BC since Bellingham is so close? I also hear motherland China does not like all their money going overseas so they are considering a 5000 max cash export rule.. Any thoughts?
0 Reply
Mary Kay Robinson
Investor · Bellingham, WA · Member since 2016 · 20 posts · 10 votes
10y
There is a lot of money from China t has been invested in BC. The Vancouver real estate market is just crazy! I am not familiar with the maximum cash export rule. Usually when government tries to control behavior though, people find a way around it (prohibition is a good example). Some Canadian investors are holding back on investments due to the exchange rate right now although there is no study to show that - just anecdotal evidence.
0 Reply
Sam Van Horebeek
Hong Kong, Hong Kong · Member since 2015 · 140 posts · 89 votes
10y
@Lane KawaokaYou are correct that China has controls in place around money transfers done by Chinese citizens. Every Chinese citizen can only transfer a maximum of 50,000 USD per year out of China. Over the last few months, these controls are being monitored much more closely than before. However, we do still see quite a bit of interest from our clients in China to continue buy real estate in the US - a trend that actually has increased even knowing that the controls are more strict...
1 Reply
Julie MarquezPro Member
Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
10y
@Patrick Britton @Mary Kay Robinson Thank you so much for the analysis and information. I think the good economy of Bellingham and Seattle is trickling to Skagit County, and Skagit is considered a bedroom community for Everett now, so I believe that Boeing statistic. I keep looking for properties in MV, on the hill and not in the flood zone. The flood insurance requirement will be lifted for downtown Mount Vernon in a couple of months when the riverbank project is finished, and I believe more business will come to the downtown core.
1 Reply
Patrick Britton
Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
10y
One thing about the Chinese investors, having worked with them not only in real estate but also in the stock market, is that they don't typically have a great need for a return ON their investment. just a return OF their investment.
2 Reply
Michael Swift
Bellingham, WA · Member since 2016 · 2 posts · 1 vote
10y
So refreshing to see this! I thought I might be crazy, which maybe I am, but at least I'm not alone! I'm most likely a lifer in Bellingham, but I should really say Whatcom county. I had picked up that the outlying counties were a little bit sweeter. It's so nice to have my hunches confirmed. Thanks Patrick Britton!
1 Reply
Chauvin Rupley
Bellingham, WA · Member since 2016 · 17 posts · 6 votes
10y
Wow, just want to say thank you to all the great information posted here! My family and I will be relocating to Bellingham in about 6 months or so for my work so I've been lurking on anything related to Bellingham. I hope to buy a SFR or duplex in the area - maybe even a multifamily - so all this has been valuable. Thanks again!
0 Reply
Derek Archer
Rental Property Investor · Bellingham, WA · Member since 2017 · 3 posts · 1 vote
8y
Hey all! I invest in Bellingham, and have a few duplex builds going as well, in Bellingham, Ferndale, Lynden and Blaine. Love to make some new connections! -Derek
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