Seattle, WA · Member since 2017 · 25 posts · 8 votes
Hi, all.
I have been trying to buy into this crazy market for the last 3 months with mostly disheartening failures. I first tried to find multi-family properties in the metro area with house hacking potential, but the cash flow is always negative. My next strategy was look for cheap condos that I could live in for the next few years and potentially rent for a profit once I moved, but the bidding wars are taking the sales prices to levels where renting wouldn't be profitable anytime soon. Are there any other owner-occupied opportunities that are available in this market, or should I give up on the idea, continue renting, and invest elsewhere until the market settles down?
Properties can be bought for appreciation, and properties can be bought for cash flow. It depends on your investment strategy, location, and your ability to create value. In some places, you can get both, but I agree it can be difficult. In Seattle, cash flow is tough but the appreciation right now is awesome! You just have to be able to get into the game and stay in. Renting to yourself (house hacking) is definitely a strategy that can help with this.
If you choose to invest outside of Seattle, appreciation will not be as high. However, you can find situations that create cash flow. For example, I have a 10-unit under contract in Longview. I am buying it for $690K, and my financial analysis shows that it will generate $1600-2000/month, depending on expenses. It will appreciate, but not nearly as fast as a property in Seattle. My goal in this transaction is to create value by lowering expenses, improving the property, raising rents to market rate, and to refinance when the time is right. This transaction should allow me to take advantage of both cash flow and appreciation.
I'm also analyzing multi-family properties in Tacoma, University Place, and Lakewood that will both cash flow and appreciate. If anyone needs help locating and analyzing properties, let me know.
Good on ya for trying! There's money to be made in the up and the down, but its definitely tough right now. I bought a NOO SFR house last year in Shoreline, by all metrics here, it wasn't a great deal. The only benefit I got was it was off-market, so I didn't pay the 10-20% premium that the bidding war brings. We put 25% down, and with that, our PITI payment is just over $2k/mo. The house was a 8/10 condition when we bought it, and we spent a few weeks making it a 9/10. It rented in a day at $2400/mo to great, stable tenants, and I haven't looked back. I'm 10 months into the lease. We've taken every penny of the cash flow, and saved it for a bad day. Bottom line: I decided demand was so high, even a marginal deal was better than nothing. I could probably sell the house today for $80k more than I paid for it. I call it a win, win, but if I'd run it by the numbers, I'd never have bought. Use your judgement, but don't over-analyze either.
It IS a tough market to enter presently. Tougher now than even just last June, but I'll give you my anecdote from then, which may be of slight use. I bought a tri-level home in Bellevue last year in a very, very, very good school district. Home needed work which I put into it, mostly on the lower level (I'm of the opinion that it is a tad easier to buy homes that need work as there is a certain % of the buying populace that wants move in ready). As part of the $100K in work I put in, I split off the walkout basement into a separate unit that I live now in (with it's own laundry, new kitchen, and remodeled bathroom). I live in that 1/3 and rent out the other 2/3 of the home, to a family that wants a SFM experience in a great school district.
Works for me, for now, but that's only because I business travel so much that having a 1bdrm "luxury" apartment works great. It would be a little cramped if it was anyone other than myself (and maybe one other) living there on a full time basis. Cash flow is about even to slightly negative, but remember, I'm living there too, and the market is appreciating, so I don't care that much. Even if the market tanks (which I think would take an act of war in Seattle right now), I still have a place to live and I have a rental in a high demand school district.
Not to be too pessimistic but I haven't seen any homes for sale in my zip code in the last 6 months where I think I could pull this off again. Market has just moved up quickly.
@Garrick S., like you and everyone else noted; seattle is tough buy a home in right now, let alone attempt to find a 'deal'.
In March I bought a 3br/1ba sfh in a decent neighborhood of northeast renton; finishing the BRRRR now; will list it for rent end of this month. Bought it off the MLS (very very bad condition) with a 11 competing offers; we had to do 3 rounds of price increases with all cash offer and no contingencies. Ended up paying about 5% over what my analysis put as my max offer, but the market has been moving in the right direction since buying.
Once this one is complete I'm going to take a couple month off; maybe attempt to get back in for another in fall or early winter time.
@Christian Wathne, good to hear that your investment looks like it should be in the black. I'm also of the impression that waiting until late summer might be advantageous as the inventory typically hits its high point in the year around August and the number of buyers looking decreases.
@Garrick S., it's a challenge but not impossible. I bought one off the MLS in the spring. Bank owned but it went highest and best. I didn't have to bid too high up because it was in a distressed condition. Rehabbed it, and originally meant to flip it. Now renting out the downstairs daylight basement and living upstairs due to an unexpected change in my own living arrangements. But it's paying a big chunk of the mortgage. Refi'd out of a hard money loan into a conventional mortgage.
** keep your eye out tomorrow on this website for an event my friend @Tarl Yarber is putting on in Bellevue on June 23 & 24. You won't want to miss it. **
I am far from experienced or professional as an investor in Seattle, but here's my .02. We owned a SFH in Rainier Beach, bought in 2009. It lost a lot of value, then came back up quite a lot by 2015, so we decided to look for an investment. After several months of looking for something that could be two units, we bought a SFH in Rainier View with an already-constructed MIL unit last June. We moved into the top floor unit and have tenants downstairs, as well as tenants at the big house. We are about to close on a 3rd property, this time a tiny house in West Seattle for us to live in (school preference for our kids). The rental income from the big house and both units of our current house will cover all but a few hundred of all 3 mortgages. I think we just got lucky with the purchase last year, and that's springboarding future opportunities.
Garrick - I'm in the exact same boat as you. I work in downtown Seattle and really wanted to buy and owner-occupy a multi-family property in the city. However I quickly realized that I would never achieve positive cashflow on any property in the Seattle area, so I decided to keep renting in the city and look at buying cashflow properties outside the city. I managed to buy a great 4-plex in Everett last year and so far it's been an epic cash cow! So my advice would be to just keep renting near where you want to live, but don't be afraid to be a pure investor where the deals are to be found. Feel free to message me if you want to talk about this more.
@David S. lots of "epic cash cows" in Everett! Good on you. I live in Seattle and own 35 units in Everett. The majority of my clients live in Seattle or Eastside and invest up north as well. Can I ask where your 4plex is?
@David S. Thanks for the suggestion. I'd have to wait awhile to build up the 20% down payment for a non owner-occupied property. I was planning on putting 5% with a primary occupancy investment.
@Garrick S. Here's a suggestion - buy a multi-family property for 5-10% down because you'll owner-occupy it, then just leave one unit empty for 12 months to satisfy the owner-occupancy requirement - you will "live" there - get your mail there, pay all your bills from that address, etc. - and you can still rent and live in Seattle during the year. Then once the year is over, you can rent out the empty unit. Yes you'll lose out on rental income of that one unit for the year, but in the long run it'll totally be worth it.
Properties can be bought for appreciation, and properties can be bought for cash flow. It depends on your investment strategy, location, and your ability to create value. In some places, you can get both, but I agree it can be difficult. In Seattle, cash flow is tough but the appreciation right now is awesome! You just have to be able to get into the game and stay in. Renting to yourself (house hacking) is definitely a strategy that can help with this.
If you choose to invest outside of Seattle, appreciation will not be as high. However, you can find situations that create cash flow. For example, I have a 10-unit under contract in Longview. I am buying it for $690K, and my financial analysis shows that it will generate $1600-2000/month, depending on expenses. It will appreciate, but not nearly as fast as a property in Seattle. My goal in this transaction is to create value by lowering expenses, improving the property, raising rents to market rate, and to refinance when the time is right. This transaction should allow me to take advantage of both cash flow and appreciation.
I'm also analyzing multi-family properties in Tacoma, University Place, and Lakewood that will both cash flow and appreciate. If anyone needs help locating and analyzing properties, let me know.
@Joseph Delia, that is an interesting idea - did you have to deal with zoning zoning issues in going from SFR to MFR?
Hi Jim,
Not "zoning" issues no (in Bellevue), but I WAS required to get an ADU (Accessory Dwelling Unit) permit. This permit allows you to split the unit as I did, but a requirement of the permit is that the owner lives in one of the units (ostensibly, to restrict investors from buying, splitting, and renting out SFR's in the good school districts, I'm hearing).
It's a one time thing so not a very big deal to get the permit, although it's recommended you get them in during construction (if any) so they can see what you're doing. There are also certain safety requirements that need to exist in order for you to split it (i.e., proper fire escape exits/windows, etc.).
@Garrick S. Here's a suggestion - buy a multi-family property for 5-10% down because you'll owner-occupy it, then just leave one unit empty for 12 months to satisfy the owner-occupancy requirement - you will 'live' there"
While this is a creative solution, caution may be prudent as the proposed action would include knowingly making a misrepresentation to a mortgage lender in violation of Washington's Mortgage Lending and Homeownership Law (RCW 19.144.080). There are some pretty stiff penalties including jail time and/or fines.