Investment / Rental property in Seattle - where should I buy?

21 Replies

Hello,

I have never lived in SEA area but given the strong High Tech employment market, I want to buy a rental unit. I'm looking for something <500-600K, which will generate decent rental income and will appreciate over time (10-15 years time horizon). 

Which neighborhoods should I be looking at? Are there agents who specialize in investment properties? Anyone you've worked with that you would recommend? Any property management company that you'd recommend?

Thanks,

Peter

@Peter Shaw a fourplex in Everett or Tacoma would suit your needs nicely!

If you're not familiar with Seattle please research the considerable amount of additional regulations and rules that Seattle has imposed on rentals owners of any size (1 fully separate unit and up) within city limits.   They only cut you a break on some regulations if you are actually sharing living space, e.g. roomates.) These regulations limit how much you can charge for up front costs and force you to accept payment plans.   You aren't allowed to consider criminal history except for sex crimes as part of a background check,  and you must accept the first qualified application according to your (legal) rental criteria.   You are required to rent to section 8 and any other subsidy recipients (even if short term) if they otherwise qualify for your rental criteria.  There is no overt rent control (yet) but ordinances that come just shy are being pushed;  things like forcing you to pay 3 months moving costs to each adult resident if you ever raise rent more than 10% in a year and the tenant(s) move.   

All that said,   yes Seattle is currently a very desirable place for people to be moving.  But,  we have had a rapidly appreciating RE market for about 7-8 years now,  and median prices are getting unaffordable for anybody who doesn't have well over a 100k salary.   Everybody says this time is different,  but I'm not sure how much longer til there is some kind of correction.  All it will take is something like Jeff Bezos deciding to move 10% of his employees to the new "equal" headquarters someplace else.

As for finding something in that price range,   you would probably be looking at a resale townhouse or a modest (but possibly very decent) older home in a working class neighborhood in south seattle.   You'll have better luck avoiding competition if you are OK with something on a minor arterial or which needs significant rehab.   Be prepared for a bidding war if it is anything of above average desirability for the price point.  You aren't likely to find a legal multifamily in that price range within city limits right now.

As suggested by prior poster,   going north or south by 30 minutes (off peak traffic) from seattle limits might increase your prospects.    There are closer in municipalities and unincorporated areas (burien, renton, tukwila, white center) bordering south seattle which you might find a duplex in that price range,  but you will likely have considerable competition,  either from other people wanting such a property or from developers.   Still,  inventory is quite low all over.

Good luck.

Hi Peter,
Seattle is a red hot market for sure. I love about 30 minutes south of Seattle and really the whole are is great. As an investor my opinion is that the suburbs of Seattle are much better. I have a. Couple rentals in Tacoma are doing amazing. 5-600k in some neighborhoods in Seattle will get you a really nice parking place and you could get a nice fourplex In Tacoma. I’m not very confident Seattle won’t deflate some in the the future so I’m focusing on the Kent, Federal Way, Auburn, Tacoma markets. I’m also a broker here so PM me if you’re interested in having some good investment listings sent over to you.
Good luck!

Adding on to what others have said; being in the city of seattle is very unfriendly to landlords, and will only get worse. Seattle though is small, and there are many great areas around it. For example, in seattle it is now illegal to perform a criminal background check on tenant applicants...makes no sense. 

I was investing in Bellevue/Kirkland/Redmond (the eastside), but this has become too expensive to buy into now. My personal thought is that Everette is too far north and Tacoma is too far south. There are plenty of jobs there, but nobody in the seattle tech scene wants to live that far out. 

My most recent purchase (BRRRR) was in Renton, I really like that neighborhood; its a reasonable commute to either Seattle or Bellevue. I'm also looking at Mill Creek and Bothell right now for similar reasons. 

With that budget you're probably looking at being able to "afford" a property from Federal Way/Auburn up north to Renton/Des Moines/Seatac area. It will vary quite a bit but this area has a number of people moving into it and commuting North to their Seattle/Bellevue/Redmond jobs. Seattle itself is becoming very hostile to landlords but really you're probably not going to want to purchase in Seattle itself anyway. 

How about this community? https://www.lennar.com/new-homes/washington/seattle/seattle/otani-gardens

@Christian Wathne do people commute from Bothell, Renton and Mill creek? i.e people would rent a SFH and commute to Amazon or Google or MSFT? I am surprised you found something for

the area with the otani gardens development is in skyway,  which is an unincorporated area between renton and seattle proper:   

https://en.wikipedia.org/wiki/Bryn_Mawr-Skyway,_Wa...   

Its definitely up and coming.   The "undesirable for incorporation" comment in the wikipedia article is likely to change in the next decade or so IMO.   Its in a good commute location for seattle and bellevue as well as renton, burien, tukwila and many other areas with good employment.  As the article says,  mostly modest SFRs from the 40-60's but there is plenty of newer housing stock too.  There are multifamily properties of varying scale as well but not in as high of concentration as closer-in neighborhoods.  Quite a few homes in this area have a decent amount of land with them and infill development is definitely a thing in that area.  The area is on a pretty good sized hill, making up the southern end of the ridgeline that runs between lake washington and I-5 up through seattle.

There have been a few properties in that area I would have seriously considered if the timing were right.

Hi Peter. I would recommend in-city new/newer construction townhomes inside Seattle city limits.

Those are easy to maintain. Most have no HOA. And they are representative what high income young tech industry professionals want to live in.

They could be rented out in the short term for roommate situations (yes techies are willing to share) but at time of selling, can appeal to a high income first time home buyer, thus have a high potential for appreciation.  

Let's chat via private message - can share more information to you.

Originally posted by @Peter Shaw :

@Christian Wathne do people commute from Bothell, Renton and Mill creek? i.e people would rent a SFH and commute to Amazon or Google or MSFT? I am surprised you found something for

Young professionals who enter the tech industry and make $100k+ a year want to live in the city (mostly in and around Downtown Seattle). Some Microsofties will be ok with living in Downtown Bellevue or Redmond, but that's about it. A lot of newcomers might stay in the Eastside for their first six months to a year and later discover that it's too boring for them.

Since you are from the Bay and I have lived in the Bay before, I will make the following analogies:

Seattle = SF (aka the City)

Eastside = San Jose and Surrounding Area (aka the Valley)

However, it's easier to commute from Seattle to Redmond than from SF to Mountain View or Santa Clara.  

By choice, most renters do not want to live in Bothell, Renton or Mill Creek and commute to Amazon or Google or MSFT, unless they have no other choice (limited by price, etc).

Another thing I have noticed is that home buyers have greater tolerance as to what locations they can accept compare to renters.  So if you want to buy something with the intention of renting out, location is very critical.

Hi Peter.  Seattle is a very mottled metro area.  A few blocks or a 1/4 mile can make a big difference.  Make sure you are working with a good realtor who knows the area(s) you are interested in.  

In general downtown will have the highest prices (brokerage and rent).  These properties will be most likely to have low or negative cash flow (cap rate) but will have the greatest market appreciation for the long term.  Next up would be the Eastside, which is similar to downtown, but with slightly softer pricing.  The North end tends to be your "lilly white" area with good rents and appreciation, but also high prices.  West Seattle is a fantastic rental market.  The south end has the most value (lower prices, higher rents).  But it will have lower appreciation in value over the long haul, and also has the highest crime rate.  

@Christian Wathne to be clear, you can perform background checks, just can't have a blanket policy that rejects those with a record. 

There are hoops to jump through here but I feel like I'm managing them, though they take some time. A pro property manager, as he would have for a long distance investment, will have it down. Also, if an applicant makes the money to rent in Seattle and has a good credit score, you can expect few problems from them. I essentially never have any (knock on wood). 

A bigger issue would be cap rate; don't our cap rates stink compared to many other areas? Personally I like the long term appreciation but that doesn't show up in your account every month.

Peter -  all previous posts are great and loaded with good advice ....as in  CA -  the  market in the Seattle area remains very active and hot ...if you are seriously considering looking for  and  buying an investment property  make sure you are  fully pre approved so that any offer you might be able to make will be considered seriously .....also consider pre inspecting the property so you can  avoid any inspection contingencies .....if you able to buy with cash -  ignore this advice :)

Originally posted by @Thomas Mattausch :

@Christian Wathne to be clear, you can perform background checks, just can't have a blanket policy that rejects those with a record. 

There are hoops to jump through here but I feel like I'm managing them, though they take some time. A pro property manager, as he would have for a long distance investment, will have it down. Also, if an applicant makes the money to rent in Seattle and has a good credit score, you can expect few problems from them. I essentially never have any (knock on wood). 

A bigger issue would be cap rate; don't our cap rates stink compared to many other areas? Personally I like the long term appreciation but that doesn't show up in your account every month.

True it doesn't show up in your account every month, but when you realize those gains, it shows up in bulk. On one rental I'm talking 10K a month once you cash out the appreciation, if you elect to break it down by month. Try that with a Midwest cash flow property.

Our portfolio is appreciating at a rate much, much faster than we will ever be able to spend it.  Real estate is a great wealth builder that also build a legacy through inheritance tax laws.

Agree with @Peter Nelson . You can still get a nice blend of cashflow and appreciation potential in the Greater Seattle area market today. The “right market” often depends on your goals. 

Hi Peter!

Congrats on getting the process started to build your portfolio in our area! I can also vouch for what folks are saying about our market; it's moving very fast and it can be tricky to get into.  I agree with what folks are saying with getting more "bang for your buck" outside city limits, you will have stronger purchasing power and the landlord-tenant laws will get easier on you.  I'd actually suggest you take it a step further and move just north of King County into areas like Edmonds, Mountlake Terrace, and Mill Creek.  These areas are heating up as lots of buyers AND renters are getting priced out of Seattle proper.  Additionally, with your budget you could likely buy two units in the Mill Creek area for what you'd pay for one single-family within the city.  

Another benefit worth mentioning for going north into Snohomish County is the potential for light rail.  We have a pretty intense traffic issue in Western Washington which likely won't be mitigated until out light rail system expands, and it's planned to be operational in the north end sooner.  I expect this will make properties closer to these areas more desirable rentals.  I'm already seeing buyers/renters shy away from the Renton/Tukwila areas as the traffic down there has a considerable impact on quality of life, and we've actually seen these areas cool down a bit recently.  

Here's a link worth checking out: 

https://systemexpansion.soundtransit.org/?_ga=2.20...

There are plenty of options out there, and I think you're very wise to gather some info from experts in the area.  It can be a tricky market. 

hello, as a seattle investor i caution you to invest in this market right now if cash flow is your strategy. you will be hard pressed to find anything that cashflows that is in an area that makes sense and has a quality tenant base. you may do good on appreciation over the next year or so, but a correction is looming and seattle is a highly cyclical makers, the highs are  high but the lows are low. also, as stated above many times, seattle is on of the most tenant friendly cities putting an addition burden on investors/landlords.

I would suggest looking into the greater Seattle area if your goal is to cash flow. If you look into Pierce county you will be able to find a solid multi family deal.

Hi Peter,

I recommend finding properties just outside the city and making fast, aggressive offers.  Being within the city limits of Seattle poses far too many rules and regulations, all of which continue to change rapidly. Getting into good neighborhoods that are close enough for commutes into the city, are affordable to both buyers and renters, are completely feasible given your budget.  It's really a matter of connecting with someone who knows the market well.

Given our market conditions, you'll be hard pressed to find something that cash flows quickly and easily.  

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