Investing in Seattle for Airbnb (Ballard, Queen anne fremont)

9 Replies | Seattle, Washington

Hello, I am a new home investor. I am currently looking for homes/ townhouse in seattle area , fremont ballard and queen anne. The properties im looking at range from 750k to 850k. I can rent it out on airbnb for 250-350 per day. Would you guys recommend me buying a home right now? I know seattle homes are overpriced right now, but i am not sure if prices are going to keep going up in the next few years

Hi Michael,

Investing in properties at the right price is always a good idea.  The market around the greater Seattle area has slowed down just a bit, as expected, for summer time.  It's possible to move on properties now and get them into contract without an overwhelming amount of competition.

It's hard to say what the prices of homes will do.  There are two schools of thought.  One being that this can't continue, and the other being that expansion is possible especially if we see more tech growth -- which has been the rumor mill for some time now.

I expect we will know in a month or two if this market will continue.  If things get crazy near the end of summer / early fall, prices will rise.  If demand stays low after summer, we might see a cooling off period.  Hard to judge a market as crazy as Seattle has been :)

If you have any questions or would like to discuss strategy, shoot me a line :)

$350/day seems really optimistic. During the summertime I'm sure it's possible, but the average daily rate is probably a lot less. Plus you need to factor in vacancy. How are the numbers looking for you? I picked an example property in Ballard as a quick case study using your parameters. 

Property: 6706 23rd Ave NW Seattle, WA 98117

Asking price: $799,950

This is a nice looking home that would show well on Airbnb. It's also right near the hotspots of the neighborhood and it's asking price is smack dab in the center of your price range. The listing shows it as a 2 bed / 2 bath, but top floor and the living room can have sofa beds. So, that means you can accommodate up to 8 people.  Using Airdna.co's MarketMinder tool, this property is estimated to have 62% occupancy with an ADR (average daily rate) of $180 which includes cleaning fees.

But, for fun, let's say Airdna is wrong and actually you can get $350 ADR with 62% occupancy. That's an operating income of $6600. Airbnb's tend to have higher expenses than traditional rentals due to the higher management fees and covering all of the utilities. I've found that the expenses usually fall around 60-70% of income. Let's say this home is cheap to operate, as a best case scenario, and use 55% as a rule. So, we have $6600 income, $3630 in operating expenses leaving us a net operating income of $2970. Assuming you paid cash and were able to buy the property at asking, that's a cap rate of %4.45. As a best case, non-realistic scenario, it seems pretty mediocre. If you try to leverage the property at 20% down, you'll actually be losing money each month.

Thanks for the reply! So what i am getting is, it is a bad idea to invest right now for airbnb. 

I would really like to start investing this year, but seattle's market is making it hard.

What would you recommend to do if you have 700-800k in cash

That's a broad question to answer without knowing your full financial situation. Probably something best suited for a fiduciary advisor. If you're looking to specifically invest in real estate, however, partnering with a flipper or a developer would most likely result in quicker and more impressive gains. A lot of these developers are buying land for less than $500k, building 4-6 townhouses on a lot for $200k each and then selling each unit for $600-800k a year later.

There are multiple considerations. Are you currently renting? By owning, you can have money go towards your mortgage payment (tax deductible) instead of paying rent (not tax deductible). You can also consider "house hacking" - finding roommates instead of airbnb. Airbnb is becoming quite saturated these days as a lot of people are doing it.  Also, only summers are popular on Airbnb in Seattle.  Winters are drastically different.

If you have $700k-800k in cash, I would get a place to live with a mortgage and then use the remaining funds as down payment for lower price point rental properties.

I do Flips and BRRRR. this year tried on 2 of my BRRRR into Airbnb. All above mentioned comments are true. Will see how they perform in the winter.

I personally would not invest in Seattle proper right now. It's extremely tenant friendly, expensive, and they are trying to crack down on short-term rentals. However, the surrounding areas can be great. I did pretty well renting out my old apartment in Bellevue when I travelled, and have had great success renting a room in my condo in Lynnwood.