Too much housing in Seattle? Rent vs buy doesnt make sense?

Question

Apologies if the title sounds controversial but I'm trying to understand the real estate market in the Seattle eastside area. Especially with relation to single family homes. I see that home prices in the Redmond- Kirkland- bellevue Area are in the 900k to 1.2M mark and maybe more depending on the exact schools but the rents for similar homes in the area are < 3000 per month. Assuming a 20 % down on the range above,  most buyers will be looking at about 4-4.5K in mortgage expenses.  To put it naively why arent more people just renting ? Especially with all the new construction happening.

Michael Haas · Answer

@Vic V. the Juanita neighborhood is similar to Bothell, and significantly less expensive than Kirkland-Redmond-Bellevue. Your calculations take rents for a cheaper neighborhood and sale prices from a more expensive one, warping your results.

Michael Haas · Answer

@Vic V. are you really seeing $1,000,000 homes renting for less than $3,000? If that's the case 100% live in that home and invest in Tacoma, Bremerton, Spokane, or farther out of state. Just know that that house will likely have frequent rental increases or eventually be sold as those numbers don't work for your landlord.

That hasn't been the case for us, more like $600,000 homes renting for $4,000 on the Seattle Side or more, definitely enough to modestly cash flow a 5% down owner occupant loan after moving out and renting the whole home.

Erez Toker · Answer

I’d argue that BELLEVUE, WA Is an amazing place to invest for appreciation- which is speculation to be clear.

Our job growth is stellar, the scarcity issue will compound-  read the growth management act and the buildable lands report and you’ll be blown away by how few single family homes are coming online.  Every city in King county North of Burien and Renton are  70-95% focused on multifamily and mixed use for all new development.  That will have a huge impact over the next decade.  Make no mistake about it, the politicians are forcing the European model on us, here and much of it will play out over the next decade.  You haven’t seen anything yet.   BELLEVUE is a fantastic place to do it!  If your window is short term- you shouldn’t be a buyer.  You should rent.  But renting has no guarantees either.  Many owners are cashing in on this cycle.  I’m renovating a client’s house for sale right now that was collecting below market rents.

I prefer to help my clients build wealth through various hold techniques like live-in flips and helping them with value add renovations.

For cash flow, we traded one BELLEVUE property and executed a reverse-improvement exchange, and a forward exchange to buy in Florida and Tacoma... just in case the market turns this will provide a softer landing.

Our commercial office rents would have to increase by 50% or so to equal psf rates in SFO.  We are more tax friendly in Bellevue than Settle or SFO, and every major tech company in the world has a seat in Seattle real Eatate and is vying for more.

Adrian Chu · Answer

Eastside is expensive. It is relatively cheaper to rent in the Eastside compared to Seattle as most young renters will pay a premium for the "city life"

Ownership still has many advantages like low interest rates and tax benefits, and being able to fix your housing expenses and put certainty to your living situation.

Vic V. · Answer

That's scary. How about the long term Outlook?

Phil Wells · Answer

That's a crazy COC return if you were to buy at 1M and get <3K in rent. If I were living in Seattle I'd be looking to house hack a condo or something. I'd then be investing my money elsewhere - obviously I'm biased but places like Spokane offer a way better ROI.

Curtis Bidwell · Answer

@Vic V.  I just did a Craigslist search for 4+ bedrooms in Kirkland, Bellevue, Redmond.  I found $2950 at the low end and $5500 at the high end, with $3995 and $4700 in between (not a lot available in that size!).

Average and median prices don't generally account for specifics such as neighborhood, quality, amenities, etc.  Many who invest in that market are willing to wait for appreciation while being satisfied to break even for awhile.  A bit risky, but a lot of foreign money is sitting in that market right now with that anticipation!  And based on my previous post, I think they're right.

Aaron Nelson · Answer

@Vic V. - Thanks for posting this discussion topic. As others have commented, home supply is not close to meeting demand in Western WA. We have thousands of people moving here fleeing areas like tax happy CA because the job market and economy are diverse and strong. The issue is that you’re looking for cashflow from long term SFR rentals in A Class neighborhoods. Unfortunately that is not a winning combination here in the current WA market (if you are seeking cashflow). There are other strategies that will help you generate better returns in this market. Shoot me a PM if you’d like to discuss further. I’d be happy to chat with you! : )

Vic V. · Answer

@Erez Toker, isnt Kirkland/ Redmond basically 10-20 mins driving distance from Bellevue? so by your argument, they should have potential as well?

Brian Hughes · Answer

Problem is once rents start going much past about say 70-80% of the average mortgage payment on a median home,   many renters would rather buy something, even if it is a 'below median' home.  (All I've ever bought... )  Around here (seattle) that is around the $3000 mark right now given interest rates, etc.  (about a 400K loan) - or people buy a condo,  or move further out to get a house, etc.

However, inventory is very low and demand for homes, especially SFR's is still high, so that pushes up prices on what is available for owner occupancy, even though there is more of a cap on what rents can cost since after that price point people have an option whether to rent or own something, somewhere.

So thats a good reason NOT buy single family anywhere near seattle for renting purposes.  If it can be house hacked, converted to multi, land banked, rehabbed or some other strategy might make sense though

At least, thats my take.

Too much housing in Seattle? Rent vs buy doesnt make sense?

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