Originally posted by @Michael Haas:
@Vaughn K. are you calculating in the benefits of loan pay-down? Cashflow is king, but you are also still building long term wealth even without factoring in appreciation.
All of our properties in Seattle cash-flow- we put 5-20% down (no 3% loans), have always done moderate to significant repairs/rehabs, and buy in the nicer South Seattle neighboorhoods (North Beacon Hill, Admiral District of West Seattle, Central District). Although prices have caught up significantly, South Seattle is still a better rental market than North Seattle or the Eastside. Additionally, as these are single family homes we're buying and we weren't going FHA the properties still qualified for conventional.
I am definitely still seeing deals that are cash-flow neutral at 3-5% down and cash flow positive at 5-20% down. Set your MLS criteria to 5+ bedrooms and estimate rent at $800 a bedroom and you'll see 2-4 workable deals a month. Feel free to send me a direct message if you want me to alert you when one of these kinds of properties hits the market.
Hi Michael,
I think you're on the same page as I was before I decided to blow out of this whole area! I was in fact thinking either south Seattle, or Shoreline/Mountlake Terrace. I was going to do a large house, preferably 5 bedrooms maybe PLUS a convertible basement, and rent by the room. I was especially looking for one that already had an ADU or mother in law apartment. I haven't been keeping up on stuff around here, so don't know how the relative upside of north of Seattle vs south has changed, but back then they were comparable-ish.
I can totally believe you can still eek out the numbers you're talking about by:
1. Buying a rehab job, and getting it done on budget.
2. Renting by the room.
Thing is, that's all stuff you don't have to do in most of the USA to barely break even on cashflow. You can close your eyes and just point at a random house for sale on Zillow and cashflow that much almost everywhere geographically in the USA. In most of the country going through that amount of extra effort will net you like 2% rule or better!
It never ceases to amaze me how few people have heard of this before on here, but a major study that looked at something like a century (give or take) of RE data in the USA found that the overall rate of return in cash flow vs appreciation markets was basically identical over the long term. They were both 10 point something percent over the long haul I believe. They looked at cash flow, appreciation, pay down, basically all the major metrics one would think to cover to get a good picture. IIRC the study was done at some big university (Harvard maybe?) by a fancy economist. You can probably find it if you google.
The short version of the story is this: All the positive cash flow, instead of negative or minimal, allows you to reinvest in more properties faster. Also all appreciation markets are more volatile, seeing periods of rapid upswings, and down. Cash flow comes in steadily. Everybody focuses on the years where SF or Seattle goes up 10% a year, ignoring the flat or outright negative years in between. Once it's averaged out, it's not nearly as impressive. "Cash flow" markets also DO tend to appreciate, just not at amounts much higher than inflation... But when you have fixed debts, 2-3% a year still adds up a lot over decades. In truth, the risk adjusted return is actually higher in positive cash flow areas, as you don't have the volatility.
Main reason I don't want to invest in Seattle is because I don't want to live here anymore, and I'd prefer to invest in the general area where I will be moving to. Washington state, and Seattle in particular, are becoming RABIDLY anti business. That's the main reason I'm not sticking around this area. I don't trust Seattle to not pass some insane law that completely ruins my life. Also, other non financial laws are becoming far too oppressive around here too. I'm an American, some sides of my family have been on this continent since the 1600s, multiple fought in the Revolutionary War... I like my freedom. Washington in general, and Seattle in particular, are no longer good places to be for people who like freedom from government oppression.
Only reason I may live in Spokane when I go over there is because I can pack up and move the 15-30 minutes down I90 at the drop of a dime when it suits me if Washington state passes something too stupid to want to tolerate. By my rough calculations I'm still slightly better off financially in WA for the moment because of the lack of an income tax, but if that ever changes, or if incremental changes in other laws get too bad, ID will be right there waiting for me! And I won't have to completely upend my life, make new friends, learn a new area etc. Just live 15 minutes further down the road!
I have read plenty of stats over the years, and IMO by the metrics I think are most important, there is just not much upside left in Seattle in the near to mid term. As an agent, were you aware that as neighborhoods in Seattle approached the 1 million dollar average sale price they almost all stopped going up a penny? Some of them peaked 4-5 YEARS ago and haven't budged since. What then happened is cheaper neighborhoods rapidly shot up. Why? Because even in flashy Seattle, high income tech people can STILL only afford to spend so much. That is essentially the upper bounds, there's no more blood to be squeezed from Seattle area residents. Look at the average price here, and the number of areas that are well below that. Maybe south Seattle has a tiny bit of room, but not another 10 years of 10% appreciation. How exactly is ANYBODY, including dual income 6 figure earners going to be able to spend 2 million or 3 million on a 3-4 bedroom house in 10 years? Because that's where it would have to land to see similar appreciation in percentage terms to what happened the last decade. It just isn't possible. No upside.
Also, being that the average prices here are way above what many traditional metrics say is sustainable, all it ever would have taken was for one little hiccup (A recession, Amazon shifting to hiring elsewhere, other cities getting more tech jobs in general... Oh wait, all of those are starting to happen! Uh oh!) to hit, and the prices have PLENTY of room to drop. So, little potential for the rapid and magical appreciation that has made the last several years a big money maker, and lots of potential to drop... Not good cash flow... Doesn't sound like the kind of place I want to put my money.
More power to people who want to live in a place like this, invest in their backyard, and jump the extra hoops to make it all work. I wish them all the best! But I don't want to be that guy. The only way I would ever invest here is if prices dropped like they did in '08, and then I would probably sell out within a few years of the bounce back and invest elsewhere. But even then with the anti landlord laws we have, and more inevitably to come, I don't know that I would even want to do it then.
Not trying to knock you since you're an agent around here, you have to try to sell houses, and it sounds like you're on point for making the best of the Seattle area situation for investors... But again, just not my cup of tea around here anymore. I wish it was. If you'd asked me 15 years ago I probably would have told you I'd live in Seattle for the rest of my life, but the way things have gone down since then that just ain't gonna happen.
