Invest multi family in Seattle now and seek guidance and advices

[Linus Cui]

Hi all,

I started looking into small multi-family property (5-9) units in the north Seattle areas (Fremont, Wallingford, UW, and Greenlake etc). Based on what I can find from the listed properties, it seems the cap rate of most properties are usually listed in the range of 3-4.5% cap. Also my agent said it is impossible to get a decent property in Seattle with 5+% cap. Due to covid, the current multi-family market is softer since there are less buyers, but 5+% cap rate seems still very hard, the only change might be buyers can negotiate with sellers for a better deal, which is harder pre-covid.

Is 4.5% cap rate is a reasonable number when looking for good properties to buy in Seattle? My current strategy is for long term appreciation, being able to get my downpayment back within 5 years with cash out refinance. The short term cash flow probably will not look very good even if ~50% downpay is commonly required now for commercial residential loan.

As to why I choose north Seattle, I bet on long term property appreciation and probably get less tenant issues down the road. Since this is my first MF investment, I would prefer to get a less stressed property, focusing on learning apartment basics through my 1st MF deal. I am also passing SFH and 1-4plex, since I think large apartment scales better, and commercial residential is an area I have to know, I would rather do it sooner than later.

At the same time, I am also open to other suggestions from the experts in the forum.

Thanks a lot.

[Jared Boundy]

That’s fine if your only goal is appreciation. However, I am seeing some opportunities in 2-4 unit properties at better that 5% cap rate, which is a good place to start. Apartments are great, but not only are they going to require so much more initial Dow payment, but you compete with investors who have deep pockets and experience, and they can either afford a lower cap rate or may even be paying cash. I suggest you run the numbers on some properties and see what’s going to work best. I know an investor with an apartment building in Spokane, so thinks he may do about as well trading for single family homes in Snohomish County...it’s all about identifying your personal goals, analyzing the numbers, and adjusting your strategy as needed.