Bremerton, WA · Member since 2016 · 19 posts · 6 votes
Hey guys,
I've been analyzing deals with a buy and hold mentality in the Tacoma, WA area for a while now. Like anywhere in the US, the best "deals" are in the worst parts of town. The area has a full spectrum of neighborhoods, from super posh urban with great schools, to po dunk ghetto. I'm having a really hard time comparing these properties because it feels like apples and oranges.
For you, what kind of neighborhoods have worked best? How ghetto is too ghetto (tenant turnover > 1/yr)? How nice is too nice (people don't rent if they live in these areas, if that even exists)? How much of a premium should you pay for a nicer neighborhood with less tenant turnover and higher rent? Is it worth the risk to pay less for a property in a bad part of town?
I'm leaning towards paying a premium for nicer neighborhoods, but the delta between homes in nice areas compared to < decent areas is HUGE, like $60-70k, and I'm starting with very little capital ($30-40 down+reno).
Specific geographics aside (I'm interested in Tacoma, but would love to hear from anywhere), whats been your experience? Any suggestions?
Since nobody has responded, I'll give you my 2 cents. I've been buying and renting SFHs since the '80s, first in the Washington, DC area, now in central Texas. I'm a buy and hold guy, not a flipper.
I never buy a house I wouldn't live in. That goes for the neighborhood as well, even if I like the house. I don't mean the house and neighborhood has to be ideal for me, but in a pinch I could live there and be OK. If I would worry about my wife being alone in the house, I don't buy it. (Since she does some of the rehabbing, she's often alone in houses we buy.) If the house and neighborhood passes those tests, I know it will attract good tenants. And attracting good tenants is THE goal.
I've learned by trials of fire in buying houses in all kinds of neighborhoods (except the worst slums) -- all the way from trashy houses in low income neighborhoods to one I own right now, on a private golf course. My best rentals, both from good cash flow and fewer tenant headaches, are in middle income to higher middle income neighborhoods.
High-end houses tend to have tenant turnover, which can kill your profits and even put you in the red. People who rent high-end houses usually are doing it because they are waiting to buy a house and will move out in a year or two. There are exceptions, of course (as is the one I have now), but that is one of the risks in expensive houses.
What do I look for in a neighborhood? Kids playing, mothers pushing strollers, mowed lawns, cul-de-sacs, off major roads, little traffic (so kids can play outside), good school district, walking distance or a short drive to shopping. I walk the neighborhood and talk to people, tell them I am interested in buying in the area and ask them how they like it. John Schaub taught me to also ask them if they know of anyone who might be selling but hasn't listed yet (www.johnschaub.com).
What do I look for in a house? 3/2s with garages. I don't want more bedrooms because I don't want an army of kids destroying my house. I want a garage because tenants often fill them up with stuff, a workshop, etc., and that means moving would be a huge deal for them (so they are likely to stay when the rent goes up). I LOVE to see my tenants have to park in the driveway because of all the stuff in the garage. New or newer roof and AC compressor. Brick or other siding that doesn't need paint. Tile floors, ideally everywhere. A yard for kids and pets (upkeep is tenant's job). Yes, I allow pets if there are tile floors, because I can get more rent
I have owned houses in bad neighborhoods and paid less for them. The cash flow was great -- when the renters paid, which wasn't often until I hounded them, and when there were no major repairs, of which there were many, and when there were no vacancies, which there were many of, and when I could find desirable tenants, which was rare, so the houses sat vacant for weeks and even months between renters.
Bottom line: If you are looking at houses in a neighborhood and you think you would be more comfortable if you had a gun, don't buy there.
The other MAJOR issue with bad neighborhoods is drugs. The government under civil forfeiture laws can seize your house if your tenants are convicted of drug dealing/manufacturing. Yes, of course that could happen in nicer neighborhoods, but the chances are less. That's why you need to visit your tenants every so often no matter the neighborhood.
Maybe slumlords do well with those kinds of properties, but I am not and do not want to be a slumlord. I buy nice houses in nice neighborhoods, fix them up to the max, spend a little more to make them over the top, and rent them to nice tenants who appreciate the house and appreciate me as their landlord. As a result my average tenant stays for years; one stayed for 18 years, and she'd still be there if I hadn't sold the house.
Since nobody has responded, I'll give you my 2 cents. I've been buying and renting SFHs since the '80s, first in the Washington, DC area, now in central Texas. I'm a buy and hold guy, not a flipper.
I never buy a house I wouldn't live in. That goes for the neighborhood as well, even if I like the house. I don't mean the house and neighborhood has to be ideal for me, but in a pinch I could live there and be OK. If I would worry about my wife being alone in the house, I don't buy it. (Since she does some of the rehabbing, she's often alone in houses we buy.) If the house and neighborhood passes those tests, I know it will attract good tenants. And attracting good tenants is THE goal.
I've learned by trials of fire in buying houses in all kinds of neighborhoods (except the worst slums) -- all the way from trashy houses in low income neighborhoods to one I own right now, on a private golf course. My best rentals, both from good cash flow and fewer tenant headaches, are in middle income to higher middle income neighborhoods.
High-end houses tend to have tenant turnover, which can kill your profits and even put you in the red. People who rent high-end houses usually are doing it because they are waiting to buy a house and will move out in a year or two. There are exceptions, of course (as is the one I have now), but that is one of the risks in expensive houses.
What do I look for in a neighborhood? Kids playing, mothers pushing strollers, mowed lawns, cul-de-sacs, off major roads, little traffic (so kids can play outside), good school district, walking distance or a short drive to shopping. I walk the neighborhood and talk to people, tell them I am interested in buying in the area and ask them how they like it. John Schaub taught me to also ask them if they know of anyone who might be selling but hasn't listed yet (www.johnschaub.com).
What do I look for in a house? 3/2s with garages. I don't want more bedrooms because I don't want an army of kids destroying my house. I want a garage because tenants often fill them up with stuff, a workshop, etc., and that means moving would be a huge deal for them (so they are likely to stay when the rent goes up). I LOVE to see my tenants have to park in the driveway because of all the stuff in the garage. New or newer roof and AC compressor. Brick or other siding that doesn't need paint. Tile floors, ideally everywhere. A yard for kids and pets (upkeep is tenant's job). Yes, I allow pets if there are tile floors, because I can get more rent
I have owned houses in bad neighborhoods and paid less for them. The cash flow was great -- when the renters paid, which wasn't often until I hounded them, and when there were no major repairs, of which there were many, and when there were no vacancies, which there were many of, and when I could find desirable tenants, which was rare, so the houses sat vacant for weeks and even months between renters.
Bottom line: If you are looking at houses in a neighborhood and you think you would be more comfortable if you had a gun, don't buy there.
The other MAJOR issue with bad neighborhoods is drugs. The government under civil forfeiture laws can seize your house if your tenants are convicted of drug dealing/manufacturing. Yes, of course that could happen in nicer neighborhoods, but the chances are less. That's why you need to visit your tenants every so often no matter the neighborhood.
Maybe slumlords do well with those kinds of properties, but I am not and do not want to be a slumlord. I buy nice houses in nice neighborhoods, fix them up to the max, spend a little more to make them over the top, and rent them to nice tenants who appreciate the house and appreciate me as their landlord. As a result my average tenant stays for years; one stayed for 18 years, and she'd still be there if I hadn't sold the house.
Hello Christian I'm looking at a pretty similar situation over here in Kitsap county. I don't think there's a true ghetto but things can get a little po-dunk if you go too far in any direction lol.
I have a similar amount of capital but I'm not willing to put all that down. Honestly I think the price of houses are being driven up by Seattle and it's just all around a sellers market. Be been trying to find some off market deals but being new my network is still pretty small.
Also Mencarow's post bounces off much of what I've read and heard on BP podcasts. That's 30 years of experience speaking there.
So if you find the answer I'd love to be apart of that conversation lol.
I'm an investor and agent in the Seattle area, and I'm currently working with an investor that's looking for deals in the Tacoma area as well. And it really comes down to what your overall plan is with the property. I think there is huge potential in Central and Hilltop. Not neighborhoods I'd personally live in quite yet, but if you drive around you'll see a lot of distressed homes that have potential to either become great rentals or fix and flips, but you could also see other investor have the same idea in mind (newer homes with good curb appeal, families, contractors, etc) And if you're looking for pre-market properties I get priority access to Pre-Market REO and short sales. Feel free to reach out if you have any questions.
I'm an investor and agent in the Seattle area, and I'm currently working with an investor that's looking for deals in the Tacoma area as well. And it really comes down to what your overall plan is with the property. I think there is huge potential in Central and Hilltop. Not neighborhoods I'd personally live in quite yet, but if you drive around you'll see a lot of distressed homes that have potential to either become great rentals or fix and flips, but you could also see other investor have the same idea in mind (newer homes with good curb appeal, families, contractors, etc) And if you're looking for pre-market properties I get priority access to Pre-Market REO and short sales. Feel free to reach out if you have any questions.
Lucas-
Someone recommended an agent that presumably deals with REO. When I talked to that person he said that his forte was in the negotiation of the deal and deals directly with the agents that actually do the REO listings. But in the course of our conversation the end result was nothing short of any other agent that deals with the MLS. In my quest it was to find someone that was closer to the REO market who also had an understanding of how that worked.
I am intrigued by your comment:
And if you're looking for pre-market properties I get priority access to Pre-Market REO and short sales....
@Christian Bateman, 'nice' is subjective and unless there is something out there saying what the turnover rate (or any other number) is exactly, that's information you don't really have. But
@William "W.J" Mencarowmade a good point about not buying a place he wouldn't want to live in, and that seems to be a fairly good barometer.
If you are not comfortable in areas you consider "ghetto" or places where you start hearing "Dueling Banjos" you won't be comfortable going there, looking around, and checking in on your investment.
Everyone has their definition of a good neighborhood. A lot of people base it on what a middle American nuclear family may want, so you may pay for the good schools and other amenities unless you can snag a deal.
I am not looking for a "good" neighborhood as much as an acceptable neighborhood that fits my own criteria. I look around for people who appear to fit the demographic I hope to appeal to (DINKs & SINKs) and rent to, what neighborhood amenities may appeal and what neighborhood characteristics are a complete turn off. People with no kids and who have no plans to get kids don't care that much about schools. But they like other things such as restaurants, bars, gyms, yoga studios, and coffee shops.
In DC, particularly my neighborhood, the public schools are 'meh' at best and the charter schools hard to get into, besides childcare is insanely expensive. Crime is still a problem and noise. But there are million dollar condos going up a blocks from my home, you cannot get a seat in one of the local coffee shops (Compass Coffee I'm looking at you), high concept farm2table restaurants keep popping up within a half mile, along with several gyms (parkoor, pilates, barre, etc). Parking is a pain, there are no yards, I already mentioned the schools, so there is little here for the two parents with the 2.5 kids, but if you're some just out of college 20something working for a non-profit or a childless 40something professional couple, we are the bomb.
Great Question. I'm a smaller size brokerage in the Seattle Area. And the partners are one of the few listing brokers who represents Fannie Mae, Freddie Mac, and HUD and the VA. They are Platinum REO Agents (which means they are preferred, and this is by invitation only) among many other awards and designations. That is how I get access to Pre-market REO properties.
Trust, but verify.
It sounds like he has experience making offers on REO deals, which is normally a different negotiation than a regular home offer. Banks have certain things they like to see in order to make offers seem more appealing. For example, one of them being if I make an offer to close on the last couple days of the month it will most likely never get accepted. The way the asset manager commission works won't benefit from it, so therefore an agent that has experience making offers on REO will most likely opt to close on a date that is beneficial to the asset manager.
Great Question. I'm a smaller size brokerage in the Seattle Area. And the partners are one of the few listing brokers who represents Fannie Mae, Freddie Mac, and HUD and the VA. They are Platinum REO Agents (which means they are preferred, and this is by invitation only) among many other awards and designations. That is how I get access to Pre-market REO properties.
Trust, but verify.
It sounds like he has experience making offers on REO deals, which is normally a different negotiation than a regular home offer. Banks have certain things they like to see in order to make offers seem more appealing. For example, one of them being if I make an offer to close on the last couple days of the month it will most likely never get accepted. The way the asset manager commission works won't benefit from it, so therefore an agent that has experience making offers on REO will most likely opt to close on a date that is beneficial to the asset manager.
Hope I answered your question!
Hi Lucas
Yes, you answered my question. That's what the agent said about his association with the REO listing agents and working with the banks was that he knows just how to work with them, ie submitting offers.
But the issue was that he is the list agent and handed me over to a sales agent with only a 1 yr experience. I've had this happen before when I inquired about an agent that was more in tune with "investors". Well she was an investor herself-for-herself and didn't really want to help others. I was "assigned" (as I felt it) to a 1 yr agent who knew nothing about investing. Needless to say that lasted as long as day turns into night.
The agent I had already been working with, albeit an agent that worked primarily with OO, at least knows the market and has always responded and opened doors to allow me to look at property. She's done more that that actually. I've purchased 2 properties in the past and we have a good working relationship but she's not completely versed in working with investors. This is why I reached out this this other realtor. It wasn't a match needless to say for several reasons.
What you describe is what I'm looking for to get help that is not otherwise being provided with my current agent. She and I have already discussed this and she doesn't have a problem with it.
How then can I find someone with which you describe and ascribe to in my own area? I've found several foreclosures (still in process) and seen some REO (there is one currently with incremental price drops). I actually was about to put in an offer on an REO but that day someone OO had already done so.
@Daria B. you make some very interesting, solid and accurate points. How then can I find someone with which you describe and ascribe to in my own area? I've found several foreclosures (still in process) and seen some REO (there is one currently with incremental price drops). An idea you might consider for your area is to attend some local REIA meetings and seek out realtors who've been there for a while - like, longer than a few months...
On a more general note, there's no secret sauce or magic potion certain brokers are privy to. If you've got the MLS, you've got everything. Sure, every broker/realtor has to differentiate themselves somehow, but claiming to have a unique, special, or "first" access to properties isn't accurate. Of course, there are broker who have relationships with wholesalers, and get access to off-market properties that way. But that's quite different than priority access. Despite what any broker out there might say to the contrary, the only difference in dealing with short sales, REOs, pre-foreclosures, bankruptcies, corp relos, etc., is with the paperwork and method of offer submission. Does it help to understand what the seller wants out of an offer? Absolutely. But you don't need to be a member of Mensa to figure that out.
And as for being an REO listing broker, the lending institutions decide who to use based entirely on production and success. Typically, they spread the listings out to a dozen or so brokers, depending on the size, location and number of properties. For example, here in Bellingham there are about 5 brokers who get 99% of the REO business. They are each with a separate brokerage. And trust me, when they get a new listing you don't hear about it until it hits the MLS.
On that note, I have to remind folks that in WA state, pocket listings are illegal. I see people get fined all the time when "The broker promoted a property without inputting a corresponding listing into the NWMLS database." Those fines range from a low of $1,000 to as much as $5,000, along with license suspension and/or mandatory continuing education. This is why those (good) brokers who list REOs don't talk about their potential listings until they goes live. And guess what, when lending institutions learn that a broker has been dishonest, they don't get any more listings.
@Daria B. you make some very interesting, solid and accurate points. How then can I find someone with which you describe and ascribe to in my own area? I've found several foreclosures (still in process) and seen some REO (there is one currently with incremental price drops). An idea you might consider for your area is to attend some local REIA meetings and seek out realtors who've been there for a while - like, longer than a few months...
On a more general note, there's no secret sauce or magic potion certain brokers are privy to. If you've got the MLS, you've got everything. Sure, every broker/realtor has to differentiate themselves somehow, but claiming to have a unique, special, or "first" access to properties isn't accurate. Of course, there are broker who have relationships with wholesalers, and get access to off-market properties that way. But that's quite different than priority access. Despite what any broker out there might say to the contrary, the only difference in dealing with short sales, REOs, pre-foreclosures, bankruptcies, corp relos, etc., is with the paperwork and method of offer submission. Does it help to understand what the seller wants out of an offer? Absolutely. But you don't need to be a member of Mensa to figure that out.
And as for being an REO listing broker, the lending institutions decide who to use based entirely on production and success. Typically, they spread the listings out to a dozen or so brokers, depending on the size, location and number of properties. For example, here in Bellingham there are about 5 brokers who get 99% of the REO business. They are each with a separate brokerage. And trust me, when they get a new listing you don't hear about it until it hits the MLS.
On that note, I have to remind folks that in WA state, pocket listings are illegal. I see people get fined all the time when "The broker promoted a property without inputting a corresponding listing into the NWMLS database." Those fines range from a low of $1,000 to as much as $5,000, along with license suspension and/or mandatory continuing education. This is why those (good) brokers who list REOs don't talk about their potential listings until they goes live. And guess what, when lending institutions learn that a broker has been dishonest, they don't get any more listings.
the @? isn't working for me....
I do belong to a local group and have not approached anyone that I know of about this in particular. Most of the group is younger regarding the investment time. Age wise, there are some young people but mostly upper ages and older.
I realize there is no magic potion, but I go back to your original post:
I'm a smaller size brokerage in the Seattle Area. And the partners are one of the few listing brokers who represents Fannie Mae, Freddie Mac, and HUD and the VA. They are Platinum REO Agents (which means they are preferred, and this is by invitation only) among many other awards and designations. That is how I get access to Pre-market REO properties.
If you are getting access to Pre-market REO, how then can I as an investor establish a relationship with someone like you in order to gain this knowledge and seek the properties I am trying to get. I'm not advocating anything that isn't legal, I just want to be able to expand into other areas that are not typical of property seeking. If this not doable?
By the way, thanks for this engaging conversation. So far I've only spoken with the local agent here who also said there is no magic potion ( and I realize that going into this and wasn't expecting there was. :o} )
There are couple of listing agents in this area that are REO agents and work with the bank directly. I've recently learned of this as I put 2-and-2 together when I started seeing the Fannie/Freddie properties listed by them.
Both of you seem versed in this topic and I was hoping to get closure on the "pre-market" topic. @Lucas Pintoyou mentioned the "pre-market" access that I was interested in getting more information on. Thanks!
@Daria B.unfortunately, there is no such thing as pre-market access, at least here in WA state. some brokers have "access" to off market deals thanks to the efforts of wholesalers.
Keep in mind that when Fannie Mae acquires a property they want to get top dollar. the best way to do this is to list with a broker on the MLS.
"I'm a smaller size brokerage in the Seattle Area. And the partners are one of the few listing brokers who represents Fannie Mae, Freddie Mac, and HUD and the VA. They are Platinum REO Agents (which means they are preferred, and this is by invitation only) among many other awards and designations. That is how I get access to Pre-market REO properties."
This is what threw me off and you did explain this earlier and i completely missed it. Hence the fine on brokers that share before the actual posting to MLS. I guess Lucas comment is referring to the fact that he gets the listings pre-market and not that it goes to anyone else.
Thanks for clarification on this Patrick I think I am now getting how some of this works. Probably would suit me though to get in touch with an REO listing agent that when things do hit the market I can talk to them about it.
I spent a few months this time last year looking for another investment property in Tacoma, from out-of-state, and couldn't make the #'s work. Finally I was up there for a weekend and took some tours w/realtors.
I actually found some nice pockets of neighborhoods on the east side, very close to downtown and UW Tacoma, where the #'s worked. Bought a place that weekend and after ~$2,500 in repairs it cash flows ~$400 / month with awesome tenants. Ended up putting down ~$35K in cash including repairs.
Let me know if you want to bounce any ideas off me!
@Daria B. i think it best if you contact 3 - 4 larger firms and speak with the managing broker about what you want. then try some of the smaller firms. being a larger brokerage has no detriment. RE/MAX and Keller Williams are massive and they have a ton of great brokers, some of whom work directly with Fannie, Freddie etc.