Need advice on my North Seattle rental
Newbie here, looking for advice on how to evaluate my current rental. My goal is to use a buy-and-hold strategy to develop cash-flow properties over the next 10 years by investing 30-50k/year while still working full-time. Specifically looking at whether my plan should be to hold this rental for the long-term and eventually do a 1031 exchange once its fully depreciated or sell it within the next two years to take advantage of the tax-free capital gains.
Details:
Location/description: North Seattle 1400 sq foot 3br/2ba 3 story townhome built in 2009, rough neighborhood on the border of a good one to the south.
Address: 1238 n northgate way seattle, wa 98133
Purchased as primary residence in 2014 for $360k with $72k down, $65/mo HOA which covers landscaping and governance
In 2016 after meeting 2yr occupancy req., property appraised for $475k so we pulled 70k our by refinancing into a 30yr @3.75% with a principal+interest payment of $1600 + 300 for taxes and insurance and rented it out for $2500/mo, renter pays utilities, we manage the property, new loan amt is $340k.
Other identical townhomes in our development and others like it have sold for $600k, so I would say that I could conceivably sell the home once the current lease is up and walk away with $200k factoring in all selling costs.
I expect that we will be able to raise rent to 2700-2900 in the next 2 years or so and possibly up to 3200 in 2021 as there is a light rail being constructed that will drive a lot of demand from people commuting to downtown seattle.
Specific Questions:
Since I refinanced and took my initial investment out of the property, this seems to skew all of the standard evaluation metrics (IRR, Cap Rate, etc...), if I factor equity into the equations this looks like a terrible return and if I don't its a great return. How would you evaluate this property? are there other factors/numbers I need to look at?
Applying the 50% rule to this property it looks like we are running negative, however since this is a brand new home, we are managing it and demand for this type of rental is through the roof I think that this rule does not apply, is there a more precise calculator anyone could recommend for estimating costs for newer homes?
Applying the 2% rule to this property, it would need to rent for $7200/month, this is not in the realm of reality for any properties in seattle, even 1% is a lofty dream.
If I sell this property I would likely either be sitting on cash for a while or I would need to look at out-of-state deals as the seattle market does not currently offer many lucrative buy-and-hold REI opportunities, are there other options I am not seeing?
Thanks in advance for your thoughts!
Alex