Why a Buying Mania in Washington State?

Question

Can anyone explain why it is so difficult to buy a cash flow positive property in Washington state (Tacoma area specifically)?

My partner and I are looking to house hack and each place that looks to be a good deal gets bid up nearly 50k, to the point where the numbers don’t even make sense.

What advice is there for house hacking in Tacoma? How do we make a place cash flow positive in such a volatile market

Andrew Gunther · Answer

I just purchased a single family rehab home in the Vancouver area. We are planning on renting out the home and converting the detached garage into an ADU. When it is all said and done we should net ~$1000/mo. in cash flow. I feel as though value add is the name of the game right now. Especially in unfinished basements and ADUs like I am doing.

Sherief Elbassuoni · Answer

As mentioned above, we are one of the hottest markets nation wide. some investors buy properties and they know that they will not have +ve cash flow in the first year or two. That said, there are still good deals that generate decent cash flow, they are just not easy to find.

Mary Cronin · Answer

If seller's getting multiple bids, then you're looking at MLS properties?

Look for FSBOs or look for off-market properties.

Scott S. · Answer

What is your budget, how many beds/baths are you searching for and what area of Tacoma?  What kind of living situation are you and your partner looking for?   Live in 1 bed and rent out the rest?  Or are you seeking a single family home with a MIL/ADU/DADU + second kitchen for more separation between you and your tenants?

If it's just renting out single bedrooms, you could expect anywhere between $600-$800 per room on the North End depending on updates, whether they have their own bathroom, etc.  South End/Eastside can typically range from $400 - $600+ per room.

In our expensive area, house hacking at first is more about trying to cover as much of the mortgage vs positive cashflow right from the get go.

Steve Vaughan · Answer

Can't find a deal in the whole large, diverse state?  Pretty bold claim.

Or even find deals in Tacoma? I bet you could D4D on the shady side of Tacoma or Lakewood and find deals all day long. How many addresses of high grass houses do you take note of while taking alternate routes so you see new neighborhoods?

You are competing on the MLS with retail buyers.  Find off-market houses with problems and yours will be solved.

Jay Hinrichs · Answer

of course just put more money down to create cash flow every property that has rental income has cash flow if you pay cash..

the issue is the whining about no cash flow because people are trying to buy real estate with MAX debt.. thats the issue..

Irene Nash · Answer

@Matthew Thornton  I was going by this article from the Mortgage Bankers Association:

https://www.mba.org/2020-press...

This is a quote from the article:

The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA's survey," said Marina Walsh, MBA's Vice President of Industry Analysis. "The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans."However, there was also this:On a more positive note, 30-day delinquencies dropped in the second quarter, which is an indication that the flood of new delinquencies may be dissipating."Basically any stats are going to be hard to evaluate because we have to take into account the fact that

- There were and still are moratoria on foreclosures for many properties.

- Stimulus checks provided a temporary buffer for some people who may not be going back to work soon.

- Unemployment benefits may run out for some people who won't be able to go back to work soon.

- Millions of people are losing health insurance and that is going to affect mortgage payments for some homeowners.

Generally if we see enough factors in an equation pointing towards the downside and not the upside, it seems reasonable to think the end result is going to be more down than up. So it might be a mild shift, or not, but in general I think the market will cool down at least somewhat in the next few years to come. And as with all things 'economy', I realize I could be totally wrong, of course. :)

Chelsea Shapiro · Answer

I cover 4 counties in the Puget Sound area for small MF properties.  This is the overarching trend and you aren't alone!  I encourage my buyer clients who are house hacking to not get caught up in the cash flow, cap rate and ROI numbers, but rather ask the question "how does this make my life and financial setup better in the next 6-18 months vs now?"  If it looks like your cash out of pocket on a monthly basis is better than your setup with renting or owning right now then it might be a good deal for you even if the cap rate on paper is not ideal.

Evan D. · Answer

its hard but there are deals out there if your excepting of sweat equity. I recently closed on a property for $385, no bid up issues. Reason being is the property looked like hell. Dog poop carpets, stains on most of the walls, siding needs pressure wash and paint, etc. But the house still qualified for standard financing and I've already found hardwood which will be refinished under the carpet and painted interior. Should get about $1800 per unit. This is a duplex south Everett area 3bd 1bth both sides. Deals are out there but I look at on and off market multiple times a day.

Irene Nash · Answer

@Alyssa Miller That is just the market in this area right now - I know that sounds simplistic, but current market values (as in, what people are willing to pay for properties, 'people' meaning a large proportion of owner occupants who want to get into a house while rates are super low and they've often missed out on several homes already due to bidding wars) are high enough that it's not an environment in which investors are going to find a lot of deals.

It's kind of like trying to 'hack' toilet paper at the beginning of Covid - the supply/demand curve is not working in your favor.

But, nationwide, the number of properties going into the first stage of foreclosure is skyrocketing right now - I don't think we'll be immune to that despite our strong tech industry. And Boeing moving some production to the east coast is going to hurt Snohomish County. I think deals will probably be easier to find in the next year or so.

Why a Buying Mania in Washington State?

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