All Forum Posts by: Adrian Chu
Adrian Chu has started 76 posts and replied 1372 times.
Post: Nothing in Seattle MFH house-hacking makes cashflow. Am I crazy?
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
If you do this, you miss out on the tax benefits of owning a primary residence, and low primary residence interest rates.
Originally posted by @Whitney Hutten:
@Vasily R. Have you considered the old adage... "Live where you want, invest where it makes sense." Seattle is like where I live... it's an appreciation play, not a cashflow play. The property will not rent for what you can cover the mortgage for unless you put more cash down and then your returns drop drastically. Different markets behave differently. I work with several people from the area to help them reposition their assets and when I dig into their portfolios they generally cashflow between -5-1%. Not good.
What if you took your funds and invested out of state? At least out of your area? Spokane has a few multi although it's getting overheated as well. PM me if you have any Q's!
Post: Nothing in Seattle MFH house-hacking makes cashflow. Am I crazy?
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
SF Bay Area is even harder, though the market is starting to signs of dropping since many startups are laying people off.
It's hard to find a balance between better culture and better real estate opportunities, but better can be subjective.
Based on my understanding, in some parts of this country, you can buy turn key new construction home and still meet the 1% rule when you rent out. That may be the path of least resistance.
Originally posted by @Vasily R.:
I learned so much from this post. Thanks everybody. Vaughn's reply above especially is making me wonder. I'm not tied by anything in this city other than my job, and since I got my green card after moving from Canada's east-coast 5 years ago (where my family resides), I have almost no particular attachment to this city. I am focusing on building wealth while I'm relatively young, and sounds like Seattle is just a harder place to follow the real estate strategy to achieve my financial goals. Tech jobs can be found all over the country, and perhaps taking a pay cut isn't such a bad idea if I can trade that for better culture, lower crime rates, better real estate opportunities, etc.
Meeting up with a different friend involved in real estate to give me a different perspective, but so far I'm definitely holding to my guns.
Post: Nothing in Seattle MFH house-hacking makes cashflow. Am I crazy?
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
The reason it's that way is that because a lot of people are making a tech salary here in Seattle. It is even more challenging for people with lower salaries. On the flip side, if you are in a city where very few people make high salaries, then you would have a larger competitive advantage.
Originally posted by @Vasily R.:
Originally posted by @Adrian Chu:
I am going to sound very discouraging, but it reflects the reality of the market.
Unless it is a property that either nobody knows about and the seller is selling for substantially below market value, FHA MFH house hacking is just not a thing in Seattle. For 3-4 units, you will never be able to pass self-sufficiency test based on market values and rents.
Furthermore, in Seattle, there is a lot of cash floating around. There are lots of people who can buy properties without obtaining financing. Especially for MLS deals with solid numbers, chances are a cash buyer is going to beat everybody else. With the stimulus package and the government essentially printing money, there is only going to be more and more cash floating around. Plus, there are some new components of the stimulus package that strongly encourage those classified as real estate professionals for tax purposes to pour more money into real estate.
The primary ways to generate more cash flow are room rentals and airbnb. Seattle allows you to have up to 8 unrelated people live in a home. That means you want as close to 8 bedrooms as possible. $800 a pop is $6400. $900 a pop is $7200. $1000 a pop is $8000, etc. Buy a single family home, live in it, and rent out the other rooms. For more privacy, buy a single family home with an ADU, live in the ADU, and rent out the main part of the house by the room.
As we see now, airbnb are just like hotels and are hit hard by COVID-19.
Best of luck.
This actually makes a lot of sense. Renting a room for each person in a 8-br house seems like a rat cage though, doesn't it? Even if I live in an ADU, I can imagine a lot of drama and repairs would be required in such a situation, but you gotta do what you gotta do I guess.
Post: Nothing in Seattle MFH house-hacking makes cashflow. Am I crazy?
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
Originally posted by @Keith Mikkelson:
I'm upstream of you research-wise, but I've been running into the same realization in my search for a single-family FHA house-hack. Haven't done any hard-pull pre-approvals yet, but I got in the weeds with a loan officer who was willing to provide me an estimate and it came in at $540,000. $520,000 loan amount comes out to roughly $2900-3100 in mortgage, home insurance, property tax, and MIP. A $540,000 house is a live-able, but needs-work 3-bedroom in lake city/shoreline, and it doesn't really matter if you keep going north for lower prices because the rent moves down with it(Numbers don't make sense until Everett, but like you, I'm not interested). Rooms in lake city/shoreline average $750. In the BEST case scenario, my girlfriend is willing to match what the tenants pay, and I'd have $2250/mo coming in... leaving me bleeding $750 +/- every month before surprise/expected expenses. Does not seem like a situation conducive to building up that next downpayment... plus when I leave, now there's a $1500 +/- hole that will leave me in the red, regardless of whether or not I can find a couple to fill it.
More research to be done, but my preliminary findings lead me to believe that, in Seattle, my only real route here is to be tenacious about seeking out a deal on a distressed 3-4 bedroom, and then go all-in trying to rehab it so I only have to eat one, maybe two full mortgage payments. This brings me to a gray area I haven't been able clear up just yet... is there anywhere you can find exact criteria on what will/will not be approved for FHA Loans as it relates to the repairs that need to be done? Don't mean to hijack Visaly's post, but since this consideration is very much in line with the situation he finds himself in, I'd appreciate it if any experienced folks could weigh in on that.
3-4 beds is not really enough. Go for a split level style home, those tend to be more functional, and have more bedrooms in the same amount of space.
As far as FHA, the bigger problem is winning an offer on a house when other buyers may be waiving their contingencies. Because of the appraisal requirements, FHA gets a bad stigma. Furthermore, FHA and VA loans come with a built-in "get out of jail free" card if the appraised value comes back lower than the purchase price. Sellers don't like that. If I had a choice, with all other terms being equal, as a seller, I would choose the lower priced offer that's using conventional financing over an FHA offer.
The most common things that get called out by FHA looks for is wood rot and chipped paint. But here is the full set of guidelines from FHA.
https://www.hud.gov/sites/documents/SFH_POLI_APPR_PROP.PDF
If you are just buying a single family home, it doesn't make sense to use FHA if you don't have to. You can use 3% or 5% down conventional. FHA is truly beneficial if you want to buy a multi-family home especially a duplex.
Best of luck!
Post: Nothing in Seattle MFH house-hacking makes cashflow. Am I crazy?
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
I am going to sound very discouraging, but it reflects the reality of the market.
Unless it is a property that either nobody knows about and the seller is selling for substantially below market value, FHA MFH house hacking is just not a thing in Seattle. For 3-4 units, you will never be able to pass self-sufficiency test based on market values and rents.
Furthermore, in Seattle, there is a lot of cash floating around. There are lots of people who can buy properties without obtaining financing. Especially for MLS deals with solid numbers, chances are a cash buyer is going to beat everybody else. With the stimulus package and the government essentially printing money, there is only going to be more and more cash floating around. Plus, there are some new components of the stimulus package that strongly encourage those classified as real estate professionals for tax purposes to pour more money into real estate.
The primary ways to generate more cash flow are room rentals and airbnb. Seattle allows you to have up to 8 unrelated people live in a home. That means you want as close to 8 bedrooms as possible. $800 a pop is $6400. $900 a pop is $7200. $1000 a pop is $8000, etc. Buy a single family home, live in it, and rent out the other rooms. For more privacy, buy a single family home with an ADU, live in the ADU, and rent out the main part of the house by the room.
As we see now, airbnb are just like hotels and are hit hard by COVID-19.
Best of luck.
Post: Creative ways to make property in Bay Area Cash Flow
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
Originally posted by @Amit M.:
airbnb
dead
corona
————
3words
sad
Post: Creative ways to make property in Bay Area Cash Flow
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
d isn't creative. a-c, you want to make sure you comply with local ordinances. See if you can do an ADU as well.
Best of luck!
Post: Monon 16 Development Multi-Unit
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
Can you implement your own submetering technology?
Post: Seeking title insurance and escrow recommenations
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
First American Title.
Post: Modular Apartments- Why? What am I missing here?
- Real Estate Broker
- Seattle, WA
- Posts 1,488
- Votes 425
I don't know enough about modular building, but from what I know, it's quite expensive. As far as I know, the easiest way to accomplish something close is to do a manufactured home park...