All Forum Posts by: Brian Hughes

Congratulations!

Please consider joining rhawa.org (rental housing association of washington) or another landlord industry association.   These associations are incredibly valuable for education, advice, access to legal forms,  screening services, networking,  etc.

If there is not already a tenant in place, be sure you understand how to properly and legally screen.   In tacoma you don't have nearly as much ..stuff.. to deal with as in Seattle,  but there are still pitfalls.   

If there is a tenant in place,  then first thing (after introductions) is to review the rental agreement and make sure everything is on the up and up.  If it was written on the back of a napkin or the rental agreement came from a cracker jack box,  time to update it.  As long as its month to month,  MOST terms can be changed with 30 days notice.   I had this situation with my 4-plex purchase,   I worked with each tenant to update them to current RHA forms at the time;  they were apprehensive at first but I made it clear they were still MtM,  I was not re-screening anybody, etc,  and gave a clear schedule for when rent increases would occur.

Problem is once rents start going much past about say 70-80% of the average mortgage payment on a median home,   many renters would rather buy something, even if it is a 'below median' home.  (All I've ever bought... )  Around here (seattle) that is around the $3000 mark right now given interest rates, etc.  (about a 400K loan) - or people buy a condo,  or move further out to get a house, etc.

However, inventory is very low and demand for homes, especially SFR's is still high, so that pushes up prices on what is available for owner occupancy, even though there is more of a cap on what rents can cost since after that price point people have an option whether to rent or own something, somewhere.

So thats a good reason NOT buy single family anywhere near seattle for renting purposes.  If it can be house hacked, converted to multi, land banked, rehabbed or some other strategy might make sense though

At least, thats my take.

Attorney time.

Make sure the person is reputable and experienced obviously.   Figure out if they are coming to you because other HMLs are saying no.

Make sure that whatever contract includes an option for you to take ownership of the property for the value of money loaned + whatever the person put down.

Make sure the property is worth (at wholesale prices) what is being suggested.

Or,  just offer instead to pay the person a finder's fee and buy the place yourself if so inclined.

Or, find other HML's and offer to work with them for a while to learn the ropes and ignore this guy.

Caution in any case.

In the ~14  years I've had tenants I have/had about 20 tenancies.   I have/had  collaborative and respectful relationships with probably 15 of them,  adversarial but otherwise respectful relationships with the next 3,  and 2 tenancies where they were completely disrespectful toward me, the property, and other residents.   Those last two tenancies both ended early,  and in both cases they had a lot of personal issues also unrelated to their rental agreement with me.

This is all in well maintained properties located in C+ (decent working class) neighborhoods in and near seattle.

Agree with comments saying its best to keep in professional - its fine to be personable and friendly,  but keep a line and don't cross it.   I've had a couple tenants who tried very hard to become my friend (this was still while I was living in a unit of the property) and I eventually had to just tell them that I needed to keep a professional distance given the business relationship.   They were annoyed at first but I think in the end they appreciated it. 

Also agree that management approach can be a big factor in setting the tone of a landlord/tenant relationship.   The biggest thing I think I learned after a few years of doing this is to not overreact and not sweat the small stuff - don't instantly jump on somebody making a minor lease violation or minor behavior problem.   Gradually increase pressure if necessary to correct behavior  (assuming of course it isn't something egregious or serious) instead of jumping down peoples throats.   Give people plausible deniability instead of direct accusation ("I'm finding cigarette butts all over the property -  I haven't figured out who it is yet so please let me know if you have any idea - I've told the other tenants to watch out too - thanks!")   If you have a long term tenant with a cat,  don't sweat things like the mangled mini blinds.  Blinds are cheap if its otherwise a good tenant relationship its not worth making a big fuss over.   (And on next turnover,  install tougher 2" rigid blinds...) 
 

what type(s) of properties are you tracking?   I'm seeing a modest uptick in the type of thing I am interested in within greater seattle area (also within seattle itself,  but I won't buy any more investment properties therein) - may just be the seasonal ramp-up though.

Hi Sally - Welcome.

If you are considering investing in residential real estate in WA,  be aware that there are major changes coming in state law,  almost certainly including 'just cause' eviction rules (HB2453) this session,   and possibly also statewide rent control (HB2779) (less likely this session,  but IMO very likely in the medium/long term unfortunately)  that both if passed will substantially or even dramatically affect the level of risk, business model, and other aspects of owning and operating rental property.   New entrants to the landlording world will likely be most affected due both to learning curve and cost basis.

Since you are in Kitsap CO,  Bremerton is probably your best market for investment real estate;  there are usually several small rental complexes available over there an any given time;   its certainly on my radar  (as while I'm in seattle,  I will no longer invest in seattle) but there are also other secondary/tertiary markets that might be worth looking at;  just make sure that the area has a decent economic situation,  and/or the property you invest in is substantially more desirable that most of its competitive segment is so that if things soften up economically,  you are still holding a property people will want to live in if they have lots of options.

There are also other types of RE investing - commercial, out of state, flipping,  etc which depending on you and your husbands interests, skill set, and risk tolerance could be worth looking at.  However I'm a fan of keeping it (relatively) local.  Of course,  I'm now defining that more broadly than I used to.

If we get rent control similar to the HB2779 proposal or OR or CA then the biggest risk will be to people who work to reposition properties - major rehab that requires possibly asking many or all tenants to move,  and substantial increase in rents to cover the reno costs,   or to anybody who recently purchased a property based on its proforma numbers instead of on its actuals.

I have been more or less expecting a rent control proposal like 2779.   I'm actually more worried right now about the 2453 just cause bill eliminating term leases.   This will lock in any tenant as long as they want to stay,   unless they engage in egregious (and proveable) acts of nonpayment or behavior problems.   

Properties that are in need of major renovation that cannot be rehabbed gradually will end up trading at a substantial discount,  having to account for costs of the rehab,  more of that cost needing to be paid up front ahead of increased returns, much longer period for rents to catch up to market,  and more costs regarding permitting, tenant relocation, etc.  not previously as prevalent.

My model so far has been to buy under-maintained and under-managed properties and gradually improve them.    The last building I bought was a 4-plex in Burien (in 2015) with the rents at the time between $600 and $700.   I increased rents 15% the first year and about 10% the next 2 years.   I gave the tenants a schedule in advance of all of that.   I also reinvested every dollar in gross rent for the first couple years in repairs.

Under rent control such as proposed that building in that condition/state would have had to sell for about 75% of what I paid for it   (and I paid the same amount as the prior owner - 10 years before) since it would have had to cash flow decently on day one.   I was willing to take negative cash flow because I knew that even without getting all the way to market rates immediately I could turn things around and not force out the retiree tenants in some units.

Those units are still a bit behind market,  but not dangerously so.   I still have the retirees.

If this rent control rule does pass,  I probably will be taking the maximum increase yearly until I start seeing turnover on each unit every 3-4 years.

One of the major gotchas in this proposed rent control bill is the REMOVAL of two other RCW clauses - the ones that preempt local jurisdictions (cities, towns, and counties) from passing their own additional rent control rules.   For example,  if this bill passed,  Seattle city council could then theoretically add vacancy control or further limit the annual increase allowed.

While the city of seattle is making noise about disallowing it,   your best bet if a minisplit or heat pump system won't work is probably a high efficiency gas furnace.     It should bolt in in place of where the existing oil furnace is,   reuse the ducting,   and "only" require a gas line from the street.  How expensive that is will depend on your location, type of street, slope, sidewalks, etc.

But I would really push for the heat pump system if it can work.   However if the house is outdated in other aspects,   like it still has single pane glass,   R-notverymuch insulation in the attic, etc.  you may need to make other upgrades before an electric-only modern heat pump will have enough oomph to keep up.

Don't know how big your house is,   but my 1968 2300sf daylight basement rambler,  with R-8 in the walls,  R-11 in the attic, and single pane windows (most without any window coverings) and an 80% efficient gas furnace I'm running about $100/month using about 3 therms a day in the winter on gas heat. (I heat to 66F)    I'm doing window upgrades next summer,  and after some ceiling drywall repairs I'll be updating the attic insulation to R-30+.    I don't plan on trying to improve the wall insulation unless I have to gut an area.

sounds like you are on track to have some options,   and make sure to let your parents see your gratitude :)

While you are saving, you should read up on Seattle's rental ordinances, which cover house sharing situations. There are some exceptions in that case that allow you more flexibility in screening applicants and ending tenancies vs. if it was an ADU or a separate rental property, but still there are gotchas, and if certain council members get their way, even house shares would likely be subject to rent control.

If and when you decide you are serious about house hacking,  join RHA  www.rhawa.org and take advantage of their resources, education, etc.

I would advise favoring a real, detached house even if it needs a little work over a townhouse unless said townhome was in a very desirable location. Townhouses are likely to be a lot more price volatile if and when the real estate market ever softens up. In my old neighborhood (georgetown) all the townhomes being built there people would live there for a couple years and move out as soon as they had the equity to make a down payment on a "real" house, even while new townhouses were still being built down the street. Also, townhouses are essentially multifamily housing without a governing HOA or management, that can be great if everybody gets along, but can be a real headache if you end up with a disrespectful or careless neighbor. I saw that in the townhouse complex that got built next door to my old house, the occupants of one unit were harrassing the others by trying to take more than their share of the parking spaces, among other issues. I also saw a lot of fights over garbage cans, especially yard waste /organic debris bins. A dead christmas tree got pushed around for six months before it finally ended up in MY yard waste (I didn't complain because I was tired of seeing it too) for example.

Prices are high right now and we are probably going to see a recession in the next couple years.  how bad it may be and how it affects seattle and the housing market who knows.   Long term housing in seattle is probably still a good bet,   but don't overextend yourself.    What that means to you only you can determine,    but consider things like can you afford the  mortgage if you had to take a new job at 80% of your current salary,   and can you afford a $10K repair in the first year of ownership,  for example.

A townhouse is eligible for all the same federal tax benefits as a house AFAIK,  and if rented,  all the same benefits there.   The question with operating as a house share is how those mix.   Talk to a tax accountant about that one.

Good luck.