All Forum Posts by: Brian Hughes

Make your own I guess.   Find a house with MIL or DADU potential,   and build out one (or both, depending on locale) of those options.   Bide your time until the market levels off or deflates a bit and wait for overleveraged people to be forced into selling.   We may not have another bubble 'pop' per se, but it can't go on forever with 10-15% annual appreciation.

Add the shower,   but do it right.    Its a rental,  so it should be a full one piece fiberglass install,  and Add a ventilation fan and ideally hook it up to an automatic humidity sensor switch  (good upgrade too for any bathroom that doesn't have it).    Even with the fiberglass surround, probably good to remove all the drywall behind it.

Its true that investment 1-4 units when it comes to loan qualification are priced by comps and qualified against purchaser's income, and debt load but since they are still investments the purchase cost and income vs expenses still largely drives the price and looking at those numbers still gives you insight into the well priced properties. 

My comments regarding renovations was basically that what is most important for renovating a rental is to make sure it presents as clean, functional, well maintained, safe and up to code.   Unless the building and area are high end the finishes and appliances do not need to be expensive or fancy,  and in fact expensive appliances and finishes are often harder and more expensive to maintain.  If you are renovating units in a class C building,  you don't want to be putting in custom countertops,  viking range, solid cherry cabinets and a 5 piece tiled master bath.   

Welcome.   I'm also in Seattle.

How much of your capital is coming from your house vs. the other rentals?  Are the other rentals in this region?    If you have a family it might make sense to keep the house if you can,  and sell the other rentals to raise capital.   My first (and fully renovated) house was capital for getting into landlording,   but I do still miss the place.   I don't regret making the decision though,  but at the same time,  it was pretty nice and I only got to enjoy it in a completed state for a few months.

On pricing,  (buying and selling) one nice thing about multifamily,  and the more units there are the more true this is, is the price is purely a function of the income vs. expenses.   So when evaluating a 4-plex or any rental property, all you need to do is look at the cap rate (return on investment after all expenses less loan interest) and cash flow (same, but in absolute dollars,  and including loan servicing).     As a buyer,  you want the highest cap rate and cash flow.   As a seller,  you want to offer the lowest cap rate that will move,  and its up to the buyer to decide if its acceptable and if they will have cash flow.  

To get to your sale price, figure in your renovation costs,  figure what rents could realistically be raised to after renovations, what expenses could be reduced to (upgrading common lighting,  more water efficient plumbing,  right-sized trash service, etc) and any appreciation after a year or two of ownership,  and knowing what the typical offering cap rate is for a turnkey property you can compute what you could likely sell for.    

There is very little inventory in Seattle proper right now and most 3-4 units that are on the market are asking cap rates around 4% which probably won't break even with a typical down payment and full occupancy and rising interest rates.   Beware of over improving,  if you buy a property in an area where making high end improvements won't support high end rents,  you might actually make the property less desirable to investors.   Renovating a rental, unless it is high end, is a different beast than renovating your own home.   You want durable, inexpensive, mass produced, replaceable, low maintenance,  easy to repair and clean.

Outside of seattle but puget sound region there are definitely more opportunities at a lower price point,  but part of the reason seattle is so expensive is that's where most of the cool kids and cool jobs are.   BUT that doesn't mean there aren't great opportunities brewing in tacoma, everett, etc.   My next investment will definitely be south of seattle.

One problem with your strategy if implemented within seattle city limits might be the frequent displacement of tenants.   Seattle has rules about this which will make it more complex and expensive to move tenants out to start renovating a unit;  and seattle city council is making noises that their next rental ordinance may substantially increase costs of doing this.   My broken record statement:  Please make sure you read up on Seattle's just cause eviction ordinance and all the other recent and very landlord-hostile rental regulation ordinances that have passed in the last few years before you even think of becoming a seattle landlord.     And just from a decent-person perspective if you do plan on shuffling tenants around when renovating,  make sure to disclose your plans up front in writing, and offer newly renovated units (at or very close to market rate) to qualified existing tenants first if you are asking them to move. 

it could be argued you need an even more ironclad lease for family and friends...

but prior posters are right,  depending on the region of WA you definitely need different form(s).     rental housing association of washington (rhawa.org) includes decent lease agreement documents with membership,  but they are designed for either apartments or SFRs,   I don't think they have a house share version.

update on this:    the rent control prohibition repeal ordinances (house and senate version) introduced for 2018 in the WA state legislature both failed to get out of committee.   However,  it is very likely they will be reintroduced next year.

Keep an eye on that one station and see how much it is used.   It might be worth advertising it as an amenity as well.    And yes,   the higher class / property and location the higher likelyhood of EV uptake.   I'm certainly curious about actual experience with this.

My properties are solidly class C in location and quality,   and my tenants generally aren't too interested in getting EVs themselves,   though most of them have gotten demo rides and stuck their noses under the hood of my car at one point or another.

My 4-plex is well suited to EV charging upgrades - it has under building parking,  and the main breaker panels are in the ground floor laundry room meaning running cables out to the front wall for charging stations would be trivial.   I'm just waiting for an excuse basically.   

Congrats on that 4 plex.  

As other posters have mentioned, you have an awesome interest rate that is unlikely to be available again soon. I don't know what your rents are vs. costs but I'm guessing from the FHA loan you may have a fairly high balance; but that may be relative to what you bought at and not what its worth now. Still, rents should be covering the vast majority of your monthly housing costs (PITI, utilities, maintenance). Hopefully that leaves you able to save a large proportion of what other income you may have (if you have one 4-plex assuming you have a job or some other income as well) That can build up pretty fast when you are able to save a large proportion of it. Pretty much 100% of my day job take-home gets saved up for either paying down RE loans or down payments on more RE. Maybe you can do similar.

The economics in Auburn may be different than a bit further north (I'm in seattle and burien)  but its fairly likely we are somewhere near the peak of the current cycle in rents and prices for investments.    It might be relatively wise to avoid leveraging more, and instead focus on building the down payment.

If your rents are below market,  make sure to look at bringing them up to speed,  possibly commensurate with some improvements to the property where they make sense and as an olive branch to the tenants you are asking more of.     Another few hundred a month will add up and possibly more importantly help a lot when it comes to qualifying for that next loan.

On the hippie / green amenities,   thoughts on EV charging stations  (I've been driving EVs since before you could easily buy them):

If your property is in a relatively blue-ish midsize to larger USA municipality odds are pretty good that there are getting to be a fairly large quantity of EV's on the road.   Many EV's  are initially leased instead of purchased,  and returned in exchange for the improved model after that initial 2 year term.   Since EVs are improving rapidly  (most 2018+ models will have around 200 miles range;  double a couple years ago)  that depresses the prices on perfectly good lease returns quite a bit.    Net effect is in many markets you can buy a 2-3 year old nissan leaf for less than half its original MSRP,   and older models can be found waaay under $10K.    This puts them well into play for people who don't have huge incomes.   

In order for an EV to be convenient,   there needs to be at-home charging available.   It doesn't have to be all that powerful since once at home most people sleep 8 hours and that is more than enough to recharge from empty a 2011-2017 leaf.    The capacity of one 30A dryer circuit can support two "Level 2" 15A EV charging stations which can give about 80 miles of range with an overnight charge.

Who would be most likely to buy an EV?   Obviously those who are "eco conscious" are more likely,   but probably an urban or suburban 2 car household with access to dedicated parking.    The EV gets used as the commuter and around town vehicle,   the other one gets used backup and longer trips.   If your area has car sharing programs or a lot of transit options,  you might find a few single car households going that route too.

EVs are getting much more common,  but they are still a fairly small overall percentage of vehicles on the road.    Depending on your area they may still consist of less than 1% of vehicles on the road,  up to at most 5% in some coastal areas.  

So if you have a property with enough units such that odds are pretty good a few residents might want to go EV,  and you have a few reservable parking spaces with electricity access,  thats probably a good place to start.     Wiring things up for a charging station at every parking spot is still overkill.   However if you find yourself digging up or rebuilding parking anyway,   running conduit to every 1/4 or 1/3 of the parking spaces might be wise, as would putting in some extra electrical capacity if you are building new or updating electrical service.   

As for cost,  the simple approach would be to include the price of electricity in the monthly parking space reservation.   You can estimate the cost of the electricity from your local rate and likely mileage driven.   Basic charging equipment is fairly inexpensive these days,   the biggest risk is vandalism of the plug and cord,  if the charging stations are someplace visible to the public.     European style public charging stations have totally removeable cords and drivers carry their own,  but the US didn't go that way unfortunately.

Some cities are starting to mandate EV charging readiness for parking facilities.   If your area has those rules,  look into them for guidance. 

Assuming your rental is in seattle or western WA, rental housing association (rhawa.org) includes in their membership unlimited use of leases tailored for your area and type of property (in seattle/outside of, and SFR or apartment). They review and update their documents regularly. I used them from day 1 up until I switched over to using a professional property manager.

+1 on comments about not doing it yourself.   If you do that it will be nothing but trouble if you ever have a conflict with a tenant.   If you don't think spending the money to get the legal agreement right is a good investment,   you aren't looking at the big picture.