Buy and hold decision

[Anil Sharma]

Hello everyone, 

I understand the relevance and the idea of minimum 1% rule. Based upon online research in my surrounding areas and the prevailing monthly rent they have the potential to generate, I am having hard time to see the numbers working. Getting 0.5-0-6% might be doable with negative cash-flow. I'm less inclined to invest in unknown out-of-state areas yet, based upon some of the horror stories I came across here even on the turn-key properties and also since I know, it may not be feasible to visit the out of state property so often (mid-west and other geographies).

I'm trying to find some advises from fellow investors (Seattle based specifically) - in which areas in WA state this 1% may be close enough to invest that have good enough employment/working class neighborhoods (low vacancy) that would be recommended to target and research upon? I'm open for both SFH and MFH at this point. Thanks much

[Shane Pearlman]

Hey @Anil Sharma - Welcome!

I just bought my second fourplex in magnolia (10m from downtown seattle). It was just over a 5 cap, 2.8% Cash on Cash, brand new and fits my investing profile to a tee. This deal would probably give the midwestern cashflow folks a heart attack. The area is going through an explosion right now, with old homes getting nocked over and new large properties under development. Rents on my first fouplex (purchased at the end of 2013) have gone up 15% this year alone.

The 1% rule and the 50% rule are all rough guidelines. They are helpful in some cases, and not in others. You can't compare an equity market like Seattle core with a cashflow market in podunk montana and expect the same business/ financial models to apply. They are highly different environments. I find the more experience I get, the less I pay attention to broad stroke rules and the more I focus on analyzing deals carefully and structuring them to fit my personal goals and lifestyle requirements.

Your rental properties / business is a financial and lifestyle vehicle. The property type, location, deal structure, debt and management style all come together to create a specific set of outcomes. Why do you own these properties, and what are you hoping this will accomplish for you and your family? How involved do you want to be? Do you need cash today, or is this asset building for 3 decades in the future? Has your game plan changed since you bought them?

My family and I invest for equity growth at this point. I don't begrudge cashflow, but the purpose of my investments is the carful acquisition of high quality assets where I can force further equity. And one of the huge advantages of A-B+ class properties, the tenants are way easier.