Seattle investor — any advice on buying second property?

Question

Hello all,

My girlfriend and I bought our first condo in Seattle this summer for $360k (mortgage is $2,100 with HOA). We really want to buy another and will go around looking for deals, but not sure what to do about financing. We only have enough for 3.5%-10% down. Should we look for an FHA loan, conventional or seller-finance, or maybe hard-money loan? We're debating whether it's better to buy a place and rent it or buy a place, move into it for an owner occupancy rate and then rent our current condo. I would love to hear any feedback and suggestions on what our next move should be. I really appreciate it!

Michael Haas · Answer

Does the original condo cashflow with 4% CAP EX, 3% Vacancy (which would be best-case numbers, and assume that the HOA covers major exterior repairs like siding and roofs)? Trading properties by renting your current home and buying a new one with a conventional 5% down loan for single family, or fha 3.5% down for multifamily is usually the way to go when growing a portfolio with limited cash. That’s what we did to get to 7 rentals. Putting 20% down doesn’t make sense in our market unless you’re a very high income earner looking to invest a significant amount of cash. Unless you find a screaming deal though (and there are some out there given that COVID has hit the condo market harder) condos around here tend to make for poor investment properties. Why the condo focus?

Michael Haas · Answer

@Danny Schmidt the market for a lot of condos is pretty weak right now because of COVID's impact on close-in, city properties. If you can manage to hold it, rent it, and qualify for another property that would usually be preferable. With down payment assistance programs like WSHFC and 5% or 3.5% down loans though it seems like you're qualified for a larger property on the down payment front, and just have to make sure you're qualified on a income / DTI (debt to income ratio) front.We usually target SFH's with ADU's (usually basement units, but backyard cottages work too) within Seattle City Proper. Outside of Seattle, there are a lot more small multifamily opportunities in Renton, Tacoma, and Everett. True multifamily in Seattle can be brutaly competitive and have very low returns, although there's diamonds in the rough in every market.Happy to chat more over the phone or a coffee. Cheers!

Danny Schmidt · Answer

@Christian Decker thanks! We’re willing to start looking for some. We prefer to stay in the area but open to going a little outside for a good deal.

Danny Schmidt · Answer

@Michael Haas @Stephen Pirotte absolutely not just looking for condos. We've also considered selling our 2-bed condo (even though we bought it so recently) if we can find a good hacking property to trade up to, such as a duplex, that would cash flow better. I'd love to hear your input (as well as anybody else's). Thanks!

Sherief Elbassuoni · Answer

@Danny Schmidt, Covid hit the Condo market pretty hard, and selling your condo now may not be the best financial decision (especially that you bought it recently).If you qualify for a loan with 3.5% or 5% down, sure, you can get a single-family and house hack it. The Seattle market has a big appreciation potential, but we still see decent cash flow opportunities.

Brandon Vukelich · Answer

@danny schmidt - where would you ideally like to own, which neighborhoods?

Christian Decker · Answer

@Danny SchmidtThere are totally duplexes out there to house hack! If you have the time and patience you can definitely find a good opportunity. Would you be wanting to stay in your current area or are you willing to commute/￼live in a different area?

Stephen Pirotte · Answer

@Danny SchmidtI am not an expert but I live south of Seattle and have a rental and done flips around this area. If you only have 10% down then it is going to be really difficult to get a rental property and make it cash flow. In Seattle I have used several hard Money lenders. In general you will need to put 10% down, pay 2 points for the loan, and have 10-12% interest. There will also be some closing costs you will need to pay out of pocket. If you are looking for a rental that will cash flow it’s going to be extremely difficult. Hard money is not a long term solution, it should be used as a bridge loan or quick flip. Honestly the best action is to save up until you can put 20% down. Or use your ten percent down to do some flips to build up reserves.

Danny Schmidt · Answer

First deal was conventional loan with a local credit union.

Julio Garcia · Answer

How did you finance the first deal?