What's Better: Buying or Building in Western WA?

Question

Hey guys,

I will be moving up to the Mukilteo / Everett area for work in June, and frankly, the market up there is daunting. Prices are high and there seems to be slim pickings on the market for the duplex-fourplex category in good areas. I feel fairly competent when it comes to existing building financial analysis, but when it comes to new construction I have only done the basics in my Construction Management classes, which is not enough for what I need for this situation.

My question is this: in your experience, does it make more sense to find a distressed property than to build a new duplex, triplex, or fourplex on a vacant lot? I know I'm leaving out lots of details, like lot price, zoning restrictions, whether utilities are already run to the lot, location, etc., but I just wanted to get your opinion. I am probably leaving out more red tape that Snohomish county has placed on building new. I will live in whatever I end up buying, at least for a year or two.

I'm looking forward to hearing your guys' thoughts!

Rusty Pollard · Answer

Haha, thanks for the tips and info guys! We're looking forward to it.

Eric Belgau · Answer

Hey Rusty,

On a non-RE note, my wife grew up in Huntington Beach, and as soon as I'd found a California beach girl dumb enough to marry me I dragged her back to the Northwest.  Last February I discovered that flights from Seattle to Panama City are cheap, and a week in the tropics does wonders in a Vitamin E emergency.

Just in case.

Duncan Taylor · Answer

Hey, the winters in the Puget Sound area are great! I grew up in Tacoma.

I split my time between Duluth, GA (Atlanta) and Kenmore, WA. I'm currently in Duluth.

A bit of trivia for you.

Which one gets more rain?

Atlanta.

Which has the lower average winter low temperature?

Atlanta in January and February.

Which one has the absolute best summers?

Seattle - both weeks. ;-)

Seriously, I love both areas but at least part of my summers will always be on Lake Washington. But, let's not spread this around too much, we don't want the whole country moving in!

Zach Schwarzmiller · Answer

The winters are nice here! You just have to buy rain gear and snow shoes and be sure to still enjoy the beautiful outdoors.

Zach Schwarzmiller · Answer

Sounds good. Our company has a management arm, if you'r looking to be a manager of a building I would be happy to forward your resume and contact information to the owners of my company. We manage 40+ MF units and commercial spaces.

Rusty Pollard · Answer

Thanks for the info! Eric, I grew up in Colorado, and have lived all around the greater Seattle area for a few years. Now I'm just finishing up school, and I'm headed back up there! Love that area... hope my wife can do the winters. Haha

Zach, I will for sure get in touch with you soon, thanks. Also, I have an apartment lined up for the first 6 months up there, but I may be interested in managing some apartments if you have any contacts that might need that.

You both have definitely given me more to think about. Thanks!

Zach Schwarzmiller · Answer

A thought; if your looking to move, live, build - there are a couple multi-family sites in Snohomish County that would be good for owner-occupancy + additional land for future development. Perhaps get into one of these take the time to go through sub-parcel the land and then build on the lot while getting into it all with either a FHA or Conventional 3.5-10% down owner occupancy loan. In July I am coming up for re-qualification to another 5% owner-occupancy loan and will be looking to do something like this. Currently tied into a 3.5% FHA owner-occupany until then.

Zach Schwarzmiller · Answer

Rusty - we should get together sometime and talk. I currently own small multi-family, but am looking to develop 2-4 and 5-30 unit multi-family properties. There are quite a bit of moving parts in a real estate transaction. There are even more moving parts in a real estate development. Nonetheless I am interested in building 2-4 unit properties in the same area you are discussing. I've finished the University of Washington's Certificate in Commercial Real Estate which is 100% development based, and also have finished all my CCIM classes which is good for underwriting stabilized assets as well. I feel it's a good mix. I was going to build 31 unit micro-student housing near UW last year but 2 days before we found our equity partner a foreigner bought the land and wasn't comfortable partnering. I also had got decently far on due diligence to build 6 four-plexes in Mountlake Terrace 2-3% submarket vacancy; however, title would not insure a easement and I backed out because of it (longer story here). I just bought another house sitting on a lot to build between 4-6 units and I could add a commercial component but probably wont. Nonetheless I am interested in pursuing more of this and would love to chat with you.

Eric Belgau · Answer

Hi Rusty,

Welcome to Western Washington!  It will be quite a change from Provo.  You'll be moving from the place in the United States where it's hardest to find a cup of coffee to the place in the United States where it's hardest NOT to find a cup of coffee.   Culture change!

My wife and I planned to build when we moved to Olympia.  We had an artist's drawing of what we wanted, interviewed architects, and spent a year trying to make the numbers work.  We found that it was basically impossible to build for less than market rates for a home, so we started looking at buying a place in the middle of last year.

Since then, the prices of existing homes have been increasing in this market and the rest of Western Washington, and by the time we got ready to make an offer on a house (October) our analysis had the numbers about even building vs. buying.  (We bought because we got a crazy deal on a property with great karma.)

If I were to make the same decision now, absent the great deal, I would probably lean toward building, but it's important to do your homework and get yourself into a good support network.  Early on, I went to an Olympia Master Builders networking event, and it gave me an introduction to a lot of great people in building and finance who showered me with excellent advice. There's a King-Snohomish chapter here:  http://www.mba-ks.com/  If you come up for a visit, I'd highly recommend you plan the trip to take in one of their networking events.  They can provide a ton of information over the phone and via e-mail as well.

Good luck!