Rental property in Seattle area vs Louisville area?

Question

I know the title might sound a bit apples to oranges but I’ll explain.

I currently own a house in the Seattle area but I’m transferring to Louisville for work. I can walk away with 160-170k after fees if I sell now. If I do that, I’d buy a house in Louisville for around 300k with the intention of buying something more permanent after a year or so and a renting the first one out. Financially, this would be very comfortable and I’d have enough to put 20% down on a second house.

Or I can pull some equity out of my Seattle house buy a house in Louisville for 300-400k. With the second mortgage, I would still have positive cash flow on it but not a ton, just enough to cover maintenance and fees. The idea here is to hold on for the value to grow. My specific neighborhood shot up nearly 30% in 2021 and it’s forecasted that it will go up 14% this year. I know it’s not guaranteed but the values in the Seattle area will probably grow much faster than Louisville. If I hold on to it for 2 more years, I can probably more than double my equity.

The arguments against keeping it are:

Values increasing isn’t a guarantee
If renters stop paying, finances get tight. I’d be able to afford all the payments but there won’t be much wiggle room.
It needs new kitchen appliances and W/D. I don’t need to replace them to sell but will need to in order to rent it.
I’d be 2400 miles away so I’m paying for every little issue they have instead of possibly taking care of it myself.

Am I missing any other factors? I really don’t want to get out of the Seattle market because of how fast values are growing but it seems like it’s just a bit too much risk and headaches to keep it as a long distance rental.

Sherief Elbassuoni · Answer

@Dan Ste, if you managed it professionally, numbers may not work out and things will be even tighter.As you mentioned, self managing it while you are away may not be easy.You may think about selling it out

Alvaro Vallecilla · Answer

Look I have been in the West coast for 20 years but I left 6 months ago. I worked as a real estate investor, mortgage broker manager and even a real estate agent for several years. If you are in the the West coast and your market has appreciated significantly or would I say has appreciated exuberantly over 50%-125% in just 12-months, be warned that such markets have a huge gyration in the up and down market in very short term. Circa late 2006 to 2008 the Phoenix, LA, Metro areas lost over 75% of its prior appreciation. I saw a lot investors hurting and sold in panic. I think many should of held their properties because of the cash flow, depreciation, tax benefits ext. The # 1 commodity is and will always be housing, # 2 is oil and # 3 they say its coffee))) in late 2009, I began buying, well doing short sales of homes with loans in the $200K+ with accepted offers from mayor servicers/large banks in the mid $20ks. Nice homes in Phoenix, from the 1970s with 3 bedrooms 2 baths and even car ports for the price of a use car. OMG at 10 cents on the dollar!!!I will be back to the West coast in 2-3 years at 25cents on the dollar!!!!Good luck to you all, stay long and never sell its just a cycle of life!

Jess Haas · Answer

That’s tough. My biggest regret is selling our house in Seattle when we moved to California. If we had just held onto it even if rent didn’t cover mortgage and expenses, we would have done okay because the house and rent has appreciated significantly. We moved back to Seattle and the house is literally worth double what we paid. Flip side though, Seattle legislation is getting tighter. 60 day notice of rent increase, limits on how much you can raise before you are required to pay a relocation fee, etc. If you kept it would you manage it yourself or hire a property manager?

Rob Bergeron · Answer

Seattle is great for building equity, but not killer for cashflow. Louisville gets both thankfully, 11.1% appreciation in 2019, I'm expecting last year to be at 13.5%.

Alvaro Vallecilla · Answer

I would pull $ from equity in Seattle 1st, then rent the home, with the funds buy under 2nd home in Louisville but keep 3-6 months of the Seattle's PITI in reserves for vacancy. The net rental of Seattle can be used up to 75% on your 1003 application. I would hold real estate for ever or very long long term, never sell. Tax wise you will write off two homes, saves you thousands, Besides if you want to go back to Seattle you have a home.

Jess Haas · Answer

What neighborhood are you in?

Dan Ste · Answer

Yes the legislation can be a pain, definitely not landlord friendly. It’s crazy how fast the values have shot up though, that’s the only reason I want to keep it.

Dan Ste · Answer

I’ve been eyeing some new construction in Mount Washington. It’s closer to work for me but further away from places I’d go to in Louisville. Good to hear, thank you.

Alvaro Vallecilla · Answer

I would pull $ from equity in Seattle 1st, then rent the home, with the funds buy under 2nd home in Louisville but keep 3-6 months of the Seattle's PITI in reserves for vacancy. The net rental of Seattle can be used up to 75% on your 1003 application. I would hold real estate for ever or very long long term, never sell. Tax wise you will write off two homes, saves you thousands, Besides if you want to go back to Seattle you have a home.

Rob Bergeron · Answer

Oldham is great, a little higher entry level cost. Mount Washington is a good rural area as well for rentals.