Rental ROI Bellingham, WA vs Surrounding Areas

[Aron Vesper]

Hey All,

I'm looking at getting into purchasing my first multi-family residence in Bellingham, WA. I'm curious to hear what everyone's thoughts are on the Bellingham market?  I've been running the numbers, and to me it seems to make more financial sense to purchase a multi-family property in the Mount Vernon or Oak Harbor area.  Looking at the multi-family properties available, I feel like the Bellingham market is overpriced at the moment. Agree/Disagree?

[Patrick Britton]

@Account Closed  In short, yes the Bellingham market is a little on the higher priced side of things. However, that goes for the vast majority of properties in Northwest and Western Washington. 

Referring only to Bellingham right now, we are operating at basically a 0% vacancy rate.  Based on sales over the past two years the average capitalization rate is just under 5%.  There doesn't seem to be a trend upwards or downwards in that capitalization rate. So while prices have increased, the capitalization rate seems to be keeping up.

While 9 out of 10 listed properties are not worth a second look, every now and then there is a sweet deal to be found, even in Bellingham and even right near Western Washington University. In fact, there was a very large duplex right next to Western that was for sale at a 7.5% capitalization rate. I did a huge amount of due diligence and tried my best to cut those numbers but in this particular case, the listing agent actually did her homework and all the numbers were verified. This property was about $475,000 though, perhaps a little expensive for a duplex and it was only on the market for a few days.

If Bellingham is a little rich for your blood you may consider Ferndale, Blaine or perhaps even Everson. Blaine in particular is interesting because it has a large number of federal employees making excellent income working at the border. Most of the agents and officers rent properties because they are uncertain if they will be transferred to another part of the country.

I just took a close look at the MLS and of the 12 multifamily properties available in Bellingham, there are three or four that are possibly worth consideration, but the average price is about $450,000.

Perhaps consider what sort of multifamily property you would like. There is quite the difference between a 10 unit building providing $400 rent per unit per month and a duplex giving you $2000 per unit. For instance, it can be argued that the quality of the tenant for the latter will be higher. However, a single vacancy will cut your gross rental income in half.

In short, there are some multifamilies in Bellingham that are priced reasonably, at least relative to their net operating income. However, you will be paying for this... With an average entry price of about $450,000, is it worth it?  Keep in mind though, that they aren't building very many multifamilies in Bellingham anymore and while you should never assume a guaranteed appreciation, I think you would be hard-pressed to see a decrease in sales prices over the next few years.

Alternative locations such as Blaine, Ferndale, Everson and certain areas of Skagit County can have excellent opportunities very often overlooked by investors who think of buying only in Bellingham.