Thinking of Selling in Bellingham, Looking for Advice
Member since 2018 · 1 post · 0 votes
A Little Background
I bought my first home in Bellingham about 4 years ago for $295k. The current Redfin estimate is at $419k and I owe $266k. So I essentially have about $150k in equity. It is being rented and it is cash flowing. I don't particularly need to home for any reason nor do I have any emotional attachment to it.
The Question
Anyway, as the price continues to climb, it has become increasingly tempting to sell it and rebuy the market after we see a dip. My question is this: I hear people talk about Bellingham like they don't expect to see it dip with the rest of the market. Or at least not to the same extent. Do you think there's any truth to this? Are there ever really exceptions? Is anyone familiar enough with Bellingham to shine some light on this? I do realize that I am somewhat asking a question nobody can really answer but I'm wondering what the opinions are on this.
I agree with the comment above me. You have a good problem to solve.
I'm not sure why people would be saying that Bellingham wouldn't see a dip in the market if the rest of us experienced one. Financing problems would be universal and not particular to one area. Perhaps they are basing that off of lower demand numbers than the big cities? At least from the standpoint of foreign money?
If you were to sell, would you 1031 exchange the properties? Wouldn't make much sense to realize the gains and wait for the possible "dip" to play out. You'd end up paying more in taxes than your potential savings. I think if you have a good cash-flowing property, there isn't a need to take the money and run, unless you see something more attractive to your investment strategy.
Also, keep in mind that the Redfin estimate is not the all-seeing, all-knowing market value for your home. It can help give an idea of what it's worth, but don't expect perfection pricing. Getting either a real estate broker to comp your house, or better yet, an appraiser to appraise your house are your, two best bets for closer, still not 100% accurate numbers.
Adam, great question. If and when it will dip in Bellingham is anybody's guess. Playing the appreciation game can be like gambling, and if your house is really cash flowing well after all of your expenses and your mortgage payment I'm not sure if it makes sense to sell. If you were going to take your $150K and invest in another market that cashflows better on average than Bellingham then it might be worthwhile to look into some possibilities. Otherwise, if you could refi and pull some of that equity out of your house without killing the cash flow, then you could put that cash into another investment. Tough call. Ultimately it depends on what your goals are.
Randall, that sounds like a great plan. I'm a little bit envious of your position.
I don't really have much real advice here, but on top of what the others have said, I'd recommend doing some research into the stats about the influence of money coming down from Vancouver. I went to WWU and lived in Van for a while and always came across investors going across the border to park money in Whatcom county. The town is in a less fluctuating market than down south, but if Vancouver has a dip then it will likely impact Bham. I don't know the stats, but Canadian money has a significant impact on the market there.
If you decide to sell, I know a great agent up there that I went to school with :)
@Adam Q Berry-Huff my first question would be 'how good is good cash flow?' on this property. What are you currently renting it for and what is your average net cash flow per month? What's the maintenance like and how many years do you have left on big capex items? If it's in Bham (which, incidentally, is also what we call Birmingham down here in AL ;) then is it rented to students? They tend to be a little harder on properties, so what are your long-term repairs and renovations looking like? I know the rental market is strong there, but what do owner-occupant comps in the area look like? What are the odds you'll sell to an owner who might fall in love and pay a premium and not an investor who will try to cut a deal?
That kind of info would really inform my opinion here. While the appreciation in the Seattle area is definitely having a positive impact on prices all over western WA, as others have said, it's a gamble to rely on that forever. If your current property is only cash flowing moderately well, then I'd say 1031 that $419k of value (you must maintain the same value in new props AND at least the same amount of equity) into a couple cash flow properties in more stable markets with lower entry prices. In our Bham, for example, that $150k in equity could easily cover down payments on 5-7 solid B/B+ cash flow props that rent for an average of $950/month. You'd end up with more leverage than you have now, but that's how REI portfolios are built.
If you're currently renting this property for $6k or more per month, ok then, you're doing great! If not, you could be putting your money to work elsewhere, earning more per month, and diversifying your investments. With one highly appreciated property, a single month of vacancy wipes out your cash flow for the month. If you own several smaller income properties, a vacancy in one is only a fraction of your monthly income.
If you feel like posting some more details of the current prop, I'd be happy to weigh in again - it might be a total winner and you'd be silly to sell it, who knows?
Either way, it's a good problem to have ;)
Best of luck,
Clayton
My two cents would be to focus on the spread you are making between your current debt service and your current cap rate. If you can reinvest that in something that creates more cash-flow at a equal or greater interest rate spread (with appreciation potential) then that would be compelling. I agree with the 1031 exchange approach if you are wanting to stay in real estate.
Regarding the pending crash...I am not sure if there will be a crash but I am expecting a slow down if rates rise 2-3 times this year and then 3 more times in 2019. I feel that is a guarantee for a slowdown if that all happens. Morale of the story is invest for cash-flow first in a market that has potential to appreciate.
@Adam Q Berry-Huff I would caution anyone from waiting for the "bubble" to burst before buying. For starters, there's no indication at all that there's a coming downtrend, so if you sold today you could be waiting years. Second, the reason for buying during a dip is to take advantage of lower prices, but there's no guarantee that the dip in a few years will be BELOW current prices. Last but not least, how will you determine seeing a "dip?" It's all relative...and you should ask yourself, what was your opinion of real estate in 2008 - 2009? How many properties did you buy, or at least want to buy at that time?
If i were in your situation, with my own risk/reward profile and my own investment goals, i'd seriously consider a home equity loan to be used as down payment for multiple, out-of-state rentals. But only you can decide what's best for yourself.