Advice about multi-family properties in Seattle for a newbie?

Question

Hello everyone!

This is my first post, i have been reading and listening to the podcasts and webinars, and I am very interested in learning about multi-family properties in Seattle.

I have contacted a couple of Realtors to get advice and they told me that they do not recommend owning rental property in Seattle due to the landlord/tenant laws in the city. Instead, they recommend outside areas close to Seattle, like Lynnwood, Shoreline, etc.

I wanted to know your opinion about this, why are those laws so terrible, enough to drive investors away?

Does everyone here also recommend staying away from Seattle? I know prices are high (i have seen duplexes listed at 700,000)... But rentals can also be very high (capitol hill tiny one bedrooms in old buildings are 2,000 a month easy).

I have been a tenant in Seattle for years and never felt i held that much power, in fact i have been taken advantage of and ignored repeatedly by my landlords (of course, that is NOT the kind of landlord i want to be!).

Can someone help me understand a little better this situation? As a newbie, is Seattle too ambitious? Where should i focus?

Thank you so much!!

Alex Chin · Answer

Hello @Ana Pastor and first off, let me say welcome and good to have you interacting with us!

Generally speaking, the viability of a Seattle-Bellevue multifamily investment depends on your goals and strategy. Other investors should feel free to correct me, but to my knowledge, the consistent cash-flow real estate investing necessary to building a portfolio is no longer viable in the aforementioned cities. Purchase prices have increased at a rate that far outstrips the ability of the rental market to support profitable rent rates, even with the median income in Seattle climbing to $70K+.

More than any laws the city might or might not have enacted that are not favorable to investors, ridiculous prices are what kills the city as a potential investment location for me.

That being said, buy-holds in Seattle-Bellevue can still make sense IF monthly cash-flow isn't your primary goal. I have heard that high income investors seeking tax deferments might be willing to accept negative cash-flow. If you're looking for a safe place to park a significant amount of capital, you can purchase a property that will cash-flow after a very high down payment. Institutional investors like hedge funds or REITs can profit strongly by developing or buying high-rise multifamily buildings in dense urban cores. Part of their profitability comes from the fact that their buying power is so massive that they can actually affect the broader market through their actions, and leverage economies of scale in their operations.

It all depends on your starting point and what makes sense for you, but here's to success and hopes that you continue contributing to the community!

Adrian Chu · Answer

Find the balance between positive cash flow and appreciation.

Cash flow happens further away from Seattle/Bellevue.  Appreciation happens closer to Seattle/Bellevue.

You want to find the outliers where you get the best of both worlds.  Those are the good deals you wanna look for.

Roger Vi · Answer

@Ana P.

Welcome to the site! Always great to see more locals come on the board!

I would probably have to agree with your realtors and advise against owning rentals in the city of Seattle. Not only because of the laws, but because its SEATTLE! 20th most populated US city, home of Starbucks, Amazon, Mircrosoft... Basically it is on everybody's radar and people make it a priority to make sure everything sells for FULL PRICE or higher.

There are a lot of foreigners and out-of-towners coming in Seattle and buying/investing. Their goals and priorities are probably much different from yours. It may make sense for them to overpay. Based on your situation and goals, I would say you have much better options.

One advantage you have is that you are local and can travel outside Seattle and see the areas unknown to outsiders. I've heard good things about cities south of Seattle all the way to Tacoma. Or you can join me up here in Snohomish County / Everett! Seattle's craziness has an effect on all surrounding cities, but as you get further away the numbers will start to get better.

Since your goal is to live in a unit and commute to your Bellevue job, I wouldn't take the numbers you see on BP too seriously. Most investors here are cash flow people looking for 1%/2%/50% rules. You have a great idea to buy a multi and rent out the other units to help pay your mortgage. It will save you money compared to renting, but in this area it may never reach the criteria for an acceptable BP investment.

I would be more concerned with whether you can handle the task of being a landlord. You will also have the extra challenge of sharing walls with your tenants if you occupy a multi. In general, are you a people person? Are you patient? Are you good at setting rules/expectations and sticking with them? Your success in rental properties will depend on how well you manage your tenants or the person managing your tenants. If you want to learn how to be a landlord, occupying a multi is a great way to get started. If you prefer to hire out management, I might start looking at out of state rentals where you can afford this. Your 10% down in Seattle could be 25% down on 2-4 out of state homes.

Hope this helps. Please feel free to get in touch with me if you want to chat more about our local market and Snohomish County specifically. Good luck on your journey!

Ali Boone · Answer

I can't speak for Seattle at all as I don't know their laws or neighborhoods or anything, but I can give you some general responses.

Laws:

Tenant/landlord laws matter because if you own properties that fall under "tenant-friendly" laws, it can be very costly to you, both monetarily and mentally. If a law is "tenant-friendly" it means the tenants have enough rights, under the law, to make it very difficult for the landlord to get rid of them or punish them. Evictions could take a long time, it could be extremely hard to evict a bad tenant, etc. All of that is major dollars out of your pocket. Versus a "landlord-friendly" state, evictions are faster, less drama, less headache, and the rights of the landlord trump that of the tenants.

Numbers:

What you have to look at is the full picture of the numbers. That little house that rents for $2000, how much would you have to pay to buy it? If it's a lot and doesn't allow you to cash flow regardless of the rent amount, that doesn't help you much. So in looking at properties in those areas, use this as a way to determine what kind of cash flow you can anticipate. That should tell you if a property is worth it or not.

https://www.biggerpockets.com/renewsblog/2013/01/1...

I live in California and here it's both tenant-friendly laws and bad cash flow, so I buy out-of-state.

Maria Keating · Answer

Hi Ana,

I'm in a similar boat in that I am looking for property in Seattle.  I've been following the market for a while can tell you that it's not uncommon for a condo to sell for $90K over asking price.  It's insane.

People talk a lot about cash flow and I suppose it might be the most important factor for them.  To me, it's whether or not it makes financial sense.  I can walk away with cash in hand, but still be losing on a monthly basis.  After all, the money down has value as well.  Wherever the money comes from, you either could have avoided paying interest (if from a HELOC or cash out from a refi) or could have invested it differently.  So, figuring in the cost of my money down kills most deals.  Aside the cost of a mortgage and maintenance, condos in Seattle (not many SFH in downtown or minute commute locations) have sometimes very large HOAs.  So, between mortgage, cost of down payment, HOA and property tax, it's even difficult to break even, despite the outrageous rent.  That old building in Capitol Hill still has high property tax and HOA attached to it, not to mention the actual cost for the property.

I've been following the listings for months and cross check with Craig's list on what the rental market  is like in the areas of interest to me and I am just about to start looking elsewhere.  Beacon Hill, West Seattle and then White Center are still ok locations, but I am not too familiar with the trends.  I think Belltown would work for really high end condos, but then, you tie up some $700K in one condo...

Seattle is not really the location for 'cashflow' (finding that to be a misleading term), but I do still believe in it as an investment play.  Amazon, Expedia, and the slew of high tech start ups as well as relocators from the bay area, won't put an end to the need for housing in this city for quite a while.  IMHO, of course...

You are right that Sammamish and Issaquah areas are not far behind Seattle, in both, cost, tax and rent.

Alex Chin · Answer

@Ana Pastor - I generally look south. Renton, Kent, Auburn, and Tacoma are all areas that I am familiar and comfortable with.

Rance Brown · Answer

Hi Ana,

Congrats on your first post.  This is a fantastic community.  I work with a private money company located in Spokane, WA however we lend all over the Seattle area as well as the other WA, OR, and ID markets.  Feel free to reach out to me if you would like to know about the areas as well as possible financing for your rental properties.  We would serve as a bridge lender for this type of transaction.

Thanks,

Rance

Richard Scholtz · Answer

Hello

Davenport...had a tough time getting some appraisals done in that town.....  :-)  Very few comparable sales...and my appraiser wanted to use Spokane comps.!  Been active as lender in King County since the 1990's. Agree with what is said here...as far as cash flow....The Core of King County  ....anything close to Seattle (less than 40 minute commute) is too expensive to Cash flow if only a S.F.R. The only properties that cash flow are tri-plex and 4 plex properties ...as you need all 4 rents to over come the mortgage payment because properties are so expensive.  It is a a great place to own properties for appreciation ...but they will not cash flow with only one rent. The further you go away from Seattle the better....Lynnwood, Everrett in the North and Tacoma Olympia in the South. We provided FNMA loans on 2 four plexes in Bremmerton and Olympia ...with 30 year rates under 4.25% they actually cash flowed nicely......and only cost as much as a small house (SFR) in Seattle which would only have 1 rental income stream not 4.  So my conclusion is ...the closer to Seattle you go ...the more a SFR does not make sense but a 3 or 4 plex may make sense.  Note aside ....larger than 4 units adds all kinds of other unfavorable financing complications.  Good luck. I can recommend some Realtors...that work in the investor field in King County ....I am not a Realtor.

Enrique Jevons · Answer

I actually now manage a tri-plex in the Queen Anne neighborhood of Seattle, and some single family homes and condo's in Kent, Bellevue, and Issaquah.  The City of Seattle does have a few extra regulations above the State of Washington's Landlord Tenant RCW's, but it's not as bad as when I was in San Francisco.

Advice about multi-family properties in Seattle for a newbie?

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