Tacoma Market for Buy-and-Hold Investments

[Brendon Stewart]

(reposting this to the Tacoma Real Estate Forum)

Hey All - I'm a noob from Seattle looking at Tacoma for my first RE investment.

Anybody will to share tips on neighborhoods / strategies where you are seeing success?

I have focused my research on buy-and-hold SFRs in what I would consider B neighborhoods (UPS, Proctor) and B-/C+ (neighborhoods surrounding the International district) neighborhoods.

Based on MLS listings I am finding rent-price ratios in the 0.6% - 0.7% range, which is slightly above what I see in the Seattle market. Given the low price of homes relative to Seattle, however, Tacoma seems like a reasonable entry point for a new investor.

I'd also welcome any alternative views to challenge my current thinking! I've read through the forums for Seattle / Tacoma / surrounding areas and there is a ton of great info out there - thanks for all those who are sharing!

[Aaron Nelson]

Hey Brendon, I generally agree with your comments. Tacoma is a much cheaper entry point than Seattle, Everett, etc. Plus you don't have to worry about some of the tenant-friendly rules that are specific to owning a rental in the city of Seattle. 

My wife and I own a couple doors in Parkland near PLU that cash flow fairly well. We are getting a little more than 1% but had to do a lot of searching and negotiating to get to that point. 

Feel free to shoot me a PM and we can talk more. Take care!

[Brendon Stewart]

@Aaron Nelson

Thank you!  I'll PM you with some follow up questions.  Appreciate the offer!

[Pete Perez]

@Brendon Stewart

Tacoma works for rentals. Lots of people I meet at meetups have rentals there. My wife and I have spent a couple Saturdays just driving around various areas getting familiar. It helps a lot to go and actually see the areas. We keep google maps up on the dash of the car. So we can commit the area to memory. That has helped us form our opinions on where to stay away from. We are working on our first deal in Tacoma. 

[Brendon Stewart]

Thanks for the tips @Pete Perez

I'm also working on my first deal in Tacoma and have spent time driving around target neighborhoods.  Feel free to keep in touch if you ever want to swap notes / exchange ideas.  

[Louis Chan]

@Brendon Stewart

I'm in the same boat as you: looking at buy-and-hold properties in the Tacoma area, but I'm also looking at multi-families in the surrounding areas as well. I live in Bothell and there is nothing in my area with prices like those in Kitsap & Pierce county unless you go rural. From what I've seen and read, if you can get close to the 1% rule in Western WA while staying in the Greater Seattle area, that's pretty good. Are you looking at turn-key properties or to do some rehabbing?

[James Marszalek]

@Brendon Stewart @Aaron Nelson @Pete Perez @Louis Chan

Multi-Families with the numbers you guys are looking for are slim right now all over. That being said, Pierce and King Counties are seeing a 17 year low for inventory across the board, so that doesn't mean much I guess. At the end of the day, in an environment like this, I recommend to my clients to pick the top 10 multi-families that are as close to your numbers as possible. Then, let's play with the offer price until it makes the most sense. If we have to put offers in on all 10 to get one to say yes, I still call that a win. 

At the end of the day, your maximum allowable offer is really the only number that matters. If the seller can't work with that, then you have to choice but to move onto the next one, or sacrifice something in your numbers. 

My goal as someone who analyzes deals all day is to keep the pipeline full. I built a system, and I constantly need to remember to stick to it, or the idea of the system is pretty worthless. I typically don't like bending for sellers. My numbers are my numbers. I've set a threshold for my operation, and I intend to move in the direction that I've set forth. If you guys need any help, let me know. Pierce County is my stomping grounds. 

Either way, good luck to all of you, we're in a tight market right now. 

[Jan Wanot]

@Brendon Stewart, I've done a couple of deals in Tacoma, and all exceed the 1% rule. That is a good minimum standard.

I even see some MLS deals that will exceed 1% with 10-30k rehab. Happy hunting and feel free to reach out if you ever want another set of eyes on your analysis!

[James Lusk]

One thing to consider is that just because the property is sub 1% rule based on the seller pro-forma, doesn't mean it isn't capable of becoming a high performing asset. Look at your ability to raise rents or charge back for utilities and how you can possibly cut costs. Also, like stated above, figure out what numbers will work for you and make an offer. My wife and I just closed a 12 unit in Lakewood that was listed for $625k and ended up getting it down to $500k. That property, with about 85k in capital repairs, will be just below the 1.5% mark. I feel if it won't pencil out well above 1%, keep looking. The deals are out there. That 12 unit was on the MLS. Good luck and feel free to PM me with any questions.

[James Lusk]

I overlooked one fact in your original post. You are focusing on SFRs! My apologies. This is a different animal. My wife and I were focused on SFRs until we saw the competition and felt that there was more upside to chasing the multis. You will have a harder time hitting those rental/purchase ratios with SFRs from what I've found. Again, best of luck!

[Rudy Manna]

We hit 1% in Tacoma Market (East/South/Central) all the time with SFRs. However we mostly do rennovation, BRRRRs and rent increase. There is no way you can get close to 1% with turnkey, unless you target deep rural areas.