Greater Seattle area Real Estate market: is it going to cool down?

[Jack B.]

This is kind of a two part question. I own property in 98404, 98002 and 98038. I have under contract a house in 98042 which has seen a 14% increase in prices since this time last year according to Trulia.

I am having second thoughts about buying another property in a deed restricted neighborhood (HOA) as I have had a bad experience with the HOA I live in now and neither my gf or I like it. They don't enforce the rules and we miss having our chickens and such. Once I move out of the one I'm in now I will rent it out and once it is fat enough I think I might sell it.

Would I keep the property if the HOA is no problem? Sure. But right now I am having issues with them in general and the idea of yet another governing body telling me what I can do with my house is not inline with my values and they don't seem to enforce the rules that I was hoping they would enforce which is why I bought here in the first place. I'll bet as soon as I get chickens they will enforce that though...

In any case, the new house is in an HOA with no rental cap but they require board approval on paper. Spoke with the property manager who told me the board does not enforce it and wants to take that out since they would rather have a property occupied than empty. No guarantees though, since she also said that some home owners have complained about the number of rentals and want a rental cap written in. The board has agreed to meet but she tells me "all I can say the board does not enforce it, it is unenforceable". She said the board does not want any rental restrictions because it is better than having a property sit empty after foreclosure, etc. I got the feeling she was hinting it will never be an issue and I don't need board approval.

That said, if the appreciation keeps up, I could gain around 45K in the first year after I close on this house, and so forth, not counting principal pay down, cash flow and tax benefits. I know they say not to buy counting on appreciation, but this is Seattle area after all, not a town in Ohio with 1% appreciation gain.

Then again, if the price drops I'm stuck with it or I sell at a loss. I'd be putting 20% down plus a lot of money in short sale negotiation fees (3K), sewer fees (4K), other fees (2K) and 5K in repair/appliances. I stand to gain about 30K in equity once it closes after all expenses are added in since it is selling for less due to the short sale nature of it.

So part of me wants to sell my existing house down the road which is in an HOA but part of me doesn't want to give up the appreciation gains I could be looking at with the OTHER rental down the street that I have under contract. Now, if I was reasonably certain the market is going to cool off in this area soon, then I'd pass because between the HOA and the likely hood of a downturn, it's not worth the risk. Heck, from what I've learned from freedom mentor and others, these Class A "prize" properties are not prize at all (except for the appreciation when they are appreciating). I can 10-31 exchange them for more properties thanks to the appreciation though, so that's a plus.

I have all my money in real estate at this point, roughly 500K. Part of me wants to diversify in index funds, but part of me wants to keep doing what is working for me thus far. Yet the HOA and the 7 years of increasing home prices makes me wonder if should use the money to diversify or maybe just buy another property, a cheaper property in a non HOA neighborhood.