Better return on Equity in Seattle Market

[Michael Rivera]

Hi Everyone -

I'd love some feedback here.
I own four rental properties in Seattle that I have accumulated through the years.  I am looking for feedback on how to get better return on equity.  The four properties cash flow and there are increases each year, though the return on equity is pretty low.  Cap rates are low, generally.  See spreadsheet below.

Option 1: 1031 the properties into ones with better cap rates.  I've heavily considered this option, but it seems difficult to do this with 4 properties.  Also, I haven't found a good source of multifamily properties in the Seattle area with better cap rates.

Option 2: Just keep them as is.  Improve the properties.  Try to add on units.  Increase monthly income via improvements.  (This is the current plan of record.)  I'm considering lifting one of the houses to add a lower apartment.  Also considering increasing quare footage of property 3 and property 4 to increase income.

Any other options?

I just feel that I can be getting a better return on 1.5 mil of equity.

Thanks.

Michael

[Account Closed]

Originally posted by @Michael Rivera:

Hi Everyone -

I'd love some feedback here.
I own four rental properties in Seattle that I have accumulated through the years.  I am looking for feedback on how to get better return on equity.  The four properties cash flow and there are increases each year, though the return on equity is pretty low.  Cap rates are low, generally.  See spreadsheet below.

Option 1: 1031 the properties into ones with better cap rates.  I've heavily considered this option, but it seems difficult to do this with 4 properties.  Also, I haven't found a good source of multifamily properties in the Seattle area with better cap rates.

Option 2: Just keep them as is.  Improve the properties.  Try to add on units.  Increase monthly income via improvements.  (This is the current plan of record.)  I'm considering lifting one of the houses to add a lower apartment.  Also considering increasing quare footage of property 3 and property 4 to increase income.

Any other options?

I just feel that I can be getting a better return on 1.5 mil of equity.

Thanks.

Michael

Cap rate =NOI/Purchase price.

10%=$10,000/$100,000

5%=$10,000/$200,000

Which is the "better" cap rate?

If you add $1000 to the 10% cap property's NOI you increase value $10,000.

For the 5% cap rate property the same $1000 increase in NOI gets you DOUBLE ($20,000) increase in value.

Which is the "better" cap rate?