Why a Buying Mania in Washington State?

[Alyssa Miller]

Can anyone explain why it is so difficult to buy a cash flow positive property in Washington state (Tacoma area specifically)?

My partner and I are looking to house hack and each place that looks to be a good deal gets bid up nearly 50k, to the point where the numbers don’t even make sense.

What advice is there for house hacking in Tacoma? How do we make a place cash flow positive in such a volatile market

[John Barrett]

@Alyssa Miller Unfortunately, you are trying to purchase a highly sought after asset type in one of the hottest markets in the country.  Sounds like you have your budget and financing locked in as you mention you are ready to go.  Besides speed and price, is there any other things you could do to make yourself more competitive (higher earnest money, focus on sub-market, etc).

Your experience is very common for many other buyers today.  Use this time to keep saving your money and position yourself to be ready / lucky when the right opportunity comes up.  Also, don't forget to network with other investors in the area you are interested in.  There are still a number of meetups happening virtually.

Best of luck,

John

[Scott S.]

What is your budget, how many beds/baths are you searching for and what area of Tacoma? What kind of living situation are you and your partner looking for? Live in 1 bed and rent out the rest? Or are you seeking a single family home with a MIL/ADU/DADU + second kitchen for more separation between you and your tenants?

If it's just renting out single bedrooms, you could expect anywhere between $600-$800 per room on the North End depending on updates, whether they have their own bathroom, etc.  South End/Eastside can typically range from $400 - $600+ per room.

In our expensive area, house hacking at first is more about trying to cover as much of the mortgage vs positive cashflow right from the get go.

[Sherief Elbassuoni]

As mentioned above, we are one of the hottest markets nation wide. some investors buy properties and they know that they will not have +ve cash flow in the first year or two. That said, there are still good deals that generate decent cash flow, they are just not easy to find. 

[Mary Cronin]

If seller's getting multiple bids, then you're looking at MLS properties?

Look for FSBOs or look for off-market properties. 

[Andrew Gunther]

I just purchased a single family rehab home in the Vancouver area. We are planning on renting out the home and converting the detached garage into an ADU. When it is all said and done we should net ~$1000/mo. in cash flow. I feel as though value add is the name of the game right now. Especially in unfinished basements and ADUs like I am doing.

[Mary Cronin]

Sort of off-topic nostalgia - 

Somewhere I have a letter from my grandfather from about 1906 - saying that he didn't want to settle in San Francisco - too much fog; didn't want to settle in Portland - too much rain, so ended up in Seattle. 

Our branch of the family left, but some cousins are still there. 

[Kyle Wells]

Inventory is low and money is cheap right now. It's like this everywhere in the Seattle area. Very competitive seller's market. How large of a multifamily are you looking for? Positively cash flowing while living in a unit will be tough in the small multifamily market unless you're also renting out a room(s) in your unit. 

My wife and I are considering selling our house to house hack a duplex, but I'm still expecting to come out of pocket around $800-1k a month on PITI, which is significant savings on our current mortgage.

[Matt Leise]

I’m facing the same headwinds in the Thurston/Mason/Lewis County area trying to find my first investment property.

Anyone know of any investor groups or virtual meetups in my area?  

[Chelsea Shapiro]

I cover 4 counties in the Puget Sound area for small MF properties. This is the overarching trend and you aren't alone! I encourage my buyer clients who are house hacking to not get caught up in the cash flow, cap rate and ROI numbers, but rather ask the question "how does this make my life and financial setup better in the next 6-18 months vs now?" If it looks like your cash out of pocket on a monthly basis is better than your setup with renting or owning right now then it might be a good deal for you even if the cap rate on paper is not ideal.

[Irene Nash]

@Alyssa Miller That is just the market in this area right now - I know that sounds simplistic, but current market values (as in, what people are willing to pay for properties, 'people' meaning a large proportion of owner occupants who want to get into a house while rates are super low and they've often missed out on several homes already due to bidding wars) are high enough that it's not an environment in which investors are going to find a lot of deals.

It's kind of like trying to 'hack' toilet paper at the beginning of Covid - the supply/demand curve is not working in your favor.

But, nationwide, the number of properties going into the first stage of foreclosure is skyrocketing right now - I don't think we'll be immune to that despite our strong tech industry. And Boeing moving some production to the east coast is going to hurt Snohomish County. I think deals will probably be easier to find in the next year or so.

[Evan Dobrowski]

its hard but there are deals out there if your excepting of sweat equity. I recently closed on a property for $385, no bid up issues. Reason being is the property looked like hell. Dog poop carpets, stains on most of the walls, siding needs pressure wash and paint, etc. But the house still qualified for standard financing and I've already found hardwood which will be refinished under the carpet and painted interior. Should get about $1800 per unit. This is a duplex south Everett area 3bd 1bth both sides. Deals are out there but I look at on and off market multiple times a day.

[Steve Vaughan]

Originally posted by @Alyssa Miller:

Can anyone explain why it is so difficult to buy a cash flow positive property in Washington state (Tacoma area specifically)?

Can't find a deal in the whole large, diverse state?  Pretty bold claim.

Or even find deals in Tacoma? I bet you could D4D on the shady side of Tacoma or Lakewood and find deals all day long. How many addresses of high grass houses do you take note of while taking alternate routes so you see new neighborhoods? 

You are competing on the MLS with retail buyers. Find off-market houses with problems and yours will be solved.

[Matthew Thornton]

Originally posted by @Irene Nash:

@Alyssa Miller That is just the market in this area right now - I know that sounds simplistic, but current market values (as in, what people are willing to pay for properties, 'people' meaning a large proportion of owner occupants who want to get into a house while rates are super low and they've often missed out on several homes already due to bidding wars) are high enough that it's not an environment in which investors are going to find a lot of deals.

It's kind of like trying to 'hack' toilet paper at the beginning of Covid - the supply/demand curve is not working in your favor.

But, nationwide, the number of properties going into the first stage of foreclosure is skyrocketing right now - I don't think we'll be immune to that despite our strong tech industry. And Boeing moving some production to the east coast is going to hurt Snohomish County. I think deals will probably be easier to find in the next year or so.

 Hi Irene - Where are you sourcing data on foreclosures from? Could be good to track that as a leading indicator in our markets of interest. Thank you!

[Ryan Xu]

Around Tacoma, there is a strong rental market. I have four invest buyers actively seeking properties that same as you wanted but purely for rental. And that just my clients, consider the whole market...It's not surprising then, right?

The interest rate makes everyone able to afford a house but not enough inventory!

[Irene Nash]

@Matthew Thornton  I was going by this article from the Mortgage Bankers Association:

https://www.mba.org/2020-press...

This is a quote from the article:

The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA's survey," said Marina Walsh, MBA's Vice President of Industry Analysis. "The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans."

However, there was also this:

On a more positive note, 30-day delinquencies dropped in the second quarter, which is an indication that the flood of new delinquencies may be dissipating."

Basically any stats are going to be hard to evaluate because we have to take into account the fact that

- There were and still are moratoria on foreclosures for many properties.

- Stimulus checks provided a temporary buffer for some people who may not be going back to work soon.

- Unemployment benefits may run out for some people who won't be able to go back to work soon.

- Millions of people are losing health insurance and that is going to affect mortgage payments for some homeowners.

Generally if we see enough factors in an equation pointing towards the downside and not the upside, it seems reasonable to think the end result is going to be more down than up. So it might be a mild shift, or not, but in general I think the market will cool down at least somewhat in the next few years to come. And as with all things 'economy', I realize I could be totally wrong, of course. :)

[Jay Hinrichs]

Originally posted by @Steve Vaughan:

Originally posted by @Alyssa Miller:

Can anyone explain why it is so difficult to buy a cash flow positive property in Washington state (Tacoma area specifically)?

Can't find a deal in the whole large, diverse state?  Pretty bold claim.

Or even find deals in Tacoma? I bet you could D4D on the shady side of Tacoma or Lakewood and find deals all day long. How many addresses of high grass houses do you take note of while taking alternate routes so you see new neighborhoods? 

You are competing on the MLS with retail buyers. Find off-market houses with problems and yours will be solved.

of course just put more money down to create cash flow every property that has rental income has cash flow if you pay cash.. 

the issue is the whining about no cash flow because people are trying to buy real estate with MAX debt.. thats the issue..