All Forum Posts by: Brian Hughes

I am not an expert by any means,  but I do have rentals in south seattle and burien; near renton and I have looked into this a couple times when I had sec8 recipients inquiring about vacancies.

The way that the housing authorities require you to verify income is that you can only verify income against the tenant's portion of the overall housing payment.   That means for example if you are asking $1700 in rent plus $100 utility surcharge,  and they have to buy electric service separately at on average $100 a month,  their total housing cost is $1900.   If they have a voucher for $1700,  that means they are paying $200 on their own.

In this example,  that would mean you can only require they have verifiable income of $600 monthly in addition to the voucher.   That income can be ANY legal and verifiable source of income,  including wages, SSI/SSD, food stamps,  settlements/child support etc.    Somewhere they have tables for expected/allowable utility costs you can consider when doing this calculation.

Yes,  this does mean there are scenarios whereby it is possible that you can be in a situation where you cannot verify ANY cash income at all or the income you are verifying may come from a flaky deadbeat former spouse who you cannot run further background checks against.   That is the thing that has always scared me about the whole process.

The good news is you can screen all applicants the same in other areas,  so make sure you have credit/civil/criminal (not in seattle)/references criteria that you are comfortable with even if your applicant is fully subsidized.

If your particular applicant has $1700ish income on their own they are probably among the stronger sec8 applicants around;  might be worth giving them a shot if the rest of their background check comes back decent.

Thanks

You can refi the same amount (if you have enough overall equity) or put cash in or take it out (again,  if you have enough equity).   In your case since you apparently didn't put a lot down,  you'd have to put cash in to get to 20% equity it sounds like.

Another thought -

Instead of trying to refi given rates are enough higher that even without PMI your payment would be about the same if you don't put cash in, what about just paying down the loan faster? Its a long term strategy for sure, but consider that a small part of your payment right now is principal - for example on that ~1500ish payment I bet your principal is probably only about $200-300. If you pay $1800/mo you are DOUBLING your rate of payoff, meaning you would ultimately take YEARS off your loan. It would also mean after a couple more years you would be in a better position to look at refinancing. Even if you sell long before you pay off the loan, that equity basically carries forward forever.

I've been aggressively paying down loans (and saving for new opportunities) since starting with the rentals,  and the duplex is free and clear now;  the triplex debt is under $100k,   and the 4-plex debt is about $220k.  All of these started as 20-25% down 30 year loans.

It is true that if I were paying minimums and had not paid down debt as part of some of the refinances  I could potentially own another property or two by this point,  but the cash flow might not be much different.

I owner managed successfully up until march 2017 when I hired a property manager.    Reasons for the change were due to my plans to keep scaling,  mitigate Seattle regulations,  desire to be able to go on vacations and trips again without leaning on friends/family to keep eyes on things,   and because I've now got enough cash flow that I'm willing to accept the expense.

All my properties so far were MLS listed and I worked with agents. There is overhead there of course but I haven't done badly. The duplex sale may be the first one where I don't do a listed/MLS transaction. We will see. My impression with the off market stuff is anything really good doesn't get syndicated or otherwise made available, the buyer who was in the right place at right time to get the opportunity keeps it or calls up whoever their most reliable buyers are already. What you see published among investor forums are the scraps. Obviously, there are going to be other opinions there. I also don't do enough volume to be good at networking and all the things one needs to be good at for finding and executing on transactions - I'm a lot better at improving and operating. So I'm basically a buy-fixup-long-term-hold strategy.

I PM'd the broker info. If mortgage brokers told you about the FHA rule I'm sure its accurate.

My strategy has been pretty simple and conservative -

My first house was a fixer in north seattle.   I dumped a lot of sweat equity into that and benefitted from some appreciation (the runup to the first housing bubble)   I basically did a straight-across trade from the house to the triplex in 2006. (house sold for 420k,  triplex bought for 410k).  Financing for triplex was regular 30yr fixed owner occ residential loan.   Since I moved all the equity over rent from 2 units (which were below market even then) paid the lions share of the loan.   I house hacked the triplex living in 1 unit for the next 3 years while fixing it up as units turned over.    In 2009 after the bubble popped but before the bottom I bought the duplex  (283k on 400K original asking price) and moved there and repeated strategy.   2014 I bought the 4-plex in burien (also 410k;  1-4 unit non owner occ residential mortgage)  its the first investment I bought which I didn't owner occupy.  I've refinanced everything at least once,   primary objective being reducing the monthly payments, secondary object reducing debt.     

I haven't taken any HELOCs or second loans, hard money, etc.   I do have a software engineers salary,  am frugal by nature,  and am single so that helps build up funds.  I've also benefited of course from the big run up in equity on stuff I've owned since around/before the RE bubble in 2008.   But since I have been only buying,  and not cashing out its mainly been my savings and rent income getting rolled into new purchases.

Basically with this strategy I have been doubling my unit count every 5 years or so.   triplex gave me 2 units (3rd owner occ) - duplex gave me 4,  4-plex gave 8.   I'm targeting a 10-20 unit complex for purchase with proceeds from planned duplex sale,  which will keep that pattern going.   

I'm not a pierce county expert by any means,  but I'm probably going to be looking for small/medium complexes (at least 8 units,  ideally 10-20) basically as close in to downtown and as urban as possible.   I like fairly modern (mid century or later) built-as multifamily properties that are functioning but value add.   there was a 16 unit a block from wright park that was listed for several months.   It finally went pending recently but is the exact type of thing I'm interested in.

If you haven't heard that stuff about FHA loans from a reputable source (a mortgage broker) I would ask them. If you want I can PM you the one I have been using for the last 10 years or so. One of the only brokers I've found who 1) always gives her best rates up front and 2) answers emails at 11pm :)

Given that the housing market is starting to slow more than a little bit AND everybody thinks the economy as a whole may also slow down in the next 2 years or so,  I would not overextend/overleverage.  I'd focus more on paying down existing debts and saving and making any improvements you can that make sense.  In another year,  it might be a better time to buy.   In another 3-5 years if rents and appreciation stay flat-ish all the people who bought rentals too high in the last 12 months are going to be looking at short sales.

First house was a fixer bought in July 2001. Spent 5 years living in and working on that and then I got into rentals 2006 with a triplex. I've got a duplex, that triplex, and 4-plex in south seattle and burien areas now. I'm actually in the middle of buying an SFR for my own residence now to officially end the house hacking (live in the duplex lower unit now), and after that I am probably going to be looking at trading up the duplex to a larger investment property ideally someplace south king or pierce if I can find one where the numbers aren't too horrible.

I would save all the pennies you can from your roommates rent any any other surplus income you have until you can refi,  but only if you can actually reduce your payments significantly.   Since rates are about 0.75-1% higher now than they were when you bought that will be an additional challenge.   Not knowing your precise balance but guessing from your payment you have roughly a 150-200k loan,  and even if you could get the appraisal with enough equity to refi straight across (same balance) and drop the MI you'd be paying about the same.   I guess MI is not deductible while interest is so there is some benefit there.  I've refi'd properties lots of times,  several times to get better rates,  other times to lower my monthly debt obligation (went from a 15y to a 30y loan) and sometimes I have had to put money in to do it and make the refi costs pay off in reduced payments over a reasonable period (couple of years, max for me)

Don't know what the house looks like but in addition to roommates is there room for a real (ideally permitted) attached or detached ADU? Might rent for more than roommate situation would give, and would be better privacy. Maybe thats a better way to go for now than looking for 2nd property til you've got a bit more equity.

I've never heard of any rule about multiple mortgages geographically too close to each other.   there are various mortgage programs though and they have different rules so I suppose its possible.   My closest two properties are about 2 miles apart both financed with owner occ regular fanny/freddy 30yr fixed rated loans.   (lived in the first for 3 years before buying 2nd)

I'm not a lawyer (but I have been chased by one while riding in an ambulance)

I do have 3 rental properties in seattle and vicinity though I'm in early stages of shuffling some things around. I've considered the LLC thing myself but afaict to be effective it seems to mean:

1)   you cannot do any work on the property yourself nor interact with the tenants yourself (showing, leasing, etc).

2)   you must hold periodic,   and regular "board" meetings  (you, your banker, accountant, laywer, etc) and keep appropriate records.   (not sure of actual terminology) to build a track record that it is being run as a business.

3) you should keep the property mortgaged to the hilt so the net worth of the LLC is zero.

You (like me) are small and hands-on (and have a lot of equity) it sounds like. I've chosen for now to forgo an LLC, but I am carrying plenty of insurance, and (hopefully) the correct kind. That means an actual landlord's policy on the rental property (if you have a homeowners policy, change it quick) AND umbrella liability coverage policy on everything you have. The minimum on the umbrella should be your net worth (assuming you aren't bill gates) or $1M whatever is more. If you are being sued the plaintiffs could go after not just what you are worth now, but your future earnings as well so keep that in mind. Insurance is cheap when you think about it.

+1 for RHA.

And on finding contractors,   good luck.    They are all busy building apartment towers in SLU and mowing down duplexes to build townhouses.   Most don't seem very interested in renovations projects.    I have been trying to get somebody interested in some siding/exterior work on my 4-plex,  and nobody who seems even remotely qualified is interested.   Fortunately,   things are in good enough shape I can wait a few years for the current construction boom to slow down.  we are past the peak most likely already.

I've got a couple small rental properties in seattle.    I'm no attorney and my advice is worth only what you pay for it,  minus the cost where I got it wrong!

If you are self managing and new to seattle, it is definitely a good idea to attend the city provided training.  Some other thoughts:

0)  Your rental does need to be registered.   You don't have to get an inspection up front but you do have to certify your rental meets the criteria,  and the city will eventually require an  inspection.    Hasn't happened to me yet (jinx)  FWIW.  

1)  Join RHA  (rental housing association of washington)  rhawa dot org.   Its well worth it,  and they also offer frequent training,   attorney-reviewed rental forms that are correct and legal for seattle, etc.,  as well as organized and effective local advocacy.    They mostly represent small individual owners so their services and focus are well tuned to that segment.    Also,  the annual "Trends" rental housing regional conference put on by them and other local/regional rental associations is coming up in december.  you may want to attend.   Be sure to expect protesters though if like last year....

2)  If you got a huge reply,  you underpriced..   I understand the desire to avoid a PM  (I started out without one,  seattle laws and various other reasons I started working with one in early 2017).   However a PM might have known where to set the price...  possibly netting more in the long run.    FWIW a lot of PM's around here charge less than the typical 10% rate you see in "cash flow" markets.   (rents are higher overall, so they can charge a lower percentage and get the same return on mgmt effort)  So it may be worth it.

3)   You must have written screening criteria if you are doing showings in seattle.   if you want an example of what I  developed over about 10 years of self managing in seattle,  message me privately.   (its partly illegal now though)  and you can find other managers' criteria by following links on craigslist ads for apts.   Get your criteria on paper before you do another showing,  put it in the hands of everybody who views  (along with lead disclosure,  WA landlord tenant law,  fair housing poster,  and everything else I cannot remember you are required to give people who are viewing)  and send copies post-haste to anybody you already showed who is still interested.   

4)  I don't think it is illegal to change your price after advertising  (clearly it is OK to reduce your price, if nobody is biting)  but if you have already taken applications it would be kinda sleazy to change the price on them,  and if you do, make darn sure you communicate  the same exact price change for EVERYONE who has already viewed or you could be hit with discrimination claims.   If you must raise price,  communicate early and clearly so the surprise is minimized,  and consider offering refunds on any applications fees if those applicants decline to proceed.

5)  make darn, darn sure you don't discriminate on all the usual attributes,  as well as source of income,  and criminal history.   If you need a one page summary,  look at the fair housing poster/flyer you are required to hand out with showings,  or have posted.   It lists about 18 or maybe 37 different attributes that constitute protected class.    Its tecnically OK to screen multiple applicants and pick the "best" one again without first in time,  but its still considered bad practice by most everybody around here and can invite discrimination claims.     Define your criteria,  advertise them,  and accept the first applicant that qualifies insomuch as possible.     If something comes up that makes you uncomfortable and you need to refuse them,   make sure that gets added to the criteria for the next go round.    If its not something you want written down,  time for some introspection.

There is undoubtedly more but thats enough brain dump for me for one post.

The main thing of course is to be aware of and follow all the additional tenant protection ordinances that seattle has which go a lot further than WA state landlord tenant law does.

Seattle has a just cause eviction law ,    additional categories of 'protected class' that you cannot discriminate against,  there are rules around what you can and cannot consider when doing screenings  (you cannot consider most criminal history for example),   and there are rules forcing you for example to accept a six month interest free payment plan for deposit and last months rent if the applicant requests it.    Fortunately the first-in-time ordinance regulating the screening process was struck down by the courts though it is still a good general principle to offer tenancy to the first qualified tenant who completes the application process.    You will need written screening and acceptance criteria ready to give to applicants;  sounds like you may already have that.    You will need your neighbor to register the home as a rental with the city and pay the fees.   

City of seattle periodically offers classes to landlords/managers on navigating all these rules.   Its run by the office of civil rights.    I haven't attended one since I have my own PM now though I still try to keep current with what is going on.    Rental Housing Association (RHA) also regularly provides classes and resources for managing all this.

Make sure whatever lease / rental agreement is written clearly indicates that it will terminate a month or two before your neighbor wants to come back.    

On the management contract,   you are certainly right its a good idea;  I'm no expert on those however so I'll keep my mouth shut on that except to suggest an RE attorney provide you with one.