All Forum Posts by: Brian Hughes

If you are satisfied with everything except pricing,   perhaps you should ask to renegotiate terms,  pointing out stable tenancy,   low management overhead,   and showing competing bids from other PMs at a lower rate.

2-5 units in seattle if they have been bought in the last couple years,   then yes it is likely a very high per unit price was paid.   A couple months ago I was looking at a triplex that came up for sale in a close suburb,   long story short despite suffering from long term poor management, needing substantial exterior repairs, and having damage and 2 vacant and gutted units left over from tenants-from-hell it ended up selling to somebody else for 30% over asking,  needing another 20% of the asking price (at least) in repairs.   The new buyers were either shifting lots cash from some place else and were not worried about returns vs. asking price,   or are expecting to get around $2K per unit in a seattle suburb.   If its the latter,   The building has great location and potential,  but they may be in trouble if things soften up.  

However anybody who has held a smaller building in seattle area for more than a few years is probably in a very good place. The biggest risk around it in Seattle right now is the city council and their push for more rental regulations, with several influential council member's stated ultimate goal being rent control. That said, council has been fairly quiet lately on rental issues, perhaps because they were all focused on the seattle head tax debacle, and also I think they are starting realize it wasn't just threats as they see a lot of smaller owners selling. In any case, one argument FOR holding onto smaller apartment properties in seattle is that townhouse redevelopment, which requires the same zoning as small multifamily causes a lot of SFR and smaller apartments to be lost to redevelopment, so this class of neighborhood scale and typically comparatively affordable housing is going to get harder to come by, and presumably in higher demand as a result.

My non-expert opinion,  or perhaps just rationalizing to myself:

These are primarily the "luxury" amazon dormitories being built in downtown and south lake union areas that are having vacancy issues, and thats in large part just because of how many are coming online, and how many thousands more are still in the pipeline, coupled with modest slowdowns in tech hiring. These are apartments with asking market rates around $2000 for 1bds, and going waaay up from there. There is and will continue to be ripple effect throughout other new construction apartments around seattle, but if you are in a different market segment (older / more affordable apartments, non-core neighborhoods, or SFR's as are I suspect most investors on this forum) I'm guessing it won't make too much difference. We might just be looking at a "normal" market instead of a crazy hot market. Those new and expensive units will be the first ones people leave for something cheaper if they need to save money or for a bigger/better home and neighborhood, depending on the individuals needs. The large corps / institutional investors behind those buildings don't have flexibility on price due to their construction costs, while anybody who has held a building for even 5 years around here can if necessary reduce rents a bit to keep things occupied if necessary and stay in the black. Not everybody wants to live in highly urban environment where most of these units are, and a lot of people who are living in those units already are doing so because they moved to the area recently for a job, and/or could not find anything else close in. Many of those residents will trickle out to other neighborhoods over time. I know a couple people living in those newer buildings who did or are talking about doing just that.

I have a similar issue.     I have a couple highly appreciated seattle properties held since 2006 and 2009.   One is owner occupied duplex,     the other is a triplex.

I've been looking into various approaches but have the same problem you see -- there isn't much available in the area,   and much of what is available is overpriced.

For me, I've ruled out buying anything in Seattle proper until such time as the political climate stabilizes a little bit,    but I would be happy to find something in a nearby municipality.   For me thats south end,   so renton and burien are my top picks but most other cities in south king would be of interest too.    For a larger property I would certainly also look at Tacoma.    In any case,  The triplex I'm probably going to hold for a while longer,   but the duplex is a good candidate for trading up.  The only problem is I live there,  so I would have to move to the new property or one of my other units if I sell.

I don't know where your townhouse is or what its worth on the open market right now,   but its safe to say from what you bought for and when its worth probably around double what you paid if well kept.    So you would probably be looking at at least 200-300K to reinvest if you sold it.     at 25% down for an investment property, that gives you a lot of options regionally if not so many in Seattle.  Its just a matter of finding something where the numbers work.    (Which for this region is usually defined as breaks even for a recently purchased asset).   There are 4-plexes in the south end that are well within that price range,  but you will be dealing with a lower socio-economic bracket of tenants that you are probably used to with your townhouse.   (Doesn't mean they are bad people)

Its not my thing,   but that much would buy you a pretty substantial portfolio in other parts of the country.   But I'm personally leery of long distance investing.   Too many ways for things to go sideways when you can't keep a close eye on things.  But thats just me,  I know lots of people do it successfully.

Good problem to have,   in any case.

renton in general and skyway (west hill of renton) are some of the best up and coming areas left in the area.    I'm biased toward buy and hold so thats what I tend to recommend,    but given the age of the home,  hopefully its systems are in good shape so you could do some low cost cosmetic upgrades now, operate it as a rental for a few years and let the area appreciate,   then do another round of upgrades more focused on resale value, then sell it.    Given your family/group ownership its probably a good idea to use a property manager unless all siblings agree on how to split up maintenance and management duties and any additional compensation for that effort.   

If you decide to rent it out,   even with a manager,   get familiar with WA and king county landlord tenant laws.   You aren't in seattle which is a good thing,   however renton has passed a few rules around source of income (now eclipsed by statewide similar rules)   and they are probably going to adopt an inspections/licensing program,   though from what I have heard it will likely be designed to target problem properties and not be a blanket program like seattle has.    

Check up on the zoning and see what plans the city/county may have for the area.   If there is an upzone planned in the next some odd years,  thats another good reason to hold.

good luck.

probably best to ask an attorney or RE agent that specializes in investments and condos for this one. 

That said,  here is my totally amateur understanding  In seattle  the "just cause eviction" ordinance says you can give 90 days notice for sale of a SINGLE FAMILY HOUSE if you want a month to month tenant to vacate.   Condominiums in seattle DO NOT HAVE THIS OPTION.   You can't legally force a monthly tenant to move out to sell a condominium.    Refer to seattle's just cause eviction ordinance for details.

If they are on lease, and the lease terminates without automatic renewal then my understanding is you don't have to do anything except notify the tenant you aren't renewing.   I could not find any reference to prior poster's 60 day comment, however it may well be true and in respect of your tenant and for honest business practice,  giving your tenant as much notice as possible should be done.    If the lease converts to month to month,  then you cannot force the tenant to move out for the sale.   Your only option is cash for keys.    Maybe the tenant would be interested in buying the place,  or depending on where/what of the condo,  it may be possible to sell it to another investor with tenant in place.

On the swedish taxes thing,   I have no idea :)

@Dr. Jordan E Smith

I suppose it depends on region and portfolio and various other factors, but PM rates vary.    The credible quotes I got for management ranged from about 7-10%,  factoring in lease-up and other fees.    In more expensive markets you might see lower rates since the net for the PM would be the same.

Self managing for a while was very educational,  but I know I made a few mistakes along the way.   Fortunately,  I never got burned (just a couple minor singe-ings).   I always planned to ultimately hire a PM,  though my timeframe got pushed up on it a few years no thanks to Seattle's shenanigans.

My first rental investment property was a 1980 built triplex in south seattle,  bought 2006.   three 2br/1ba units.   This was near the top of the last RE bubble for seattle,   so I probably paid too much but I had to make a full price offer (at least no escalation clause was needed) to beat out other buyers.    I had looked at a lot of similar 2-4 unit properties over the prior several months, and this one despite being in a challenged neighborhood (for the time) was the best option and had some amenities I wanted for a place I was going to live at for a few years.    

I used 30 year conventional FHA mortgage, and rolled all the proceeds from the sale of my SFR into it, so I came in with about 50% down on a $410k purchase price. That got refinanced a couple times in the intervening years.

I lived in one unit,  used the basement as my workshop,  and inherited 2 good tenants (lucky) from the prior owner.    At the time the rents were $765 and $800.

This was my first rental property and my first experience as a landlord. I was and am good at fixing/repairs (I come from a DIY family and spent prior 6 years fixing up my SFR, pretty much all aspects) but I didn't know too much on the management/investing side, so I took a few local night classes to familiarize myself with that.

I self managed this property (and subsequently purchased ones) up until March 2017 when I hired a PM,  mainly in response to Seattle regulations,  to position myself for further scale,  and to get some free time back.   (I have a day job too)

Since I was owner occupying one unit I wasn't too concerned about cash flow,   but the rents vs. purchase price would have worked out to about 5% cap rate on actuals,  that was about the going return for south seattle small MF's at the time.  (north seattle, like now,  was well below that)

I still own the triplex,   Today market rents are about 75% higher than they were when I bought,  and I have fully renovated the building and added value via various improvements.   Its almost paid off now,   I'm debating various options.   Its solidly in cash cow territory right now and zero deferred maintenance,  but my ultimate plans are trading up to something bigger. 

As for what I would do differently:

I got fairly lucky on a couple aspects with the triplex buy,   beating other bidders and getting decent tenants from the get go.    I did pay my dues in dealing with a lot of deferred maintenance  and dealing with a rough neighborhood for the first few years especially.   A little nicer area would have reduced that drama and attracted more quality potential tenants during vacancies.   I was (and still am) probably more conservative about leverage than many people on this forum.   I am doing just fine but I could have grown faster with somewhat more leverage and being more aggressive about collecting more properties sooner.    

I'm not great with networking/door knocking to find off market deals,  I probably could have found some stuff doing that,  especially 2008-2011 time frame   (when I bought my (listed) duplex - not a bad buy but there were other properties that came and went for a similar price that would have been larger/better if I were more aggressive and had jumped sooner) 

Like many first time landlords,   I was probably too chummy with the tenants and probably should have been more aggressive with rent increases over time.    I did make 2-3% increases most years while I was self managing,  with the PM rents have gone up 15-20% in the last year and a half,  and I'm still about 10% below market on most units (I have a lot of LT tenants).    However,  the stability and risk reduction as a newbie wasn't all bad.
 

Hi Esteban-

I am a seattle computer nerd as well and I bought my first MF (a triplex) in south seattle in 2006.   I currently have 8 units (9th owner occ) in that triplex, a duplex (2009), and 4-plex (2014),  all in south seattle / burien areas.

Seattle is way overpriced and IMO due for some kind of correction right now ;  I don't see how things can continue to appreciate like this,  and at least within seattle itself many smaller MF properties are worth more for the dirt under them than the structure itself just for the redevelopment potential,  which is unfortunate at least from the perspective of an buy and hold investment viewpoint and availability of decent and comparatively affordable rental units in neighborhood-scale buildings.  (Small MF's on normal sized lots being torn down are generally replaced with townhouses that are sold off individually;  or they are building SEDU/aPodment beehives;  nobody seems to be adding or replacing 4-6 unit apartment structures with decent size units)   Also if you are looking inside seattle proper,  be aware of all the additional rental regulations in place there which I love to rant about.    Personally,  I've decided to avoid any more purchases within seattle itself,  though I'd like my next property,  whatever it ends up being,   to be as close in as possible.   I like renton and burien but I might end up farther afield (to the south) as well with my next purchase.

If you have any questions feel free to PM me.

In case anybody hasn't seen this yet:

https://www.seattletimes.com/seattle-news/politics...

King county superior court found seattle's 'first in time' rental ordinance unconstitutional.   This ordinance is/was the first of its kind in the country;  goal was to eliminate "implicit bias" from landlords in tenant selection process.   The Judge (who does apparently own a rental in seattle and was up front about this fact)  sided with plaintiffs (several small local landlords) on pretty much every point.

The ordinance required landlords to publish acceptance criteria and accept the first applicant that met those criteria,  with a few exceptions for ADUs and house shares.   It also mandated how the criteria were communicated and required "reasonable accomdation" for applicants needing additional time to meet said criteria.

<my editoral follows>

Hopefully this is the start of a trend back towards balanced regulation in the seattle market.  I'm still making medium/long term plans to escape.  We will see. 

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