All Forum Posts by: Brian Hughes

You are in my stomping grounds  (rainier / beacon area) 

I had a similar conundrum on a 1900 built duplex in georgetown,  seattle.   It was in pretty good shape overall for its age having had various updates through the years,  but in a perfect world it was going to need work to correct awful floor plan (made by combining two small main floor units into a larger one) and the roof was going to need replacing in 5 years,  and it needed some other upgrades and modernizing if I was going to keep it longer.   There was also the issue of ever expanding landlord regulations in seattle,   and I have pretty much decided to gradually phase out my seattle portfolio.

If the building was in a stable neighborhood it could have made sense to do the work it needed,   but given various circumstances including negative trend of that area of the neighborhood  (street camping and constant low level property crime) and townhouses replacing many homes in the area meaning the structure was worth zero and the dirt was worth everything,   it didn't really make sense to invest a lot in the existing building.    

Basically it was "economically and functionally obsolete"

So with your house,  the main question is if you are going to spend 50-100k on major renovations,  will the home at the end of  your planned hold time still be economically viable as a single family or duplex?   If its on an arterial or in a LR zone or urban village,  probably not.   If it is "single family" zoned (ironic quotes) and in an area of similar,   it could make more sense to invest the work in it.

In my case I sold the duplex in georgetown  (exactly 10 years to the day after purchasing it) to a townhouse developer who owned an adjacent lot,   making my lot worth more to them than other developers.   Independently of the sale I bought a new mid century daylight basement rambler in upper rainier beach,   and have to date dumped about 70K in renovations into it.   The sale proceeds from the georgetown duplex (which was paid off) have now been reinvested in a 7 unit property in Everett,  WA.   

whatever you do,   your first investment should be close to home or if your life circumstances allow for it,  a house hack.   if you are in central wa,   find a central wa property.     

State LL/T laws got more strict last legislative session in various ways,   and the biggest risk going forward is that we will get statewide rent control similar to OR or CA.    While it would impact some business plans more than others,  its probably possible to function with 5-10% a year rent increases allowed and vacancy decontrol,   but if we get the more extreme variety like what the far left wants  (inflation or less for increases,   no vacancy decontrol,  etc)  it will be bad.    

In any case,  read up and understand all the laws that will apply in whatever jurisdiction you choose to invest in.

(and yes, stay the hell out of seattle;   sad to say as my first and probably nicest investment property is there,  but I'm not buying anything else inside city limits)

I'm in King County, WA and I've asked this question to various govt' and other experts before and it is clear that the expectation is that the voucher amount is subtracted from rent+utilities  BEFORE applying any income to rent ratio to the balance of the applicant's obligation.   In some way this makes sense because applying to total income first would imply only 1/3 (with a 3x income to rent ratio) of the voucher was for rent,  when in fact 100% of it is directly paid to landlord.   But it does mean applicant can qualify with potentially very little 'real' income.

Extreme example:   Applicant has $3 in monthly cash income and a $1999 voucher.     You are asking $1900/month + $100/month for utilities,  for a total rent+utilities of $2000 for an available rental that would be covered by the voucher.   You have a 3x rent to income ratio criteria.

After applying the voucher,  the applicant has $1/month rent obligation and $3/month in income,  so they qualify on the 3x criteria.   (yes,  even though it is absurd that they would be able to live and take care of the unit on $2/month)

I think you can also consider the applicant's OTHER housing expenses (not paid to you) for example an electric bill,  but you must use a schedule provided by the housing authority for utility type, region,and unit size, and consider any discounts or subsidies that would be given to the applicant on it.  

When qualifying an applicant,  you also have to consider OTHER subsidies being received by the resident as income.   For example,  if they receive SNAP (food stamp) benefit or even a free cell phone service,   that counts as income as well, but I believe that non-housing subsidies don't have to be counted 100% toward rent.   So it is entirely possible that you could be required  to accept somebody with ZERO verifiable cash income,  for example being required to accept somebody who mathematically won't be able to pay all the rent  (say they have $1900 sec 8 voucher on $2000 rent with 3x income ratio,  and $300/mo SNAP benefit, and zero verifiable cash income)  If you get that situation,  contact an attorney before doing anything else)

FWIW if you have reasonably strict criteria on prior landlord reference,  credit,  etc.  you will probably weed out most voucher holders though they are steadily passing laws restricting screening intending to make this harder to avoid.  That said if the applicant DOES qualify against all your well-designed criteria after applying the income test the way they want you to,  they probably aren't a much higher risk than any other new applicant and there are some benefits (Sec 8 kept paying during moratorium for example where a lot of unsubsidized lower income renters stopped).  

All that said,  I'm speaking from observation and questions I've asked to authorities,  I've yet to have a voucher applicant even apply after I discussed qualification standards with them;   and nowadays my PM handles it all.

You might want to go straight to the horses mouth and ask https://www.kcha.org/ on this, since getting it wrong may open you to a discrimination (on source of income) claim.   They are always looking for more landlords to work with so they will talk to you and answer your questions.

Removing a verbal-agreement tenant can be very difficult - basically in this case the courts favor the tenants word over owner/landlord on almost everything if the tenant won't cooperate.   The laws,  including the recently passed washington 'just cause' rules do allow for giving a tenant notice to vacate if you are going to owner occupy,  or for substantial rehabilitation  (meaning necessary work will make home uninhabitable, and typically also means permits must be pulled for some aspect of the work;   paint and carpets doesn't count)   But keep in mind COVID moratorium rules and still in effect  though  (in theory) they are phasing out.    

Another risk especially given as you say this home is in need of major work - the tenant could start filing complaints against the home's conditions as soon as it is sold -  which would put the brakes on any removal process AND force you to make updates to the home for their benefit, or force you to pay fines and pay their moving costs.   I imagine Kitsap is a lot more balanced regulatory wise than seattle and in such situation they should recognize that as a new owner you didn't cause any substandard conditions present,  but you would still be held responsible for correcting it.

So agreed with prior post - demand AND verify property is vacant with a walk through day before closing.  If ANY personal items of the resident are left behind,  either a signed declaration from former resident that they have moved out and release any claim all remaining items - enumerate any large or potentially valuable items - (get it notarized or ensure signed with witnesses present)  or preferably,  ensure property is completely empty, interior and exterior,  of resident belongings.    Take a video of the entire walk through ;  narrate date and time,  address,  reason for video,  and shoot your cell phone or a newspaper showing date and time.     This in case former resident is waiting around the corner with a full moving truck to sneak back in.

I am pretty bullish on Everett,   having recently purchased my latest investment property near downtown there.   It reminds me  of older seattle neighborhoods 20-25 years ago and close-in Everett has a very similar vibe to the neighborhood my first triplex is in when purchased in 2006.   The property I obtained is pretty tired  (thats gonna keep me busy for a while)  but all tenants therein seem to be decent people and have various decent,  blue collar jobs like EMT,  Nurse, Mechanic,  Educator,  etc.   

And yes,  with the price and population pressure in seattle and nearby,  more people will be moving to peripherial cities.   Tacoma got on everbody's radar 5 years ago,   Everett is still a bit of a dark horse,  but has a lot going for it....   Even nuclear fusion:    https://www.seattletimes.com/b...   :)

@Nancy Sievert   to clarify on "family member" in the roommate ordinance is is intentionally vague.   One of the defnitions is anyone with whom the tenant has had a 'dating relationship''.  Therefore,  anybody a tenant has a cup of coffee with and they call it a "date" is a family member under the ordinance.  So basically,  its a giant loophole to move ANYBODY in with zero opportunity for credit/background screening.

If it is officially a home with ADU OP should be able to end the tenancy (if MtM with proper notice, if Lease at end of term) under seattle just cause rules. but ONLY if it is a home with ADU or a shared living space (living areas, kitchen or bath) arrangement, NOT if it is a legal duplex.

I haven't given up on WA despite new statewide tenant protection rules as I've already been dealing with worse from seattle,   but my most recent investment was very intentionally NOT in Seattle,  where I reside.   Instead I purchased a property one county north,  in Everett, WA.   For now,  Everett hasn't passed any tenant protections above and beyond what has happened at the state level,   however in the words of my property mgr.  up there,   the city council 'turned blue' in the last election cycle so some kind of regulations are probably going to arrive eventually.

I do intend to eventually sell off my remaining seattle property,  but for now as its fully updated,  meets inspection rules, attracting good tenants and running smoothly its in the cash-cow phase of ownership and I'm not in a hurry to divest it.

1) Join RHA.   (rhawa.org)

2) Consult an attorney.

(maybe in other order)

3)  make all communications with tenant and this other person in a form that provides a paper trail.

My reading of the exemption B. in the seattle roommate ordinance (linked above) is you only are exempt from the rule if you SHARE space in the ADU or main unit of a Non-duplex-zoned 2 unit home. Not if you live in one unit and rent the other. But maybe I am wrong on that. HOWEVER:

4)   Note that one of the 16 Seattle 'just causes' eviction rules can allow you to terminate the agreement,   but only if it is month to month or at the end of the lease,   with proper notice.   This might be the easiest route though it may take a year if you signed a 12 month lease:  https://www.seattle.gov/rentin...   "

• Your landlord rents a portion of their own home or an accessory dwelling unit to their own home and no longer wishes to share with you.

"

As soon as you can (check seattle and WA emergency moratorium rules)  start filing 10 day notices to comply for violation of lease for unauthorized occupant.  The tenant will probably claim "family member" at some point to use the roommate ordinance.  Unfortunately at that point you can do very little.

DONT accept rent or any other payments from this person,  in part or full.  Don't refer to them as a resident, tenant, or guest in any written communcations.   Doing any of this could help them establish residence

Welcome to Seattle.

Good luck.

I take it there were unexpected/unplanned repairs needed on the property.   that can add up quick.   These days 60K  can easily get eaten by one or two major unplanned updates.

House looks great though,   so keep it up.   (the rehabbing, not the losses)

I'm pretty sure you can use most any of the 'owner occupied'  retail loan  types  for anything 1-4 units if you will live in the property,   but you will pay a slightly higher interest rate on multi unit,  but is like .25% or something.   You may however be required to put down more than you would on a single unit property,  especially if you are depending on rent income for qualification.   Note they will usually let you use about 2/3 of gross rent toward qualifying, last time I checked.    If the rent is proforma,  be very conservative.

definitely aim for a 3 or 4 unit house hack  (live in one of the units) to start -  but with prices right now you will likely find that you will still be paying some cash at the end of the month to cover all the expenses and these kinds of properties are very, very competitive if well located,   and finding one that additionally has a vacant unit will make it more difficult.   I got lucky and I did get started with a triplex house hack,  so it can happen,  but I had to go for a neighborhood that (at the time) was nowhere near top of list.  Its worked out well though :)   Don't house hack a duplex unless you are certain you can afford the place with zero (or even negative income) from the one unit being vacant or worse,  occupied by a nonpaying tenant.   Odds are always nonzero of a no income situation with any investment property of course,  but going from 1 to just 2 units cuts the odds of that from low-but-can't-be-ignored to fairly remote for a well managed property.   Renting rooms can be lucrative but it is a major cat herding proposition and you are renting to people with many times no better options,  so expect constant drama and only consider this if property is close to a college/university or some other major institution that attracts a lot of transient attendees/employees, like maybe a hospital.

 If you haven't learned how to run numbers on a property yet,   do that for some properties you see available on the market.   Note that most cap rates I see advertised are between 1 and 2 points higher than the actual, realistic cap rate.    Listed properties they generally ignore maintenance and property management fees and do the math assuming 100% occupancy rate.    Even if you will be managing yourself,   run the numbers as if you will hire a PM,  because at some point you may want, need (or even be required) to.   

Note that laws are changing fast right now so be sure you are up to date with all the latest WA laws and any rules in the jurisdiction of a property you are considering,   and stay away from Seattle.   Note also odds are still really good that in the next year or two we get rent control.  So don't plan on being able to raise rents more than about 5% annually except on turnovers.   This may make some otherwise good looking properties a risky proposition.