All Forum Posts by: Peter Nelson

I think Jake hit the nail on the head -- a combination works best.  When you are first starting out cash flow will probably take on greater significance.  But as time passes and you get more stable ground under your feet financially then your attention will turn to market appreciation in order to build your portfolio and wealth.  As you get closer to retirement then cash flow will return to being of great interest.

whew, Jacob.  That sounds like quite a bit of a project you are biting off.  I have limited land development experience -- a couple of boundary line adjstments and a short plat.  I never built the homes, but sold off the lots for others to develop.  That is my background.

Now, regarding your project, it sounds very ambitious.  You did not describe your experience in real estate.  If it is limited then I would highly recommend proceeding very, very cautiously.  Deals like this are high risk.  Yes, they can be high reward...but only if you make it to the finish line without going to court or going broke first.

You mit consider also getting separate financing outside of the contractor.  Whatever you do, research, research, research.  You will want a contract that is both ironclad yet flexible.  Things change.  So a rigid contract could box one of you into a corner.

We hired a President for our property management company.  I started going down the contract path, but was advised by my attorney and others to leave it open.  So we have no contract whatsoever.  But that only works because both of us are honest and open.  We don't always get along or agree, bit we respect each other.

This is a long way of saying that instead of looking for a contractor who has the skills and the financial backing you might put a greater emphasis on someone who you can trust, respect, agree to disagree, etc.

As for the listing, it sounds pretty easy -- especially in this market.  But if you have limited experience with real estate deals then you may want to partner and co-list with a realtor.  Listing a property and getting an offer is e easy part.  The real work begins keeping the deal together.

Best of luck.  Sorry to be so long winded.

Jack, I would recommend not making a knee-jerk reaction based on one article.  It is true that the North end historically has appreciated higher than the South end.  But there are LOTS of other factors to consider.  One of the biggest (if you are local) is where you live.  I live in the south end and our portfolio is located entirely in Seattle and south.  If you are in the south end do you really want to drive to Duvall to rebuild a leaky toilet?

Another thing to consider is specific neighborhoods.  For example, I am bullish on the Rainier Valley.  As it gets gentrified it may see appreciation far greater than the north or south ends.

Finally, remember the 3 rules of real estate -- location, location, location.  A well-placed property in the south end can knock the doors off a poorly placed north end property.  (Sorry about the pun!)

Also, don't get greedy. If you put 20% down and have an 80% mortgage then you are leveraged 5:1. That means your lowly 11% appreciation is returning 55% ROI. I don't know about you, but 55% ROI is just fine by me! I put a video together explaining all this. Search youtube on our Full Service Property Management channel if you want to watch the video.

In a nutshell: buy and hold.

Our portfolio is appreciating at a rate much, much faster than we will ever be able to spend it.  Real estate is a great wealth builder that also build a legacy through inheritance tax laws.

Hi Krystin.

I mostly know the south end.  But I can start a list of 'no-no' neighborhoods.   Stay away from Greenwood (Seattle) and Casino Rd. (Everett).  Edmonds is a great neighborhood.  Sorry I cannot help you more.

Hi Peter.  Congratulations on your new acquisition.  Real estate is a great wealth builder, and you have taken a big step in that direction. 

I own and run a Seattle PM company.  There are 2 kinds of PM; 1) full service where the company deals with the tenants, collects rents, enforces the lease, deals with maintenance issues, etc., and; 2) leasing only where the company finds a tenant, signs a lease, and hands over the lease for you to manage.  Whether you are or can be a good landlord really depends on your commitment as well as your people skills.

We charge a full month's rent for leasing only, and 1/2 month's rent when we are doing full service property management.

Property management is not for the light-hearted.  Hence the need for commitment.  And there may be some expensive lessons along the way.  Hence the need for people skills -- the ability to 'read' people as well as deal with difficult situations tactfully.  If you are "all in" it can be rewarding.  I have also seen many would-be investors get out of the game quickly after suffering losses.  Whether you can do it is a question only you can answer.  When I got into landlording in the mid-80s it was an entirely different game.

You are doing the right thing -- distilling the collective wisdom of others.  Best wishes.

Hi Scott.

We cannot recommend a contractor out of our bevy of contractors.  But I can tell you that nearly all of the good ones are booked out.  So be patient.  Winter is probably the best time to find someone, so you are in luck there.  Best of luck, and sorry I do not have a name for you.

Hi Peter.  Seattle is a very mottled metro area.  A few blocks or a 1/4 mile can make a big difference.  Make sure you are working with a good realtor who knows the area(s) you are interested in.  

In general downtown will have the highest prices (brokerage and rent).  These properties will be most likely to have low or negative cash flow (cap rate) but will have the greatest market appreciation for the long term.  Next up would be the Eastside, which is similar to downtown, but with slightly softer pricing.  The North end tends to be your "lilly white" area with good rents and appreciation, but also high prices.  West Seattle is a fantastic rental market.  The south end has the most value (lower prices, higher rents).  But it will have lower appreciation in value over the long haul, and also has the highest crime rate.  

 We manage primarily single family homes.  We add utility surcharges on properties where we pay some or all of the utilities.  We add landscaping surcharges and are now offering tenants to opt in to professional landscaping at the time of move in.  We want to offer renter's insurance, but have not found a vendor yet who will work with us (since we are unlicensed).

I "don't make money off my tenants".  For me personally, that is a wrong attitude.  It has me thinking that I am using the tenants.  I prefer to think of it as making money from my rentals.  That makes it less personal, and helps me to be a better landlord to my tenants.  

My goal is to provide the best possible housing to my tenants. I do not overkill it. But I am not a slumlord. By providing comfortable, secure homes for my tenants I am able to attract good tenants (that do not trash out the place), who pay market rates and thus maximize my ROI, and by maintaining our properties we avoid costly deferred maintenance issues.

Oh, and for the record, we charge a "utility surcharge" for those rentals that have some or all utilities included (i.e. not single family homes).  We levelize the payments and do not get into divvying up monthly utility bills.  Spend your time where it is most productive.  Don't major in the minors.