All Forum Posts by: Graydon Manning

Hey BP,

Like everyone else in the Seattle area, I'm having a hell of a time finding decent deals in Seattle. I am focused in SE Seattle between Columbia City & Rainier Beach. Does anyone know a solid agent or other access point with good deal flow in the area?

Thanks

Hey @Renata McCulloch, I rent my basement MIL on Airbnb with good results. It is definitely more profitable than it would be if I were just renting it monthly, but that is largely because I manage the listing, clean it, and take care of any issues that pop up. If I were hiring management and cleaning it would break-even with renting it conventionally. If I didn't live upstairs, I'd just rent both units conventionally and avoid the headaches that come with short-term rentals.

Generally I would say your deal needs to be in a prime location with solid demand for short-term rent to make sense. For Seattle- no doubt in downtown Seattle, Queen Anne, Ballard, etc., the huge premium for a short-term rental make the economics a lot sexier vs conventional. In even a semi-non prime neighborhood the premiums start to decrease quickly.

Good luck!

Hey @Rich Gabrio Pius is a decent option, so is KT Building Supply & GS Building Supply, also located in the Int'l District. In general, given the situation your best bet is likely through a Chinese vendor from the ID, but $2k is going to be tough if the kitchen is anything but tiny. Also consider the countertop- are you going to re-use the existing? Probably doesn't make sense if you are replacing your cabinet pack. Through one of these vendors, you could feasibly pick-up cabinet, countertop, kitchen sink & install for $5-8k, depending on size. I just did two small kitchens through KT and paid just over $10k w/ install & sales tax.

Hope this helps, feel free to PM me if you'd like more detail.

I've gone about as far as @Account Closed down the rezone path for a client, and we made the same decision. Too risky. There was a recent proposed upzone as a result of the HALA process, largely near transit hubs, but even if you find a lot in the proposed rezone it seems too risky to trust that City Council is going to move forward with the rezone given the uproar over the U District rezone. You have neighborhood associations, affordable housing groups, public officials, developers and land owners grappling over who has the right solution for the housing crisis and growing homeless population. This housing boom has wreaked havoc on low and no-income populations, and put housing policy in serious flux. No one seems to have a decent answer.

Like many others in Seattle, I rent my MIL unit on airbnb. Sure it's not technically legal, but in the current housing crisis the City isn't likely to start breaking down doors in an effort to remove units from the stock. I recently had my house appraised for refi, and while the appraiser couldn't consider the unit's rent in his valuation, it didn't hurt the valuation. I would caution against permitting an ADU. It is both expensive and time consuming, but more costly than permitting is the owner occupancy requirement & covenant you have to sign with the City. No thank you.

It's a risk, but my advice is get yourself a good insurance policy and trust that the City has better things to do than fight homeowners to take their MIL units offline. The market will recognize the value of your MIL when you show buyers your monthly income statements upon sale.

That would not include mgmt fees, you'd be 40%+ for sure with 3rd party mgmt. Agree with Marc & Chris on the aggregate though, you should underwrite some live deals and approach the exercise like you will own them within 2 months, whether you have intention of buying or not. You have to get wet to swim, and at some point you'll just have to jump in. 

Sorry, I should have mentioned that the rest of an operating budget is relatively consistent depending on your ownership structure. I don't know of a particular data set, but if your operating costs are 30-40% of eg, you're in the right neighborhood for an owner operator. Best of luck!

hi Lee,

This is going to be a difficult answer for a data nerd, but you aren't going to be able to get super granular about maintenance and cap ex without defining a narrow asset class. Further, I would split the question to the sections- maintenance, cap ex and rehab. Maintenance for supplies, routine servicing, very minor repair, etc. Cap ex for more significant repairs or scopes that are recurring, but not necessarily on even intervals. Rehab for the big stuff- major repairs/replacement of systems & property-wide improvements.

In each section, the difference between a 1960s & 1990s built mf in Seattle will be enormous. The previous ownerships investment in systems maintenance and ongoing cap ex will further impact the answer. You could apply a percent of egi based on the build year for a blanket maintenance-cap ex-rehab estimate, but it's not going to be anything more than an educated guess. To be confident in your assumptions will require a solid amount of due diligence on the asset in question, and even then you won't know exactly what you're looking at until a year or two of ownership.

Unlike admin, taxes, insurance, etc., maintenance cap ex & rehab are tough to define without knowing the history of the asset and projecting necessities for asset preservation/value add initiatives in the future.

Solomon,

I started working for a local developer doing single-family flips & new construction, and now work for a multifamily syndicator founded by previous Pinnacle employees- small world! I just completed my first personal flip and don't have near the experience of many on this site, but would be happy to grab a cup of coffee or happy hour with you to understand your goals and offer any help I can. I live in SE Seattle between Columbia City and Rainier Beach, so pretty close to Renton.

Best of luck either way!

@Lennox Matsinde I recently bought an SFR a couple blocks from Othello lightrail and converted the basement to a 1BR mother-in-law. I am renting it on Airbnb for $1300-1600/month while living upstairs. I bought in the high $200s, spent ~$85 gutting and rebuilding it, and am sitting on a $1793/month mortgage (tax & insurance included in the mortgage). I went from paying $1700/month for my 1BR apartment in Fremont to paying $500/month after all expenses to live in my own house. It was recently appraised at $405k, but I think the market would pay $425-450 for it.

Separating the spaces through a basement unit allows you to collect income on the property without having to a) rent bedrooms in the space you live or b) pay a premium for a duplex. This concept only exists in the SE and SW of Seattle as prices for SFR in prime neighborhoods are out of control, but the model could be applied to other areas of King County, parts of Pierce and Snohomish without problems. Airbnb and other short-term rentals are more risky as GPR shifts month-to-month and occupancy is testy- you need to think of it like a hotel. A short-term rental insurance policy runs you higher than a standard homeowners policy, but you can still milk an additional 15-20% out of your unit if you market and manage it correctly. Keep in mind it is considered an unpermitted ADU, but the City is working on ADU regulations now and is not cracking down on mother-in-laws or Airbnbs at this time. In the future, it may be best to rent it on a standard lease, but for now I'll take the extra couple hundred/month.

@Harrison Liu Sunset Area in Renton is a good bet, but do they cashflow in the short-term? The City has been applying for CNI money with no success, but I predict they will get it in the next year or two. They are working on zoning allowances for townhouse development, and many of the duplex lots are capable of hosting 4+ units once the developers stream in. Agree that it is a solid play, but question short term cashflow.

In terms of your long-term plan, keep in mind much of our supply data indicates over-supply in mid 2018, which will result in negative rental annual rates of change throughout 2019 and some of 2020, decreased net-income, etc. If the data proves accurate, we should see some softening in prices in late-2018, bottoming-out in mid-2020, and rising again by end of 2020 or early 2021. That said, the time to buy a large MF asset in the area is not now, but you may be in a good position to capitalize on this projected softening in a couple years with some strategic plays in the short-term. Of course, major fluctuations in the macro-economy or significant unforeseen conditions could impact these projections. 

@Jan Wanot I don't think that cap rates are the most meaningful metric for his situation, where valuations will be based on comps not income and he will live in one unit. He will almost certainly be in negative cashflow and will have to make assumptions about rent for the unit he is living in. I would focus on the raw pro-forma and net cashflow over cap rate until you are looking at investing in a larger MF asset. @Roger Wagoner we are seeing cap rates in Seattle in the 5% range, some dipping below with realistic underwriting. Pretty lousy.

hey there,

I don't hold or manage anything in Kent, but south king county multifamily is a pretty safe bet, at least for the time. Some sources (namely dupre and scott) predict potential oversupply in the rental market in 2018-2019 for skc and pierce, but a variety of factors could prove that wrong. For a long term hold, the next 20-30 years should be very good to Kent.