All Forum Posts by: Graydon Manning

Hey Brandon,

I found myself in a similar position not long ago. Your structure with your partner is going to heavily depend on a number of factors, notably your cash position and eventual loan structure. If you go the SFR route and are going to be taking a conventional residential owner-occupancy mortgage, entering with a partner isn't out of the question, but it will come with complications. You'll both be on title & the mortgage, your ability to access debt will be dependent on both of your financial and credit situations, etc. Most notably, you will not be able to access outside sources of financing that aren't from a blood-relative. Still, starting with a live-in remodel might be a great option.

The multifamily route is potentially less complicated with your partner as you will seek commercial financing over 4-units with less red tape than conventional residential. Unfortunately in Seattle, finding small multifamily assets with solid DSCR ratios is extremely difficult. Most MF landowners are a bit more in-tune with the market than SFR, and if they had intentions of selling coming out of the recession, they probably already did. The assets we are seeing in the small multi sector in Seattle are largely outrageously over-priced, flips by cash investors who are in and out in a year or two and already took the sweat equity out of the property, or both. Tough to find something good, and if you do, there are cash buyers lined up out the door ready to close in 10-days with minimal contingencies.

SO, after many unsuccessful offers, I eventually bought a relatively cheap fixer SFR in the southeast, gutted it, converted the basement to a mother-in-law, live in the main floor and rent the basement as a short-term rental. I come close to covering my M,I,T with the rents ($1400-$1600 income per month, $1793 MIT), but end up around $500 negative monthly after utilities, cleaning & repairs (which I do almost entirely myself). It could be operated as a non-conforming duplex and net $600-800 cash if I rented the main living space. On $43,000 down, a $600 monthly return represents 16.7% cash on cash. The other good news is the equity built during the flip. My LTV went from 13% at closing to 21% on refi.

There are some risks in short-term rentals and non-conforming rentals, but at least while there is a housing/rental shortage, Seattle isn't focused on the issue.

Sorry for the novel. Hope it was helpful.

Allen,

We manage four multifamily assets in Seattle- three within .75 miles of downtown, one in core W Seattle- and continue to have little velocity issues and low vacancy. An asset of ours in Renton is experiencing some softening in rents, especially studios. That said, they're not short-term or furnished. I rent an Airbnb a couple blocks from light rail in the SE, and velocity has been minimal since Thanksgiving. I suspect our problem is asset type and time of year.

Don,

Are you looking for a cash purchase or for additional equity/debt partners for a larger purchase?