Thursday, January 26, 2017

New Investor Strategies

We are becoming more and more like San Francisco every day, where only 11% of SF residents can afford to buy the median priced home.

As I write this post, there are only 285 active residential listings in the entire city of Seattle (excluding condominiums, townhomes or mobile homes).

236 people PER DAY every day are moving to our region.

The median home value in Seattle is $609,100. Seattle home values have gone up 11.3% over the past year and Zillow predicts they will rise 4.7% within the next year. The median list price per square foot in Seattle is $418, which is higher than the Seattle Metro average of $205.

Builders will open 10,000 new apartment units in 2017, more than twice the amount of any previous year. Rents are rising faster than in any other American city. As of December 2016, average apartment rent within the city of of Seattle, WA is $2101. One bedroom apartments in Seattle rent for $1917 a month on average and two bedroom apartment rents average $2689.

Homelessness in Seattle increased by 19% in the last year.

What are some likely scenarios as a result of Seattle's exploding growth and rapidly-rising housing costs?

Many renters will move out of the city to less expensive areas of Western Washington. First-time homebuyers will look for less expensive areas in which to invest in real estate. Some of the most popular areas of our state with the greatest number of sales transactions right now are in the TriCities area from Richland to Pasco to Connell, Spanaway, Bonney Lake, but also Mill Creek. In each of these areas, median home price is less than in Seattle. The lowest median home price is in Spanaway, at $239,450. Wholesale and rehab investors would be wise to target some of these lower-priced, more rapidly growing areas.

And so who is selling in Seattle? Expect the down-sizers to stay put, as they cannot afford the price of a smaller house. Instead, they may modify their own homes, or take in boarders for extra income.

Some motivated sellers will need to sell as they age or face medical issues. They will move into assisted living or move in with relatives. Elderly sellers are still a good target for investors looking for Seattle homes that may have some overdue maintenance issues. Some older sellers will die in their homes, and their heirs will want to sell. Probate is another good source for these homes.

Many workers will leave for better job prospects elsewhere, but may keep their homes as appreciating income properties or rentals.

Investors may find that it is easier to invest in an expensive market like Seattle through a syndication or through a structure such as Tenants In Common (TICs), that provide for shared ownership by pooling resources. Tenancy in common is a type of shared ownership of property, where each owner owns a share of the property. Unlike in a joint tenancy, these shares can be of unequal size, and can be freely transferred to other owners both during life and via a will.

Expect the City of Seattle to increase regulations to try to force affordability in the housing market, and expect those regulations to force landlords out of the city. It may be possible for more savvy urban investors to pick up older multifamily buildings as some of these frustrated landlords retire, or seek investment elsewhere. In that case, it also makes sense for an investor to look for multifamily income property in outlying areas, preferably with easy public transit back to the city and employment centers.

What are your thoughts on investment strategies as the city of Seattle grows?

Happy Investing!

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