Seattle Inventory

As expected, inventory levels did not rise during the holidays.  In fact, only 37 new listings hit the Seattle proper market last week!  Record low inventory levels, combined with continuing strong demand have set Seattle up to have another banner year in 2017.  Zillow actually ranks the Greater Seattle Region as the projected second hottest market in the nation for 2017 (Nashville with all their growth in the healthcare sector came in first).  The interesting, but maybe not so surprising aspect of the report was the neighborhoods Zillow thinks will appreciate the most in Seattle – South Seattle (Jackson Place, Rainier Beach, and Brighton); Delridge over in West Seattle; and Northwest Bellevue.  To me this is interesting, but taking a step back I can’t say I’m too surprised.  Borrowers have been expanding their search out of the most competitive Seattle neighborhoods, and into the lower priced, less competitive surrounding areas.  Like a rising tide lifts all boats – the neighborhoods of Seattle that appreciated the most last year are now projected to lift the surrounding neighborhoods with spill-over buyers who have decided to expand their search.

Check out the full article on Zillow’s report here:  http://www.bizjournals.com/seattle/news/2017/01/06/zillow-lists-regions-hottest-housing-markets-and.html

Today's blog courtesy of Kyle Bergquist, Guild Mortgage

Happy Investing!

Seattle Homeownership

I had dinner recently with four millennials, none of whom had any immediate plans to buy a house. Seattle's homeownership rate at 55.4% is well below the declining national average of 62.9%.

Absorption rates and demand for rental housing are very strong locally and nationally, supporting the need for more rental supply here in Seattle.

It is a good time to be looking at rental properties in Seattle.

Happy Investing!

Changing Real Estate Market

According to real estate coach Mike Ferry, the housing market in North America is definitely changing. With the exception of strong markets in the metro Seattle and the greater Dallas-Fort Worth areas, the rest of the country has slowed down.

Ferry describes this as the "perfect storm" brewing: "The days on market is extending...Sellers are very unrealistic on pricing due to the four-year upward swing in the market...There are more FSBOs and Expireds, you have properties overpriced...Agents are not responding to the conditions of the market quickly enough and are overpricing properties...We have a possible interest rate hike [at the end of this year]...and then, just to make the whole thing more fun, we have a US Presidential election taking place..."

Canadian markets have been hit hard due to the change in energy prices affecting the Calgary-Edmonton market, the foreign investments tax in Vancouver, and overbuilding in Toronto.

While Ferry considers this a part of a normal real estate cycle, investors would be well-advised to prepare for this change.

Happy Investing!

Anatomy of a Deal

Four years ago I bought a single family house in the Ballard neighborhood of Seattle for full list price on the Northwest Multiple List Service. The common wisdom is that nothing in Seattle cash flows (it is mostly an appreciation market), that there are no investor deals on the NWMLS market, and that one cannot make money paying full retail. All of these assumptions are false.

This house had four bedrooms/two baths on the two upper floors, and one bedroom/one bath in the attached mother-in-law unit in the basement. The elderly seller had previously rented out the entire house for $2300/month. She was having trouble selling this property and it sat on the market for over a month, primarily because all doors seemed to lead to the kitchen (4 entry points), and the main bath had a jetted walk-in tub - expensive to buy or to remove, but great if you are into hydro-therapy.

It was listed for $409,000 in 2012, which is what I offered in price. The Seller was willing to consider owner-financing, with $35,000 down on a seller note at 5% simple interest only, cash-out in five years. Monthly payments are $1558.33.

An inspection revealed a crack in the sewer line to the street, which the Seller repaired prior to closing.

My $35,000 down payment came from a private lender (whom I subsequently cashed out about a year later). My $12,000 real estate commission was used to pay closing costs, and make repairs. So basically, I was able to purchase this property with no mortgage, no credit check, and no money out-of-pocket.

I moved things around in the kitchen and was able to block off one of the entry points there; painted the interior; and remodeled the MIL to make a more habitable space for an on-site property manager.
I converted the new sunroom to a bedroom by adding a wardrobe closet. Then I furnished the common areas, and rented out each room on a monthly lease agreement. Currently I collect $4225 in monthly rents, so cash flow is approximately $2000/month.

My on-site property manager pays rent, but gets a discount for property manager duties.

Property management duties include collecting and depositing rent, showing vacant units to prospective tenants, doing move-in/move-out walk-through, advising owner of needed repairs or tenant problems, advising tenants of energy conservation efforts, ordering common household supplies, yard work, coordination with contractors as needed. I rarely go to the property or meet the tenants in person.

It is true that Seattle is a great appreciation market, and I conservatively estimate that equity in this property has gone up by at least 50% in the time I have owned it. So there is at least $200,000 of equity in a SFR property that cash flows $2000/month. That, folks, is a home run.

Such opportunities are not always easy to find, but they are out there. Keep looking, and use your creative acquisition tools to hit your own home run...

Happy Investing!

FREE Investor Training

The Real Estate Association of Puget Sound is offering a FREE ORIENTATION this Saturday for novice investors, new members  and guests designed to help the novice real estate investor make full use of the membership resources and benefits of REAPS in order to jump start their career as a real estate investor. Members of the public are welcome to attend. 

REAPS is the oldest – and largest - professional association for the real estate investor this side of the Mississippi.  As a not-for-profit association, REAPS aims to motivate and support REAPS members and guests through education, discussion, legislative action and networking.  REAPS hosts over 70 live events a year around Puget Sound and they are all open to the public.

Speakers at the orientation include practicing real estate investors who will highlight the membership resources most important to new investors.

This FREE ORIENTATION will be held from 10:00am - 12 noon, this Saturday, at the Mercer Island Community Center. Because space is limited for this event, please RSVP in advance at the REAPS website www.reapsweb.com.

For more information, please contact Katherine Swanberg, REAPS President at 425-260-3121 or Wendy Ceccherelli, volunteer Membership Coordinator, at HomeLandInvestment@gmail.com or 888-621-4999

Happy Investing!

ADU Policy Changes

PROPOSED POLICY CHANGES

The following is the list of proposed policy changes, when implemented, should encourage the construction of more ADUs and DADUs throughout the city of Seattle.


1. Allow an ADU and DADU on the same lot

Current policy stipulates that a single-family lot can have an ADU or a DADU, but not both. New legislation would allow single-family lots to have an ADU and a DADU.

2. Remove off-street parking requirements

Current regulations require one additional off-street parking space for either an ADU or DADU unless the lot is located in an urban village. New legislation eliminates the off-street parking requirement.

3. Modify the owner occupancy requirement

Current regulations require that the property owner occupy either the main house or the ADU/DADU. New legislation would terminate the requirement 12 months after the final inspection for the building permit. Unfortunately this is only a partial step in the right direction. The owner occupancy requirement is a significant hurdle for construction financing, as the bank cannot rent out the ADU/DADU in the event of a default. This modification may not have much of an impact on production.


4. Reduce the minimum lot size for DADUs

Current regulations stipulate that only lots 4,000 square feet and larger can have DADU’s. New
legislation would reduce the minimum lot size to 3,200 SF. However, all other development standards that regulate the location and scale of DADU’s, such as minimum separation between structures and the maximum lot coverage limit, would remain in effect.

5. Modify the maximum height limit for DADUs

Current regulations determine the maximum height of a DADU based on the width of the lot, with overall height limits set too low to allow conventional roof geometry. New legislation would simplify this standard and slightly increases the maximum height limit up to 2 feet depending on the lot width.

6. Modify the rear yard coverage limit for DADUs

Current regulations limit coverage of a required rear yard to no more than 40 percent. New legislation would allow an additional 20 percent coverage only for one-story DADUs to provide flexibility for property owners who may wish to design a DADU without stairs for mobility or universal design reasons.

7. Modify maximum gross square footage limits

Currently, ADUs are limited to 1,000 square feet and DADUs to 800 square feet. New legislation would maintain a 1,000 square feet limit for ADUs and increase the DADU limit to the same 1,000 square feet. This legislation also removes garage and storage space from counting towards the maximum gross square footage for ADUs and DADUs.

8. Add flexibility for entry door locations to DADUs

Current regulations prohibit entrances to DADUs on the facades facing the nearest side or rear lot lines unless that lot line abuts a public right-of-way. New legislation would allow an entrance on any facade provided that the entrance is no closer than 10 feet to side or rear lot line, unless that lot line abuts a public right-of-way.

9. Allow certain roof features that add interior space

Current regulations allow these features for principal units in single-family zones but are not allowed for DADUs. New legislation would allow certain roof features that accommodate windows and add interior space, such as dormers, clerestories, and skylights


More on accessory dwelling units in tomorrow's blog! Stay tuned!

Happy Investing!

Today's blog courtesy of David Taber, Neiman Taber Architects

ADUs vs DADUs

THE DIFFERENCES BETWEEN ADUs AND DADUs

If you’re thinking about building an ADU or DADU, there are several factors to consider. As noted above, both share many advantages, but the following are additional issues to consider:

Accessory Dwelling Unit

§ Can provide rental income

§ The space and building systems already exists - construction expense is greatly reduced

§ Does not impact scale or character of neighborhood and often goes unnoticed

§ Does not impact open space of property

§ Unit can often be directly connected to house if so desired (family members)

§ Can be a quick return investment

§ Since the unit is attached, sounds will likely be heard regardless of sound-proofing efforts

§ Privacy. You’ll likely be sharing some exterior spaces and possibly even some interior


Detached Accessory Dwelling Units

§ Can provide rental income

§ Increased privacy and no shared walls and floors/ceiling

§ Clear boundaries can be delineated between units

§ Cost. Building a DADU is significantly more costly per square foot than building a house

§ Takes away from yard and open space

§ Potential to impact neighbors open space and privacy

LESSONS LEARNED

Below are "before" and "after" floor plans of an ADU we recently completed. As with most ADUs we’ve designed, the basement was finished space and only required minor interior renovations. A small, compact kitchen was added along with a new closet for a stacked washer/dryer, and sound attenuation and fire separation was added to adjoining house walls and ceilings. In addition, access to an electric sub-panel and thermostat was added for independent control of the building systems within the unit. And the best part - no exterior work was required. This ADU has 485 SF of rentable space, will be used as a long term rental, rents for $1,200 / month and cost $35,000 which included all project costs.



DADUs are wonderful - who doesn't love a tiny house (?!) but ADUs are typically a bigger bang for the buck. Based on the ADU project we've designed, returns on investments have ranged from 2 to 4 years.

How to finance? We'll be exploring this topic in our next blog. Stay tuned!

Happy Investing!

Today's blog courtesy of David Taber, Neiman Taber Architects

Increasing Affordable Housing

WHY ADUs and DADUs ARE A GOOD THING

For the City

They increase affordable rental housing, utilize existing house stock without compromising the scale and character of neighborhoods, encourage better housing maintenance and neighborhood stability, reduce sprawl and environmental footprint, and are viable alternative to larger scale housing projects

For the Homeowner

They provide rental income, offer a private living unit for family members or friends, create aging in place opportunities and increase property values

For the Renters

They offers affordable rent and access to amenities in single family neighborhoods such as privacy, quieter environment and less traffic congestion

More in tomorrow's blog about the policy changes proposed by the City of Seattle. Stay tuned!

Happy Investing!

Today's blog courtesy of David Taber, Neiman Taber Architects

Accessory Units in Seattle

HISTORY

Accessory dwelling units can be traced back to the early twentieth century in cities throughout the United States, prior to the implementation of zoning regulations. In the 1940’s and 1950’s it was common for underutilized spaces within homes to be converted into private living spaces to satisfy changing family needs and provide rental income. Shortly thereafter a boom in urban sprawl and an emphasis on the nuclear family sparked concerns about perceived risks and impacts of ADU’s within neighborhoods, ultimately leading many jurisdictions to prohibit their construction.

Today, in Seattle and many cities throughout the country, the lack of affordable housing has brought this typology back into the forefront. In Seattle, ADUs have been allowed in all single family zoned lots since 1994 and DADUs since 2010 but unfortunately, only about 2,500 units have been constructed. Just 140 miles north in Vancouver, a city with less than half the number of single family homes, the total ADU + DADU count is more than tenfold. How can this be, you ask? Less restrictive regulations, city implemented incentives and a true desire to encourage growth. It's a similar prescriptive path which Seattle will be enacting, pending approval in the upcoming months, which will hopefully lead to similar results.

More in tomorrow's blog. Stay tuned!

Happy Investing!

Today's blog courtesy of David Taber, Neiman Taber Architects

More Affordable Housing

According to David Neiman, micro-housing advocate and architect, every year our current Seattle micro-housing policies remain in effect:

• 1300 people pay an average of $261 more per month in rent.
• 345 fewer units are built, pushing up prices by adding to the city's production shortfall and increasing economic displacement of low income renters within our existing housing stock.
• 97 units of 40% AMI housing are not created (affordable to someone making $25k/yr).
• 753 units of 55% AMI are not created (affordable to someone making $34k/yr).

Multiplied over ten years, this represents the loss of 8,500 units of affordable housing, a 25% rent hike for 13,000 people, and 3,450 units of housing production lost. We could fix this with a couple of administrative actions and a minor change to the zoning code. Specifically, the mayor would need to roll back the new directors rule that makes small housing larger and the Office of Housing needs to do a market rent study to set a realistic rent level for SEDU MFTE rent.

For more details on this analysis, please contact David Neiman at david@neimanarchitects.com

If you agree with this recommendation, be sure to contact your Seattle City Council.

Happy Investing!

Pro-Seller Option Form

Here is a form that might be used by a Seller planning to lease option a property they own. While I am not an attorney, this should not be construed as legal advice. Laws of each state vary, and it would be good to have this document reviewed by your attorney prior to use. But it may be a good template to begin discussion.

OPTION TO PURCHASE

THIS AGREEMENT made this day of , 20 between,

, Optionor, and

Optionee.

IN CONSIDERATION (which will be applied toward purchase price) of the sum of

paid by Optionee (the receipt of which is hereby acknowledged by Optionor) the Optionor gives to Optionee the exclusive option, right and privilege of purchasing certain Real property located in the

County of and State of , described as:

This option is subject to the following terms and conditions:

1) This option is not assignable by Optionee unless Optionor agrees separately and in writing.

2) There shall be additional option consideration of $ per month given to Optionee. The

monthly option consideration shall be credit toward the down payment/purchase price of the

property. The credit will only apply to months when the rent amount and any outstanding fees

owed (in the attached Rental Agreement) is paid on or before the due date and in full.

3) Optionor grants Optionee the right to exercise this option for a period commencing on

, 20 and terminating at midnight, , 20 . If not exercised, this

option shall expire midnight , 20 , and Optionor shall be released from all

obligations hereunder, legal or equitable. The obligation shall cease and the consideration here

above receipted for the Optionor, shall be retained by Optionor.

4) If Optionee elects to exercise this option the sale shall take place according to the terms of the

attached offer to purchase agreement, which have been signed by Optionee and Optionor

this same day.

5) Notice of election to Purchase shall be given by Optionee in writing, and by registered mail,

addressed to Optionor, at:

6) All provisions of the Rental Agreement between Optionor and Optionee pertaining to the

aforementioned property shall be performed by Optionee or this option may be withdrawn by

Optionor and Option consideration will be forfeited by Optionee.

7. OPTIONEE agrees to accept subject property in current “as is” condition. OPTIONEE agrees

to make all repairs major and minor to the above named property. Should OPTIONOR

be required to make repairs of any kind whatsoever to the property, the cost of such repairs

shall be added directly to the purchase price stated in the purchase agreement.

If there is a septic system, Optionee agrees to pay for and have the septic tank pumped out

on June 1st of each year this agreement covers.

If there is a pool Optionee agrees to open and close pool each year, and to maintain the pool.

8. OPTIONEE agrees to pay for any and all additional assessments incurred during occupancy

And prior to ownership (example but not limited to: water, sewer, sidewalks, or road paving)

9) The option consideration is for the sole purpose of granting the OPTIONEE the exclusive

right to purchase the subject property at the stated price and terms.

IN THE EVENT THAT OPTIONEE DOES NOT MEET THE TERMS AND CONDITIONS CONTAINED IN THIS AGREEMENT ALL OPTION CONSIDERATION PAID WILL BE FORFIETED BY OPTIONEE AND WILL BE KEPT BY OPTIONOR.

Initial ________

10) This option to purchase will be terminated and all option consideration forfeited, if payment

required on option agreement or any payment required on rental agreement is late for more

than ten days past the due date. Optionee understands that Optionor will be required to supply

their mortgage company with an accurate record of payment history including all instances of

late payments. Optionee understands such information could affect their ability to secure a

mortgage

11) This option to purchase shall apply to and bind the heirs, executors, and administrators

of the respective parties.

12) Optionor may be doing a 1031 exchange on this property and needs 30 days notice of closing

to work out the details with the title company and purchasing of another property.

13) If option money is forfeited by Optionee, for any reason, then the rental agreement will

automatically revert to a month to month agreement, so that Optionor may sell or re-lease the

property.

14. Optionee agrees that they will not record anything against the title, of said property, prior to

closing and owning this property.

15. Optionee understands that Optionor does not hold title (own) this property, but is transferring

their interest in the property. If Optionor can’t transfer title due to something out of their

control (ie.owner refuses to close or can’t transfer clear title). Optionor will reimburse Optionee the entire option consideration plus an additional A$500 for their inconvenience, as full and complete liquidated damages for Optionor not being able to close on this property.

15. EQUITABLE MORTGAGE: This Option to Purchase is not, and shall not be construed as, or

interpreted as any form of EQUITABLE MORTGAGE. It is hereby declared that it is not the intent of the parties to create a loan of any nature or to create a mortgage of any kind. In the event that the Optionee hereunder should ever raise such an issue in a court of law or otherwise this Option shall terminate immediately.

15. Optionor has advised the optionee to seek the advice of a mortgage lender and attorney prior to

signing this document.

18) Time is of the essence in this agreement.

The parties have executed this agreement on the date first above written.

Optionor(s): Optionee(s):

Witness: Witness:

Happy Investing!