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!

ADU Financing

FINANCING

If you’re unable to finance your accessory dwelling project with cash savings, the following conditional loan types are worth exploring and may be viable options depending on your current financial situation. Some lenders are beginning to catch on but in general, the industry remains unfamiliar with the added value ADUs and DADUs can bring to your property, thus making financing more arduous than necessary.

Cash-out refinancing – Refinance your existing loan for more than you owe, taking out the difference in cash

Home equity loan & Home equity line of credit (HELOC) – Also referred to as a second mortgage, both types allow you to borrow money using your home’s equity as collateral

Renovation financing / FHA 203(k) – Combines a construction loan with your home mortgage


REFERENCES
If you’re interested in more information on accessory dwelling units in Seattle, check out the following:

Seattle Department of Construction and Inspections

Additional information on permitting, requirements, guides and reports for both ADUs and DADUs

Accessory Dwellings

A Portland based one stop internet source for all things ADU. Some information may not be directly applicable to Seattle, but we’ve found them to be an invaluable reference nonetheless.

SUMMARY

Seattle's existing neighborhoods are one of the largest untapped resources available for increasing affordable housing stock. By no means will this typology single-handedly solve our housing shortage, but it's an easy and beneficial step in the right direction that will have little or no impact on the scale and character of our neighborhoods. You only need to look at the track records in Vancouver and Portland to see any concerns about changing the character of our neighborhoods have proven to be unfounded. In our pursuit of livability, affordability, community and access to housing for all, we look forward to welcoming more ADU and DADU projects into our community.

Happy Investing!

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

L Zoned Duplex in Seattle

Here is another off-market property for sale in Seattle!

This one is located near 24th Ave NW and NW 61st Street in the hot, hot Seattle neighborhood of Ballard. It is an L1-zoned duplex property on a 3400 sf lot. The house was originally built in 1908 and has approximately 2440sf of finished living space. It has two one-bedroom units and a one-car driveway.

The property is in excellent condition. The roof and skylights are two years old. The house was fully repainted last summer. There are no tenants. The owner lives in the house currently as a single family home.

The minimum terms the Seller would require for selling the property are:

· All Cash

· No seller’s commission

· 15 day close

· 90 days after closing to vacate the property with an option to extend (monthly rent negotiable)

· Sales price of $625,000

If you are interested in getting more details about this property, please send me a private email at HomeLandInvestment@gmail.com



Happy Investing!

RRIO Checklist

Whether the investor uses a private inspector or the City of Seattle inspectors, this is the checklist that is used to inspect rental properties registered in the city's Residential Rental Inspection Ordinance (RRIO) program:

1. Exterior: Structure, Shelter, and Maintenance

Roof, chimney, foundation, stairs, and decks are reasonably free of decay (e.g., severe cracks, soft spots, loose pieces, deterioration, or other indications that repair is needed); maintained in a safe, sound, and sanitary condition; and capable of withstanding normal loads and forces. The building and its components, including windows, should be reasonably weather-proof and damp-free.

2. Interior: Structure, Shelter, and Maintenance

Walls, floors, stairs, and other structural components are reasonably free of decay, maintained in a safe and sound condition, and capable of withstanding normal loads and forces. Natural and mechanical lighting and ventilation is adequate and maintained in good working order for each habitable room in the unit.

3. Emergency Escape Windows and Doors

Every sleeping room built or permitted after August 10, 1972 must have an emergency escape window or door. Emergency escape windows must open to the exterior, have a minimum opening of 5.7 square feet with a minimum dimension of at least 24 inches high and at least 20 inches wide, and must not exceed a maximum sill height of 44 inches from the floor. In order to meet the total square footage requirement, a window size of nearly 2 by 3 feet is typically required. Sleeping rooms that were built under permit prior to August 10, 1972 are exempted from this requirement.

4. Room Size and Condition

All rooms used as living or sleeping rooms must meet minimum requirements for square footage and must not have dirt floors.

5. Heating System

Every bathroom and habitable room must have a functioning, properly ventilated, and permanently-installed heat source.

6. Electrical Standards

All electrical equipment and wiring must be approved and maintained in safe and sound condition and in good working order.

7. Plumbing and Hot Water

Plumbing systems must be properly installed, functional, sanitary and maintained in good condition. Water temperature reaches at least 100°F after running water for two minutes.

8. Sanitation Standards: Bathrooms

Every unit has at least one directly accessible bathroom (primary bathroom) that includes an operable toilet, sink, and tub or shower, all in safe and sound condition and sanitary working order. Does not apply to a legally established SRO/rooming house/micro-housing unit that does not have a bathroom, although any associated common or shared bathroom must meet these standards.

9. Sanitation Standards: Kitchen

Every unit has a kitchen with a sink, counter, cabinets, cooking appliance, and refrigerator maintained in safe, sound, and sanitary condition. This does not apply to units comprised of a single habitable room such as a Single Room Occupancy, rooming house, or micro-housing unit when the unit does not have a kitchen. Common kitchen must meet these standards.

10.Owners’ Obligations

Property owners are responsible for ensuring that the property is free of excess trash; insects and rodents have been exterminated; unit and building doors lock with a deadbolt or deadlatch; and working smoke detectors are installed outside sleeping rooms.

Happy Holidays! Happy Investing!

Home Investment Shifts

Several noteworthy articles in Sunday's Seattle Times. Front page news that Millennials are not buying houses. I reported on this trend in my recent blog on homeownership, and the reasons for the decline. The fact that young Millennials ages 25-34 are not buying houses is a big part of this decline.

Since 2007, homeownership for young adults in King County has dropped nearly 13 percent. The rate of decline here has been more than twice as fast as the national average. A big reason may be that real estate here is so expensive.

The delay in marriage age and the record high level of student debt exacerbate the difficulties for Millennials to look at purchasing rather than renting. Whether Millenials are renting because they have to or because they want to is causing a major demographic shift in the rental market here, where competition for apartments and rent prices keep going up.

The long term forecast is very good for landlords and investors who hold rental property here.

The second article I found fascinating had to do with EB5 Visa program. EB5 allows immigrant investors and their families to get permanent residency visas, in exchange for investing at least $500,000 in US projects that create at least ten full-time jobs. The program was originally intended to target low income and rural communities.But at least 2 Billion dollars in current projects in the prosperous Seattle metro area are being bankrolled by EB5 monies.

The US Senate just passed a bill to reform the program weaknesses and "restore the program to its original intent, by ensuring that  much of the capital generated and jobs created occur in rural areas and areas with high unemployment."

Why would I care about that, you ask?

Because a revised EB5 would allow small developers like me to take on riskier projects - like my Van Gogh Studio Lofts project at the Rainier Beach Light Rail station - in communities that really need development. As it stands now, it is impossible to lure foreign investors to a market that cannot demonstrate nor promise the kinds of investment returns that can be achieved in more prosperous parts of Seattle.

Lots of implications in both articles for Seattle real estate investors....

Happy Investing!

Seattle Rent Hikes

Sunday’s Seattle Times reported on the issues surrounding rising rents I the greater Seattle housing market.  According to market research firm Dupre + Scott, September’s average rent in the city of Seattle increased 10.3 percent from a year ago to $1495/month.

Ballard led all Seattle neighborhoods with a 21 percent annual increase to $1550/month for a one-bedroom, one-bath unit. Much of these increases are due to new construction of units with greater amenities.

Yet even older apartments built prior to 2011 saw rents up by 7.8 percent, four times higher than the overall inflation rate. Residents in apartment complexes with more than 20 units can expect to see rents increase another 4 percent by March 2015, according to Dupre + Scott.

Bellevue’s asking rents of $1665 are the highest in the metro area, a 6.9 percent annual increase over last year.

Seattle is attracting a number of institutional buyers from outside our region, as the city is considered one of the country’s top markets for multifamily investment.

The Seattle Times article focused on the city’s dilemma in providing affordable housing, but did not address the likely impacts of the City’s new rental inspection requirement, being put in place this year. In addition, City Council is considering a (short-sighted) proposal to require all developers to pay a fee towards the development of affordable housing. Time will tell how that will play out in increasing or decreasing the city’s supply of affordable rental units. Stay tuned.

Happy Investing!

Rental Deal Analysis

Calculating Cash Flow and Cap Rates<br><br>

The reason to purchase rental properties is for cash flow and income. Cash flow is simply the difference between the income produced by the property in the form of monthly rents, and the expenses associated with the property, such as mortgage payment, property taxes, insurance, repairs, etc. Positive cash flow is always the goal; negative cash flow to be avoided. The capitalization rate (cap rate) is the percentage of the original purchase price paid represented by the net annual income (Net Operating Income or NOI) produced by the property (monthly cash flow multiplied by 12).<br><br>

For example a rental purchased for $100,000 that generates $500 in NOI each month would have a 6 percent cap rate ($500 multiplied by 12 is $6000, divided into the original $100,000 purchase price).<br><br>

To calculate cap rate and cash flow, we assumed a 20 percent down payment and a 4 percent interest rate to come up with an estimated monthly mortgage payment. Real estate investors typically assume an additional 40 percent of the gross monthly rental proceeds for expenses such as property taxes, insurance and repairs.<br><br>

There is an old rule of thumb that many veteran real estate investors use to calculate a reasonable purchase price for a rental, that is, that monthly gross rents should equal one percent of the sales price. This is simply referred to as “the 1 percent rule."<br><br>

While the 1 percent rule and the 40 percent rule mentioned above are useful to provide “general overall initial calculations,” the particular characteristics of each property purchased must be taken into account to determine the true return on investment.<br><br>

Some of these characteristics may include: what is the age, quality of construction, level of past maintenance, physical location within a given neighborhood, will the owner be paying any portion of the utilities such as water, electric, gas, trash or Home Owner’s Association dues, etc.
<br><br>But this quick lesson on cash flow and cap rate will help the investor get started in analyzing rental properties for possible acquisition.
<br><br>For a list of income-producing properties in the Seattle area, please contact Home Land Seattle at HomeLandInvestment@gmail.com or 888-621-4999.
<br><br>Happy Investing!

Unlisted! Eastlake Duplex FSBO!

Ten Best Buys in Eastlake Priced under $800K! Get a FREE list with photos:
www.NSeattleDeals.com









Here's an example: Classic Eastlake Duplex, not yet listed for sale on the NWMLS. These two side-by-side townhouse-style units are loaded with classic 1920’s Old World Charm, featuring tall coved ceilings, big picture windows overlooking Franklin Avenue with views towards Lake Union, hardwood flooring throughout, vintage light fixtures, fireplaces, designer paint colors, spacious living areas, big bedrooms and large walk-in closets.

Each unit is approximately 1300 sf, and has two upstairs bedrooms with walk-in closets, a fireplace in the master bedroom, and a hall bathroom. The north unit includes additional square footage in the basement, laundry and storage area, family room and bedroom. The south unit currently rents for $1600 per month, and the north unit for $1995 per month. Live in one unit, and rent the other to help cover payments! Or buy for long-term expansion as it is zoned multifamily!

There are two main living areas, including living room fireplaces, formal dining rooms, remodeled kitchens, and bath. Radiant hot water provides a traditional and efficient heat source. You’ll love the architectural details and the convenience of living here.

The prime Eastlake location is one block from Louisa’s Bakery and Café, and from the shops, restaurants, clubs and businesses of Eastlake and South Lake Union. Parks, playgrounds, and houseboats are all within a few blocks. Easy bus transportation or highway access to downtown, South Lake Union and I-5. Perfect location, walk to everything. City and Lake Views.

The neighborhood contains a mixture of residential buildings, both houses and apartments, and small businesses, especially on Eastlake Avenue. Though populated by all manner of Seattleites, Eastlake is a particularly attractive location for people with ties to the University of Washington, which can be reached quickly by a number of bus routes.

Eastlake is a wonderful neighborhood with fabulous access to downtown MINUS the traffic!!!! Even if you don't decide on a houseboat, you can still launch your kayak right down the street! Watch the seaplanes coming in or taking off, check out the Olympic Mountains, Gasworks Park, and more, plus keep your finger on the pulse of all of Lake Union.

Showings are by appointment only. Please reply to this email. Serious enquiries only! Broker/owner holds a financial interest in this property.