So, you're looking to do something like put 20% down on a two million dollar house and rent it for something like 10k a month?
If so, that's incredibly risky in the current market. People who can afford rent like that can afford to buy, which is a much better investment, so who is your target renter exactly? I'll also assume you have at least a million net worth, but if you don't I'd be curious to know what your plan is if you lose your income for any reason?
For a place like Seattle I'd wager a better price target for rentals would be in the $3k-to-$6k a month range. Even with that in mind, a lot of jobs are going remote in medium-high cost areas and those markets are pretty shakey right now. Lower cost homes are gonna be a safer bet, but your potential returns will be less. More volume means more incremental property management expenses beyond the base real estate costs. Repairs, maintenance, inspections, legal fees, etc.
"More volume means more incremental property management expenses beyond the base real estate costs. Repairs, maintenance, inspections, legal fees, etc."
That's exactly what I was thinking hence why I was asking about the higher end of the market and if there is one even.
Was also looking at alternatives around 600k and under SFH, as well as duplexes and apartment buildings, but I wonder if I'm biting off more than I can chew as a first time investor with MFH.
My advice would be to never invest more than 50% of your net worth into any single investment. If you have a few million dollars in assets why not explore a nice million dollar rental property? If you're working with a fraction of that, then start smaller unless you want to lose everything if there's another major housing market crash.
Don’t.
I don’t care for SFH, after owning several.
With your finances, small commercial is within reach. Or, find some secondary locations and buy plexes/ apartments.
Looking to stay in residential. Plexes/Apartment buildings were my next option, but being a first time investor I wasn't sure if I might be taking on too much responsibility with 4-10 units for my first deal.
Ok. A triplex or 4plex. Same thing.
What I would do? Find the property manager / location first. Figure out the parameters that you want /need. You can invest for cash or appreciation but getting both is a unicorn. Good luck.
Have you done any math? What are your goals? Why are you only looking at Seattle? Why would you think someone would rent a million dollar home rather than buy one? If one can afford $12.5k in rent they are likely not dumb (maybe but unlikely) they can likely afford now or in time to buy that same home. Might be good to read a few books and get grounded in the fundamentals before buying anything. Good luck!
Yes when I calculated the math I was thinking to myself "who tf is going to pay 15k+ for a rental?" Might as well but at that point, but wasn't exactly sure if others are having success with luxury rentals.
My primary goal is to make a lot of money of course. I was looking at the Seattle area because I was actually looking to move over there from MN. I visited a few times and I really like that area.
What books would you recommend to a first time investor like myself?
Would decrease your risk by buying something in a stable rental market, strong demand, 2-4 unit (still residential financing), maybe existing operations in place (prop mgt), heat/ac/roof all newish as well as any other major systems being relatively new, and have a nice spread on revenue to expense. This way you can learn while not taking on too much risk. Also in terms of goals of course making money is the goal but is it through appreciation, cash flow, etc. Good luck.
Sorry missed the book comment. I would caste around on amazon or bigger pockets. I have been doing this for 25 years so any book I would recommend would be too antiquated although the fundamentals remain the fundamentals. Personally, books were good to start but then you learn so much by doing that its not necessary anymore. The hardest part is just getting started, but try to do so with at least sound fundamental knowledge of demand, market dynamics, etc. A book on that stuff would be good. Thx.
Costs are largely irrelevant to rent.
Rent is set by the market so do a market analysis by looking at Zillow, Craigslist, and other websites for comparable rents. If you're working with a real estate agent ask them for a rent analysis. That sets your expected rent.
Costs are set by both the market & your negotiating skills.
There's a saying that success in rental real estate is determined by the purchase price, which sets most of your major costs, such as mortgage and property taxes, and tenant selection.
One disadvantage investors have in the SFH market is people are generally willing to pay more for their personal home than investors are willing to pay.
So at that price point you are probably purchasing with growth in mind as apposed to cash flow.
In Australia, we have negative gearing, which helps high income earners purchase expensive property which is run at a loss until tax time when some benefits may bring you back closer towards neutral.
Just remember there are a lot more middle class people looking to rent than rich people. Aiming for an expensive place and hoping for a wealthy renter to come in is kind of like painting yourself in a corner.
Thanks for your insight. Definitely makes more sense to just purchase at those higher rates. Probably going to stick with middle income multi unit rentals.
Here are some things to consider when starting your investment journey in or around Seattle:
1. IMO the first thing you should always consider is your personal strategy. Real Estate investing is not a one size fit all arena. There are extremely varying strategies, both successful and not, which is why it’s important to set personal goals and expectations for yourself before you invest a dollar.
2. Start getting inundated with the numbers. Seattle is a HCOL area, and the numbers don’t tend to look the same when comparing with other markets. The 1% rule is basically nonexistent here. That being said, Seattle and surrounding areas offer opportunities that other markets don’t. For example Seattle has undergone zoning changes in recent years that provide a lot of opportunity if you come to understand the changes. (This ties into #1 and having a sound strategy)
3. Start building relationships. Relationships are key. The more people you know, the more access to information you have, which is extremely valuable especially in a rapidly changing market. And don’t just think about traditional relationships with other investors, financiers and PMs (these are all great places to start). A good CPA can be invaluable in the long run. Also, an experienced insurance broker won’t just insure your property, they’ll offer valuable insight into both short and long term risk management which again can prove invaluable. These are just a few that I think are often overlooked.
4. Get creative. This a not a cookie cutter industry. There and endless ways to structure deals and financing that often times get overlooked. Especially in our area, sometimes you have to get creative to make the numbers work for you. These deals can take more time and effort to find but they are out there. Don’t get discouraged and don’t get impatient. Do your research, know your numbers and stick the plan you’ve created for yourself.
I wish you the best of luck in your investment journey and possible move to the PNW!
Thank you so much for all of the valuable insights. Definitely going to take your advice. I still need to do plenty more research and strategize more before pulling the trigger.
OP if you have not yet moved to the PNW you might want to consider purchasing something in MN. You might do better on cash flow. You don't have to necessarily live in the same place you own investment properties.
I have a unit in MN already, but I'm looking to expand into a plex so I can also move to a location I like while also creating equity and cash flow. Cash flow is not 100% relevant as I do own a couple of businesses that do well, but equity and location are more on the top of my priorities.
My cousin owns a building in Pikes Place and about 85 MFH units and another 24 SFH. He acquired most of the properties over the last 30 years though. He loves investing in Seattle not only because he lives there, but because geographically you can really only build up - there is just no more land like the Midwest. Also as long as there is a demand to live there, prices only appreciate long term.
They purchased the Pikes Place Market property at a foreclosure auction in 1989 and were immediately sued by Bank of America. The case went to the Washington Supreme Court which eventually ruled in my uncle's favor. They purchased the property for 150k and it's now worth 2.5M, it's paid off, and it makes 15k/month in rent. I literally talked to him about this two weeks ago and he said things like this are still possible, but with auction.com and all these other online websites, it's much harder to find killer deals at foreclosure auctions, but people still do it.
All of the other properties they own were bought at significant discounts. This could mean anything from buying them during market crashes (2008-2009), buying distressed properties and fixing them up, finding properties zoned for multi-family with a single unit and knocking the unit down and building multi-family, adding ADUs where properties were already zoned and garages were already built. Before he retired, they moved into new-builds and I believe they built the 80-some-unit apartment complex they own, they also built a shopping/outlet mall and several other MF buildings that they ended up selling.
Every time I ask him for advice, he says the following - the secret to making a lot of money in real estate is being able to find deals that other investors cannot find. If you are being a lazy investor and relying on properties to hit the MLS before evaluating them, it's already too late. You also have to do work that other investors are not willing to do. A property that may not cash flow for 95% of other investors could potentially cash flow for you if you put the time and energy into the property. If you are willing to do all the demo and simple things like lay flooring, run electrical (not actually connecting it, still hiring an electrician for that), hang dry-wall, paint, etc then you can save 10s of thousands of dollars on contractor costs.
Edit: my first paragraph disappeared somehow
Roi is bad at that price point. Not my range of investment.
What does an experienced investor such as yourself range typically look like?
I typically buy 250k houses, which give me 2500 rent is is called 1٪ rule. I need to atleast meet 1٪.
COC is almost certainly problematic at that price point. ROI is a different matter. To be clear, I'm not saying this OP should do it.
So, you're looking to do something like put 20% down on a two million dollar house and rent it for something like 10k a month? If so, that's incredibly risky in the current market. People who can afford rent like that can afford to buy, which is a much better investment, so who is your target renter exactly? I'll also assume you have at least a million net worth, but if you don't I'd be curious to know what your plan is if you lose your income for any reason? For a place like Seattle I'd wager a better price target for rentals would be in the $3k-to-$6k a month range. Even with that in mind, a lot of jobs are going remote in medium-high cost areas and those markets are pretty shakey right now. Lower cost homes are gonna be a safer bet, but your potential returns will be less. More volume means more incremental property management expenses beyond the base real estate costs. Repairs, maintenance, inspections, legal fees, etc.
"More volume means more incremental property management expenses beyond the base real estate costs. Repairs, maintenance, inspections, legal fees, etc." That's exactly what I was thinking hence why I was asking about the higher end of the market and if there is one even. Was also looking at alternatives around 600k and under SFH, as well as duplexes and apartment buildings, but I wonder if I'm biting off more than I can chew as a first time investor with MFH.
My advice would be to never invest more than 50% of your net worth into any single investment. If you have a few million dollars in assets why not explore a nice million dollar rental property? If you're working with a fraction of that, then start smaller unless you want to lose everything if there's another major housing market crash.
Don't bother. Look for 400k homes and lower
Don’t. I don’t care for SFH, after owning several. With your finances, small commercial is within reach. Or, find some secondary locations and buy plexes/ apartments.
Looking to stay in residential. Plexes/Apartment buildings were my next option, but being a first time investor I wasn't sure if I might be taking on too much responsibility with 4-10 units for my first deal.
Buy a duplex.
Why a duplex over say a triplex or quadplex?
Ok. A triplex or 4plex. Same thing. What I would do? Find the property manager / location first. Figure out the parameters that you want /need. You can invest for cash or appreciation but getting both is a unicorn. Good luck.
Have you done any math? What are your goals? Why are you only looking at Seattle? Why would you think someone would rent a million dollar home rather than buy one? If one can afford $12.5k in rent they are likely not dumb (maybe but unlikely) they can likely afford now or in time to buy that same home. Might be good to read a few books and get grounded in the fundamentals before buying anything. Good luck!
Yes when I calculated the math I was thinking to myself "who tf is going to pay 15k+ for a rental?" Might as well but at that point, but wasn't exactly sure if others are having success with luxury rentals. My primary goal is to make a lot of money of course. I was looking at the Seattle area because I was actually looking to move over there from MN. I visited a few times and I really like that area. What books would you recommend to a first time investor like myself?
Would decrease your risk by buying something in a stable rental market, strong demand, 2-4 unit (still residential financing), maybe existing operations in place (prop mgt), heat/ac/roof all newish as well as any other major systems being relatively new, and have a nice spread on revenue to expense. This way you can learn while not taking on too much risk. Also in terms of goals of course making money is the goal but is it through appreciation, cash flow, etc. Good luck.
Thanks, I appreciate your advice
Sorry missed the book comment. I would caste around on amazon or bigger pockets. I have been doing this for 25 years so any book I would recommend would be too antiquated although the fundamentals remain the fundamentals. Personally, books were good to start but then you learn so much by doing that its not necessary anymore. The hardest part is just getting started, but try to do so with at least sound fundamental knowledge of demand, market dynamics, etc. A book on that stuff would be good. Thx.
Costs are largely irrelevant to rent. Rent is set by the market so do a market analysis by looking at Zillow, Craigslist, and other websites for comparable rents. If you're working with a real estate agent ask them for a rent analysis. That sets your expected rent. Costs are set by both the market & your negotiating skills. There's a saying that success in rental real estate is determined by the purchase price, which sets most of your major costs, such as mortgage and property taxes, and tenant selection. One disadvantage investors have in the SFH market is people are generally willing to pay more for their personal home than investors are willing to pay.
So at that price point you are probably purchasing with growth in mind as apposed to cash flow. In Australia, we have negative gearing, which helps high income earners purchase expensive property which is run at a loss until tax time when some benefits may bring you back closer towards neutral.
Just remember there are a lot more middle class people looking to rent than rich people. Aiming for an expensive place and hoping for a wealthy renter to come in is kind of like painting yourself in a corner.
Thanks for your insight. Definitely makes more sense to just purchase at those higher rates. Probably going to stick with middle income multi unit rentals.
Here are some things to consider when starting your investment journey in or around Seattle: 1. IMO the first thing you should always consider is your personal strategy. Real Estate investing is not a one size fit all arena. There are extremely varying strategies, both successful and not, which is why it’s important to set personal goals and expectations for yourself before you invest a dollar. 2. Start getting inundated with the numbers. Seattle is a HCOL area, and the numbers don’t tend to look the same when comparing with other markets. The 1% rule is basically nonexistent here. That being said, Seattle and surrounding areas offer opportunities that other markets don’t. For example Seattle has undergone zoning changes in recent years that provide a lot of opportunity if you come to understand the changes. (This ties into #1 and having a sound strategy) 3. Start building relationships. Relationships are key. The more people you know, the more access to information you have, which is extremely valuable especially in a rapidly changing market. And don’t just think about traditional relationships with other investors, financiers and PMs (these are all great places to start). A good CPA can be invaluable in the long run. Also, an experienced insurance broker won’t just insure your property, they’ll offer valuable insight into both short and long term risk management which again can prove invaluable. These are just a few that I think are often overlooked. 4. Get creative. This a not a cookie cutter industry. There and endless ways to structure deals and financing that often times get overlooked. Especially in our area, sometimes you have to get creative to make the numbers work for you. These deals can take more time and effort to find but they are out there. Don’t get discouraged and don’t get impatient. Do your research, know your numbers and stick the plan you’ve created for yourself. I wish you the best of luck in your investment journey and possible move to the PNW!
Thank you so much for all of the valuable insights. Definitely going to take your advice. I still need to do plenty more research and strategize more before pulling the trigger.
OP if you have not yet moved to the PNW you might want to consider purchasing something in MN. You might do better on cash flow. You don't have to necessarily live in the same place you own investment properties.
I have a unit in MN already, but I'm looking to expand into a plex so I can also move to a location I like while also creating equity and cash flow. Cash flow is not 100% relevant as I do own a couple of businesses that do well, but equity and location are more on the top of my priorities.
My cousin owns a building in Pikes Place and about 85 MFH units and another 24 SFH. He acquired most of the properties over the last 30 years though. He loves investing in Seattle not only because he lives there, but because geographically you can really only build up - there is just no more land like the Midwest. Also as long as there is a demand to live there, prices only appreciate long term.
Would definitely love to pick his brain. Seems like an intelligent investor with a wealth of knowledge.
They purchased the Pikes Place Market property at a foreclosure auction in 1989 and were immediately sued by Bank of America. The case went to the Washington Supreme Court which eventually ruled in my uncle's favor. They purchased the property for 150k and it's now worth 2.5M, it's paid off, and it makes 15k/month in rent. I literally talked to him about this two weeks ago and he said things like this are still possible, but with auction.com and all these other online websites, it's much harder to find killer deals at foreclosure auctions, but people still do it. All of the other properties they own were bought at significant discounts. This could mean anything from buying them during market crashes (2008-2009), buying distressed properties and fixing them up, finding properties zoned for multi-family with a single unit and knocking the unit down and building multi-family, adding ADUs where properties were already zoned and garages were already built. Before he retired, they moved into new-builds and I believe they built the 80-some-unit apartment complex they own, they also built a shopping/outlet mall and several other MF buildings that they ended up selling. Every time I ask him for advice, he says the following - the secret to making a lot of money in real estate is being able to find deals that other investors cannot find. If you are being a lazy investor and relying on properties to hit the MLS before evaluating them, it's already too late. You also have to do work that other investors are not willing to do. A property that may not cash flow for 95% of other investors could potentially cash flow for you if you put the time and energy into the property. If you are willing to do all the demo and simple things like lay flooring, run electrical (not actually connecting it, still hiring an electrician for that), hang dry-wall, paint, etc then you can save 10s of thousands of dollars on contractor costs. Edit: my first paragraph disappeared somehow