Should You Invest in Seattle Real Estate (Part 2)

Should you invest in real estate? Even with the housing market beginning to once again heat up, there’s still minimal guarantee that you will succeed in this venture. But, if you’re going to take the dive and invest in the Seattle housing market, now is the time to do it.

Let’s dial this back for a second and ask the question: “Why should I invest in real estate” What benefits come from taking on such a huge potential risk? What do I stand to gain from pouring money into properties? Let’s break this down, shall we.

First off , you gain more leverage. Real estate is one of the few investment opportunities where using a bank’s money couldn’t be easier. The ability to take out a loan, make a down payment, and leverage your capital into an overall positive return is still remarkable achievable.

Second, you have the potential for long term growth in your portfolio. Unlike the volatile environment of the stock market, the housing market rarely ever sees drastic fluctuations in a short term time span. What’s more is that there is the potential to use a tax deferred strategies such as a 1031 exchange (https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031), a charitable trust (should you decide to go down that particular avenue), or an installment sale to help lessen your tax liability in the future. Not to mention that (depending on your classification as either an active investor or becoming a full fledged real estate professional) there is a good chance that you can use a rental property to not only give you a tax free cash flow (which I’m about to go into), but also an overage of tax deductions can be used against your other income. Depending, of course, upon what your actual overall income level is. As with any major investing decision, it’s always best to consult a tax professional before diving into this.

Third is that this opens up the avenue for a tax free cash flow.  The reason for this is because both depreciation and mortgage interest deductions are tax deductible. Not to mention that rental properties afford investors an opportunity to convert personal expenses into a (potentially valid) tax deductible business expense. Think about it, rental real estate is a business. So, for example travel expenses to your properties and payments to individuals who manage your properties that normally would have come out of pocket is now tax deductible. In addition, this increases the tax benefits when it comes to cash flow and the future sale of the property (if you decide to purse it).

Fourth is, in all honesty, it’s a realistic retirement opportunity. Let’s be real, Americans are no longer known for their frugality and saving skills. A reputation that we have earned. IRA and 401k investments have also been on a down trend for some time; not to mention that bank interest rates have been abysmal for over a decade. However, buying a rental property is a massive commitment of not only money, but time. You’re not buying some unseen stock option or a mostly worthless CD. A property is a physical structure with continual needs to maintain. Which means that it’s a long term commitment; and thus, one that you’re going to continually invest money in.

Fifth, and this is Seattle region specific, there’s a huge demand for your product. Thus, there’s a current massive appreciation in the value in the properties you either sell or rent out. While you won’t, in any way shape or form, get rich overnight, this does open up an avenue for revenue that may one day surpass and eclipse your current income.  The trend for this particular region is for continual annual growth for the foreseeable future. For example, due to escalating housing prices, renting in King County is on the rise – close to 40%.

Sixth is that it is an excellent hedge against inflation. With the cost of living on the steady climb, everything from a gallon of milk (or a gallon of gas) is consistently rising. With this is the escalation of rent and property values. But, if you have a fixed-rate mortgage payment, you’re locked into that amount. Which means the value continues to rise while your mortgage payment stays at the same rate (until you refinance, of course).

The last one is that, let’s be honest, unlike many of your other investment options, this is one that you actually have control over. You are in control over what neighborhoods you buy property in. You are in control (for the most part) who you sell and rent to. You are in control that, if rates fluctuate too much, you can sell (or invest further). There’s nothing stopping or penalizing you if you change your mind and back out.

In the end, the choice is yours.

Should You Invest in Seattle Real Estate? (Part 1)

Should you invest in real estate? Even with the housing market beginning to once again heat up, there’s still minimal guarantee that you will succeed in this venture. But, if you’re going to take the dive and invest in the Seattle housing market, now is the time to do it.

So, to answer the question posed, the answer is “yes”. And here’s why:

The Seattle housing market, as previously discussed, is exploding right now. To the point where, if it is a bubble, it’s a growing one and not one looking to pop at any time in the foreseeable future. The economy in the Western Washington region is booming. This, in part, is because the Seattle area is home to at least eight Fortune 500 companies (Costco, Amazon, Microsoft, Starbucks, etc.). But, even further still, it’s become an incubator to hundreds of start-up tech companies. Companies that are both hiring like mad and pay high salaries to their employees. Employees, who are either new to the area or suddenly have the income to afford a home of their own.  In response, houses and apartments that once fetched a lower price or were sitting on the market for a while are now being snatched up for an exponentially higher amount that they would have ever gotten in the past.

Couple that with an inventory that was once stagnant is now suddenly high in demand. Houses literally cannot be built fast enough to keep up with the demand.  Houses that were dormant not fives year prior are mostly getting fetched for an extra zero in valuation. Neighborhoods that were once neglected are now becoming overcrowded.

“’There are a combination of factors driving inventory in Seattle to unhealthy lows,’ said Sam DeBord, managing broker with Coldwell Banker Danforth. ‘New tech workers moving to our area are great for the economy, but we haven’t built adequate housing stock to support them. The newest transplants drive up rent prices in the most convenient locations, while those who’ve been here for a couple of years are now putting down roots and buying homes. There just aren’t enough available to meet the demand.’” (https://www.geekwire.com/2016/seattle-region-housing-prices/)

So, in turn, the question goes from “should I invest in the housing market” to “how exactly do I take advantage of this”. The first thing that you need to do is to do your research. Even something that feels like a sure thing can quickly de-escalate to possible ruin if you fail to do enough research on the property that you’re about to purchase (as well as the surrounding neighborhood). Selling trends, nearby schools, crime levels over the past decade, etc. Nothing should be overlooked in a potential property. Once you have achieved that, make sure that you have an adequate surplus in disposable time and income. Both will more than evaporate by the end of even the first property that you complete and sell. The third most important thing is to build up your network. The real estate industry is a tight knit one and the more connections you have, the better success you will eventually have. After all, even the seasoned professionals reach out to one another from time to time. There’s no reason why a novice should fail to do this.

What should not be overlooked is to treat this as a business. The fastest way to failure is to treat it as a hobby or to underestimate it and you now have a recipe for disaster. Keep track of your expenses may go without saying, but it is something that does go overlooked. It’s also the first sign if you’re going to start turning a profit or if you should get out before you start losing too much money.   Remember, if it doesn’t make financial sense, don’t go with it. Especially after you’ve already researched and analyzed a property and things aren’t adding up the way they should.

Sadly, one thing that does need to be mentioned, is that you should keep the business ethical, as well. Reputation will become your biggest asset in the real estate industry. Think about it: slum lords are self created. Their reputation is one that they have developed, all on their own. Keeping your business both ethical and fair is the surest way to avoid this.

The final and most important point is that real estate is a long term game. If you go into it looking to make a quick buck, you’re going to be one of the countless failures who thought that they could become rich by cutting corners and expenses. Should you dip your toes into the real estate arena, go into it fully prepared for the long haul. Keep your head straight and be prepared to ride the waves.

Real Estate 2.0 (Part 2)

We are now in the midst of the 21st century. Our phones are both wireless and have more computing power than that of a laptop not five years ago. Our cars now have backup cameras, some have WiFi, and it won’t be long before they can not only park themselves, but also drive themselves. People now have access to the internet through a variety of different methods than ever before. Twenty-four hours a day, seven days a week, 365 days a year.

So, why should the real estate industry remain in the 20th century?

The first and most important thing you can have for your agency is a solid website. There are so many different web creation tools and sites out there nowadays that having a mediocre webpage is simply inexcusable. For example, Wix (https://www.wix.com) is an extremely useful website that helps you build a site from scratch. There’s a ton of different templates to build off of. You can add photos (for the properties that you have), maps (for the properties that you currently have available), blog entries, etc. If you can think of it, you can probably do it on Wix. Plus, it lets you preview it in multiple settings, such as mobile – so you can see what it would look like on a phone.  And the best part is is that it’s free.

Another go-to would be WordPress (https://wordpress.com) – if you’re looking for more of a blog format (as opposed to the standard webpage format). Again, it’s free and relatively easy to use. Just like Wix, you can create your own custom URL and see what it would look like in different formats. And, since it’s been around for years, if you get stuck on something, you can probably easily find the answer online.

A great guide to help you with all of this is https://www.inman.com/2016/02/03/the-insiders-guide-to-local-seo-for-real-estate-professionals/ Quite useful.

After you’ve spent some time building your website (providing, that is, that you haven’t already done that) is to move on to social media and building your presence there. Just as with the many options of creating a webpage, you have multiple options on getting your name out there and building your business. The first place in this day and age to do it is Facebook. Thankfully, it’s rather easy to do – as it walks you through it.  The effect of this is two fold. The first is that it makes it easier to find your business in a search engine search; and the second is that it allows for a whole new venue of potential clientele to find your business and, hopefully, buy some property from you. As the mantra goes: location, location, location. And in this day and age, you can’t get much better than Facebook. Especially since it allows you to promote your business (for a price, of course) and generate some advertising.

Twitter, believe it or not, should be your second stop on social networks to use. While, yes, you are significantly more limited in what you can put on there (due to the space and character limitations of the site), it allows for a faster form of promotion. A great example of this is just how many news anchors, athletes, etc. who use Twitter to promote themselves (think of them as a human business). In 140 characters or less, they can pump out a hook that will inform and attract the thousands of followers that they have. And, in the description portion, you can put in your website – drumming up traffic there.

Instagram, again, believe it or not, should also be a tool that you use to promote your business. Think about it, real estate is an extremely visual business; and Instagram allows you to share photos of your properties to your followers. Not just on there, but you can click a button and share the photos to both Twitter and Facebook. Thus building up a digital portfolio of your properties and attracting new home buyers. And, as with Twitter, in the description field, you can put in your website.

Once you have created your various social network profiles, it would be wise to put the links on to your website – essentially creating an infinity loop of business. Also, that way, you don’t have to constantly update both your page and your social networks every day. Let the tech do the hard work for you.

Which brings us back to search engine optimization (SEO). Just by doing these (not so) little things, you create a dramatic presence on the various search engines out there. Thus, attracting possible potential property owners to you.

A final thought: LinkedIn, while great for establishing professional connections, unless you’re planning on doing commercial real estate, it really wouldn’t do your business much good to have a presence there.

Real Estate 2.0 (Part 1)

We are now in the midst of the 21st century. Our phones are both wireless and have more computing power than that of a laptop not five years ago. Our cars now have backup cameras, some have WiFi, and it won’t be long before they can not only park themselves, but also drive themselves. People now have access to the internet through a variety of different methods than ever before. Twenty-four hours a day, seven days a week, 365 days a year.

So, why should the real estate industry remain in the 20th century?

For example, Mike Cameron – the managing broker over at Winchester Real Estate Sales, estimates that 80% of their new customers comes from the internet (http://www.huffingtonpost.com/connor-ondriska/how-realtors-can-break-in_b_10215782.html). Eighty percent. With websites such as http://www.zillow.com and http://www.redfin.com/ finding a new home online has become second nature to today’s home buyers. Not to mention that it was common practice to find a place to rent (from websites such as http://www.apartments.com and http://www.forrent.com respectively) a home before it became common to buy one. In fact, it’s become common to even use Craigslist to find a future dwelling.

So, the question goes from “why should my real estate company be online” to “how can I attract the most amount of potential clients”. The answer, as with the rest of life, is not a quick or easy one.

The first crucial key is to make your website equally attractive to an individual who is house-hunting and easy to use, as well. Not to mention that you want it to look as beautiful and professional as possible. It takes but a second to spot a shabby made page and with all the digital tools at our disposal nowadays, having a crappy looking page is simply inexcusable.

For instance, if you were look at your website, how quickly could a client be able to find contact information? Does it catch the eye and how browse-able is it? Do you have a listing of properties that are available; as well as ones that have already been sold? Can the average person see the value and features of a home at a glance? Even something as simple as how many listings do you have for potential clients? Would you use your website to find a home?

The second crucial key is how easy is it to find your webpage in the first place. Have a solid search engine presence can be life or death to your page – and, ultimately, your business. No one will look for your business if it’s on the third page of a Google search. People do not have and certainly do not have the patience to track down a business online. These days, even a small business that is starting out will invest in a high quality SEO (search engine optimizer) to ensure that they won’t lose business.

Think about it: the key to successful real estate is location, location, location. Why should online be any different? How quickly can you find your business when you use Google?

The third crucial key is how mobile friendly is your website. This day and age, people are on their phones now more than ever. Our cells are our digital leashes that we keep firmly attached. Which raises a whole new batch of questions: Do you have an app? Do you have addresses or maps of property that you have for sale? How many photos of your available estates do you have – and can they be viewed well on a smaller screen? If you do have images, if you click on them to enlarge, do they remain crisp or become pixelated due to lower quality of the photo? Can you find and pull up relevant data, such as value and size easily? How quickly and easily can someone share the page (to Facebook, for example)?

Which goes into the next concern and crucial key: How social is your company? Do you just have a Facebook page or do you go across multiple platforms – such as Twitter and Google+? Do you even have a Facebook page to begin with? If you do, how often do you update it and respond to possible clients on there? Remember, not only does have a business account on Facebook (and Twitter, and…) make it easier to find on search engines; it also opens up completely new avenues for new clientele that wouldn’t have found you beforehand.

The fifth and final key is an age old one: advertising. How are you currently getting your name out there? Are you sticking with print – which is all but dead? Or have you expanded to television and internet advertising? If you have a Facebook page, how much do you advertise there?

I’ll go into key tips and tricks next that will help you with all of this.

 

 

The Ascension of the Seattle Housing Market (Part 4)

We’ve come a long way from the “Will the last person leaving Seattle –Turn out the lights” era of the 1970s. From 2012 to 2013, the population of Seattle grew by 2.8. Fast forward to 2016, just four short years later, and the population growth rate shot up to 12.3%. With the sudden explosion in population comes an equally swift ascension of house prices. The demand is rapidly exceeding supply and those in the real estate industry are riding the cash wave. Let’s take a look at how this happened.

The backbone of commerce is the ratio of supply and demand. The greater the demand, the greater need for supply. As we have covered in the previous segments, the demand for new homes within the Seattle-Tacoma-Bellevue metro area has been in an almost consistent up-climb since 2011. The best visual representation of this would be: https://tradingeconomics.com/united-states/existing-home-sales To put it in a different way, the projected forecast for home sales in the United States for just July of 2017 is 5641.63%.  Business is booming. So let’s take a look at what exactly that means.

According to Realtor.com: http://news.move.com/2016-10-19-Realtor-com-Consumer-Survey-Reveals-First-Look-into-2017-Home-Buying-Season?_ga=2.133118983.829044803.1499209378-5911516.1499209378  2017 home buying season will be characterized by a large increase in first time home buyers and there will be a high demand for suburban homes. In fact, first time home buyers could make up more than half of 2017’s home buying population. The even more interesting thing about this is that Millennials (as well as Baby Boomers) will most likely be the ones to dominate the market. Which is fantastic news, considering that Millennials have been notoriously skittish about home buying and have been blamed in the past about the low percentage of that age group’s lack of desire to buy a home.

According to another article on Realtor.com http://research.realtor.com/2017-national-housing-forecast/ there’s (in the top 100 metropolitan areas in the United States) an 11% decrease in inventory. Meaning that, while there’s less homes available on the market, the market for them is heating up. Furthermore, the major cities on the West Coast are looking to see a 5.8% price increase and a sales increase of 4.7% – which is going to be much higher than the U.S. overall. These particular markets are dominating the ranking on Realtor.com’s top housing markets.

In fact, Washington and Oregon alone make up 12 of the top 25 markets in the country right now.

So, what does all this mean for those living in the Seattle-Tacoma metropolitan area? As stated before, business is booming for the real estate industry. The top market, still, in the nation is this particular region. According to the VeroFORECAST (http://www.veros.com/news/2017/04/veroforecast-shows-2017-housing-market-maintain-overall-strength-seattle-and-denver-continuing-lead/), 2017 is seeing a 10.7% rise in home price appreciation due to three factors: population growth, low unemployment, and low inventory. In June of last year, home values in the Seattle area rose to a new all-time high. The median home price in the Seattle area soared to a whopping $385,500 (http://www.homebuyinginstitute.com/news/seattle-market-leading-the-pack-736/). According to the article, “The Seattle market remains strong with a supply of homes at barely over 1.0 month, continued population growth, and unemployment at only 4.2% compared to the national rate of 4.8%.” Even with all the new home construction happening right now, it’s still not nearly enough to keep up with the demand.  And, as stated before, a majority of those who are buying homes right now are those in the young, tech industry bracket. Individuals who are suddenly flush with both cash and a good career. They’re also the category of individuals who are looking to settle down in the near future and are looking for a home to accommodate this.

So, what does it mean in the future? There’s a possibility that there might be a cooling effect soon if builders cannot keep up with the pace. Even with the amount of preexisting homes that are on the market now, it’s still relatively a static number – compared to the amount of residents coming in. Not to mention the quickly escalating gap in income brackets (between those in the tech industry and those who are not). While Amazon might be a huge resurgent in both population and income growth; there is the possibility that there might be a counter-movement of people leaving due the fact that they simply no longer can afford to live there any more.

The next 3-5 years are going to be an interesting period in Seattle history. And only time will tell if the Seattle-Tacoma region will be able to keep up with the demand that it is seeing.

The Ascension of the Seattle Housing Market (Part 3)

We’ve come a long way from the “Will the last person leaving Seattle –Turn out the lights” era of the 1970s. From 2012 to 2013, the population of Seattle grew by 2.8. Fast forward to 2016, just four short years later, and the population growth rate shot up to 12.3%. With the sudden explosion in population comes an equally swift ascension of house prices. The demand is rapidly exceeding supply and those in the real estate industry are riding the cash wave. Let’s take a look at how this happened.

The latest study by the United States Bureau of Labor Statistics that reports the Consumer Price Index (https://www.bls.gov/regions/west/news-release/ConsumerPriceIndex_Seattle.htm) shows an almost steady climb in prices since April 2015. 2017 alone has shown to be the largest increase in five years. Just in the past two months alone, area prices are up 0.8% and are up 3.1% over a year ago. Also, the metropolis is still on track to becoming (once again) the fastest growing city in America. Meaning that the median price for renting or owning in the Seattle area is in no way going to slow in increase any time within the foreseeable future.

So, what option does an individual who doesn’t make a six figure income have? Move, plain and simple. According to RentJungle (https://www.rentjungle.com/average-rent-in-tacoma-rent-trends/), as of this month, the average apartment rent within the city of Tacoma is $1,342. The average increase in rent over the past six months has only been $94 (or 8.3%) for a one bedroom apartment or an increase of $40 (or 3.1%) for a two bedroom apartment. While, yes, it is the highest it’s ever been – it’s still a fraction of a price compared to it’s colossal neighbor to the north. And owning a home in Pierce County (where Tacoma lies) is even more affordable than that of King County (http://www.thenewstribune.com/news/business/real-estate-news/article75717532.html). For example, in 2013 the median price for a home in Pierce County rose to $212,500. By comparison, in King County in 2013 the median price for a home was $364,875 (http://www.thenewstribune.com/news/business/real-estate-news/article25864840.html). While both home prices have risen in the four years since, it is still far more expensive to live in King County as opposed to Pierce.

Attracted by the lower cost of living and more reasonable housing options, there has begun a slight exodus south. 2016 saw the population of four central Puget Sound counties (Pierce, King, Kitsap, and Snohomish) grow by 86,000.  Ten cities absorbed two thirds of that growth. For example, by the end of 2016, the city of Gig Harbor had a six percent increase in population. Tacoma attracted the most amount of new residences in Pierce County – gaining 3,800 new people. The current population of Tacoma is hovering at just below 200,000 residents.

However, with this, the number of people moving to the region also has eclipsed the number of housing units being built every year. The pinch for new places to live is starting to be felt region wide. By 2019, about 4,500 new apartment units will be created in Pierce County. That sets a record for the past 25 years (http://q13fox.com/2017/05/11/tacoma-transforming-into-a-vibrant-city-try-to-grow-with/). Already, approximately 135,000 Pierce County residents work outside the county; and that number is set to grow as more people choose to continue to work in Seattle – but move further away so they can afford the cost of living. The issue with this is that, according to https://www.census.gov/construction/bps/txt/tb3u2016.txt  as of 2016, there were only 25,489 new privately owned housing units permitted for construction for the Seattle-Tacoma-Bellevue region. Which sounds like a lot, but the question lies in whether it will be enough for the flood of new residents who are coming here for the booming economy wealth of tech jobs.

The good news with all of this population growth and subsequent housing construction, is that there is a projected 2.2% growth (or 6,800) in jobs in Pierce County. With that will be 3.1% increase in per capita income.  For real estate agents, new listings in house activity were up 8% in 2016 as well as closed sales were up 10.5%. In the next and final part of this series, I’ll go into how all the growth in the real estate is effecting homeowners and real estate agents.