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.

 

 

The Ascension of the Seattle Housing Market (Part 2)

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.

Back in January of 2016, CNBC had an article on the housing crisis that was beginning to grip the nation (http://www.cnbc.com/2016/01/13/the-new-housing-crisis-that-will-sink-american-middle-class.html). In the intro, it was explained that, in Seattle at least, tech jobs had jumped 21% and housing prices rose 12%. The problem with that is most people outside of the tech industry (which makes up the vast majority of King County and surrounding counties’ populations) were starting to feel the pinch. Only a third of Seattle home buyers outside of the tech industry were confident that they  would be able to afford to live there within the next decade. The same trend was starting to occur in other cities throughout the United States. Cities such as Austin and Dallas, where the tech boom was also occurring; as well as Seattle’s southern step-city: Portland. The biggest cause to the rapidly expanding chasm between income and cost of living was the sudden and drastic housing requirements that developers rush to meet and bridge the gap between supply and demand.

If you go back slightly further, back in 2007, Amazon began its consolidation of operations to the South Lake Union neighborhood of Seattle. The plan, which would take several years to accomplish, was to take its nearly 5,000 (at that time) employees and put them in one centralized location. Since then, Amazon has been on a massive hiring surge – hiring thousands of permanent employees every year and expediently even higher temporary numbers around the holiday season; just to meet demand. Business, you could say, is booming.

By comparison, the two other giants – Boeing and Microsoft, never experienced this kind of massive employment surge. Boeing experienced a hiring boom during World War II and then gradually increased its numbers throughout the decades. This was counterbalanced through countless union strikes and major layoffs that occurred during this time. Microsoft had a similar growth pattern; where there were large hiring periods – but they were stretched out and never to the same level as what Amazon has been doing. Even Starbucks, with it’s rapid growth since its inception,  was completely spread out geography wise in its demand for employees. There was no imminent need of massive amounts of new employees in a centralized location. Other than a scant few other times throughout Seattle history (the Klondike Gold Rush, for example) there really hasn’t been that much of a flood of new residents.

Fast forward to 2015. Amazon is now over 200,000 regular employees and still rapidly expanding. 106 new building projects began construction. Cranes started clogging the skyline overnight. The apartment market was on track to see 3,487 units built and opened in just 2015. It was the highest number of units delivered in a year since tracking began in 2005.

Just to give you a better idea of what I’m talking about, for the 40 years (prior to 2008), ground was broken on an average of nearly 1.6 million housing units per year. Starts over the past seven years averaged 788,000; even in 2015, a boom year, starts were only 1.1 million. However, now there were four times as many office spaces under construction as compared to two years prior (2013). With the flush of new business and the need for new workers, the cost of housing also shot up. With all the new construction, developers had the opportunity to recoup their costs and make previously unimaginable profit. Which led preexisting landlords to also raise their rates to keep up with the demand.  Occupancies began to evaporate at a much more accelerated pace than anyone had anticipated.

The Amazon Boom was in full force. Tech jobs were outpouring in need and popularity. The price for everything from a gallon of milk to a studio apartment shot through the roof. And those caught in the crossfire and hastily being left in the dust were people who didn’t work for a dot com. And thus began the trickle that became a stream of people leaving the Seattle city limits in search of affordable places to live.

The Ascension of the Seattle Housing Market (Part 1)

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.

For the longest time, the largest employer in the Seattle was the Boeing company. With it’s constant fluctuation of layoffs and hiring bursts, there wasn’t much variation in the expansion in the population base. When it did happen, it was in the suburbs and bedroom communities that constantly fed the two giants (Microsoft being the other) its needs for workers. Neither company had explosive hiring bursts, either.

Enter Amazon. Back in 2010, Amazon consolidated its massive operation to the South Lake Union area of Seattle. With that came a colossal hiring spree of thousands of new employees. Something that has continued to this day. On average, Seattle has gained 14,511 people per year, according to census data. There’s been variations, of course, not not much dip from that. With this, neighborhoods that once saw modicum of growth were quickly overrun with new residents. This brought about about the new Seattle housing boom. Cranes burst into the skyline almost overnight as developers scrambled to meet the demand for new places to live. For example, the number of buildings under construction in 2016 was 65. That’s a full 16 buildings more than just the previous year.

With this, the cost of preexisting homes also skyrocketed.  As of May 2015, the average rent for a one bedroom apartment in Seattle was just over $1,500 a month. Which was an 11% increase over the previous year. Compare that to today where it’s in the neighborhood of $2,000 a month. Sometimes higher – depending on the place and where it’s located. In fact, Seattlites are, on average, paying at least a third of their salary in just housing along. With rent prices that are basically equivalent to what you would pay for a mortgage (minus the equity you would get from actually owning a home), droves of people are looking outside the city limits for affordable housing.

The two main schools of thought (outside of relocating to Portland – which is also on the rise) is either move north to the Everett area – or further, or south to the Tacoma area. The Eastside, which did see an initial bump in the early 2000’s with the Dot Com Boom and again in the mid 2010’s with a growing number of startups popping up in the Kirkland area; is largely ignored and considered to be too expensive. While wages due to the surge in jobs has increase somewhat, it hasn’t been nearly enough to accommodate drastic escalation in prices. In contrast, you can rent an apartment in Tacoma for less than a thousand and even buy a house in that are for comparable and pay about the same in a mortgage as you would to rent a one bedroom in Seattle.

Essentially this, it is now no longer financial feasible to live in Seattle and still make ends meet.  Even with the escalating minimum wage increase to $15 an hour, the average person would still have to make a 46.15% increase (to $45,597.50) in annual income just to meet the standard of living there. For a snapshot comparison, just a short distance away in Tacoma, the average person would  only have to make a 9.38% increase (to $34,125.00) in annual income just to meet the standard of living there.

In the next few posts, I’ll break down just how we got to this place and what options future home owners actually have.

 

The Flip (Part 2)

Fixer Upper. Flip or Flop. Love It or List It. Property Brothers. Television today is inundated with shows where a property company comes in, buys houses in disrepair, restores them to better than new, and then provide them to new homeowners who (hopefully) fall in love with the re-creations. 

So, what exactly does it take to flip a house? What steps can you take to make sure that you don’t sink head first into an unforeseen money pit? How can you successfully tread the tightrope between prosperity and possible bankruptcy?

The first and most important step is to have a plan. I’m not talking about a vague idea that you might have gotten while watching HGTV. It needs to be both iron clad with enough wiggle room to factor in things that you would never expect to happen. Having a vision of the perfect house is one thing and the possible chaotic and even catastrophic events that may occur between outset and conclusion is something else entirely.

So, how do you go about developing a plan? Research, of course, is essential, but where would you even begin to look for information on flipping houses? Thankfully the Internet multiple pages dedicated to the subject – but, as with any other topic, be wary of the source. There are thousands of scam sites out there waiting for someone to fall into their trap and steal their savings. An example of a reliable source would be: http://www.investopedia.com/articles/mortgages-real-estate/08/house-flip.asp?lgl=myfinance-layout-no-ads The same goes to books that you would find at the library or magazine articles. It’s always a safe bet to try and verify information from three separate sources to ensure that it’s accurate and up to date. Remember, you’re going to be investing a large chunk of both your time and finances into this project. The more prep work you do in the beginning, the less headache you will have later on.

Once you have a plan, the second most important step is to budget. Yes, I’m referring to a financial budget, but also a time budget. How much work do you want done on the property you’re about to renovate? Are you starting from scratch or are you just doing some updating and cosmetic improvements? How much work needs to be done to make it not only up to code, but also livable? Have you budgeted for unforeseen problems that are most likely going to pop during the project? What about after the fact, when all the work has been done and the house is on the market – how much time are you planning on letting it sit there waiting to be sold?

Third is having a lay of the land. Meaning, how well do you know the area around the property that you will be working with. Was it once a prosperous neighborhood, but it’s been showing signs of becoming rougher? On the flip-side, is it a neighborhood that has the potential to surge in both popularity and value within the next five years?   Will the crime rate and surrounding school districts impact on the value of the home in a positive or negative way? Having an estimator is a solid tool to have in your arena. Sites such a http://www.zillow.com with the fantastic Zestimator (which, if you haven’t used it, goes into everything from how many beds/baths it has and when it was built, to how much activity it’s had on Zillow, to the value and tax history of the property), http://www.redfin.com which gives you a snapshot of the value of the house and the last time it was sold (and for how much), http://www.homesnap.com which is very mobile friendly with its app, and https://www.neighborhoodscout.com/ which, at a glance, tells you property values, demographics, crime statistics, schools, and trends and forecasts. All of these are going to make you’re life significantly easier in the planning stages.

The fourth most important necessity would be a team of professionals to help you with everything from the demolition and reconstruction of the house; as well as the surrounding landscape and property. Again, research is vital in this process. It never hurts to check the BBB and other resources before agreeing to go into a project of this magnitude. Ask yourself if you would trust them to work on your house; and if there is any doubt, then continue the search for someone else. An amazing team will shave days, possibly weeks, off the projected timeline; and save you thousands of dollars. A bad team will decimate your project and deplete your funds.

The fifth and most vital tool is having ample patience. I cannot stress this enough. Trying to rush a project and/or cut corners is the fastest way to ensure disaster and self-sabotage. Without ample time, money, and patience, you will fail.

 

The Flip (Part 1)

Fixer Upper. Flip or Flop. Love It or List It. Property Brothers. Television today is inundated with shows where a property company comes in, buys houses in disrepair, restores them to better than new, and then provide them to new homeowners who (hopefully) fall in love with the re-creations.

This trend of buying houses, restoring and updating them, and then ultimately flipping them started heating up in the first decade of the 2000’s. When the dot-com bubble burst, Americans were looking for a different way to invest their funds and, in theory, reap the rewards. The two biggest unforeseen obstacles were the crashing of the housing market due to the massive collapse of the sub prime loan industry and all the effort it takes to truly flip a house. Vast amounts of people were caught completely off guard and suffered the consequences.

While television makes the transition from a dilapidated dwelling to an immaculate manor seem effortless, the fact of the matter couldn’t be further from the truth. As with any major project, the investment of both time and money is extensive. Not to mention the uncountable amount of setbacks you will experience on the road to completion. Television does not show the sheer amount of blood, sweat, and actual tears that goes into the restoration in a property. With each delay, with each obstacle, there is a continual drain of both time and finances.

To put it into perspective, let’s look at how much a project like this would truly cost. First you start with the acquisition of the property. Which means that you’re most likely going to need a realtor. The beginning range for the acquisition is easily in the tens of thousands. The next step is the demolition of the interior and parts of the exterior. Even the most well kept house is still going to need some form of renovation, updating, and personal touches. You could try and do it on your own; but honestly the less expensive option would be to hire a company (who has far more experience renovating homes than the average Joe). The good news is that you have multiple options (https://porch.com/ http://www.houzz.com http://www.homeadvisor.com for a few examples) where you can choose a professional home contractor – especially since sites like these have vetted their pros and there’s examples of their work for you to view. Once you’ve hired a crew, you’re going to have to factor in the length of the project. Bare minimum (depending on how much work needs to be done, of course), is going to be around two to four weeks. Possibly even eight weeks, if it’s an extensive renovation. If your lucky, you’ll find a crew that does landscaping as well a home renovation. This will save on your overall budget; but may lengthen the time of the overall project.

So, now that the project is over and you now have a house that is better than new, you now have to sell the property. The smart bet would be to keep the initial realtor that you bought the property through. Depending on what you had done, the value of the home could have skyrocketed and you’ll be able to sell it for a nice profit. However, there’s also the option of renting the property and keeping it as a continual profit. The issue with that is that you won’t have an immediate enough lump sum if you decide you want to move on and start the process over again. Not to mention all the new responsibilities you would now have as a landlord. The benefit, however, is that you may be able to fill the occupancy much sooner if you rent as opposed to full out sell. A good realtor will be able to unload it in a matter of weeks. A bad one and it sits on the market for months.

House flipping is hardly a get-rich-quick opportunity and honestly should be left to the professionals. While the market has improved significantly since the crash of ten years ago, there’s no absolute guarantee that a property that you’ve invested over a month’s worth of work and thousands upon thousands of dollars will be sold within a short time frame. So many circumstances must be considered before you even begin the process; and it’s often the things that you never thought of that will hinder you the most. It’s best to take the safe route with the professionals and reap the rewards of their hard labor.