By The Tim on June 22, 2008
Please vote in this poll using the sidebar.
Do you personally know someone that has bought Seattle-area real estate as an "investment"?
- Yes (77%, 132 Votes)
- No (23%, 40 Votes)
Total Voters: 172
This poll will be active and displayed on the sidebar through 06.28.2008.
Posted in Polls | Tagged Polls
Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.
AN INVESTMENT TO FLIP OR FLOP?
I own two duplexes that not only pay their mortgages, but also cover the mortgage of the house I live in. So there is money to be made in real estate. I don’t plan on selling for at least twenty years.
A friend bought too late, currently $100,000+ upside down, rented because it wouldn’t sell, rent falls $1500/month short of covering his costs. I guess this would be coinsidered a “flop.”
That would be called a dumb ass.
I did not vote in the poll because of the “Seattle area” qualification, But I know a couple of co-workers who were real estate “investors” in Kitsap, Jefferson,and Clallam Counties. They are both out of the game now, with the last one out saying that he just broke even with his build-a-new-house-for-profit speculation in Sequim. .
Oh, yeah. In 2005-7, many of those were schooling me in the finer points of real estate investment (buy high, sell higher), and telling me how I might “win the lottery” and be able to buy a little slice of Heaven over here in Kitsap.
They don’t talk real estate anymore. My tongue has a hole in it from all the times I’ve had to bite it to keep my yap shut.
Anyway…I took E-jr to Blake Island over the weekend and we stopped by Blakely Rock for a little marine biology lesson, when two 30-something kayakers showed up. We got to chatting and I found out that they are Bainbridge Island renters that sold their home in Ballard in 2007.
WOW! I found someone that isn’t in “the cult” of Bainbridge Isl. real estate. It felt like I was shot down behind enemy lines and hooked up with allied soldiers. SWEET!
We talked about how overpriced everything is and how destructive the finances are to make ownership seem to work. I touched on my “20c” thesis and they seemed to agree, in principal.
Wierd…what are the odds of finding two 30-somethings that sold in Ballard and moved to Bainbridge to become filthy, dirty renters?
We are not alone.
We also toured a $2.85M (list price) “Open House” right after the kayak ride from Blake Island. Nice agent, but how bad does it have to be for a $2.85M house with 120′ of low-bank beachfront and an unobstructed 180deg view of Seattle to hold an “Open House?”
Homes in that price range don’t do “open house.”
There were also more “open house” signs than “Obama ‘08″ signs, or sightings of Toyota Priuses. For whacko-Left Bainbridge, that’s not an inconsequential observation.
Yes, and they are all upside down.
Boo hoo.
mikal, when did you buy your duplexes? getting lucky and investing smart is not one of the same.
I thought everybody bought as an investement. :)
The vote button didn’t work.
Most of my clients and I are Real Estate investors. There is a lot of speculation on this site about who investors are. The pepper seems to be the model you all relate to.
Real Estate is a long term investment measured by years. I don’t do that. The vast majority of investors build portfolios to pay down the principle balance to cash flow the properties.
There is a saying that you only sell so you can buy something better. Leveraging into other properties is for those times of appreciation. Most people here only look at today’s market place. The reality is that Real Estate has a straight line of appreciation tied to the Consumer Price Index. It’s like buying bonds.
People who call an investor lucky for holding on to property for extended periods are so wrong. It takes a committment, sacrifice, and balls. You give up those family trips, or new car, to keep your place afloat. My favorite investor lived in a basement for so long it seems normal to him. You eat a lot of rice and beans for the future return of a secure retirement.
If you think your pension, social security, or stock portfolio can out perform five good living units, four for rent, and one to live in, you need to rework your numbers.
David,
I’m reasonably sure that those who bought property around Tokyo in the late eighties wouldn’t share your sanguine view.
As they say, past performance in no guarantee of future results or, if you prefer, your milage may vary.
Oh, boy. I sense a great epiphany in your future.
And the epiphany is that some of you are bitter unhappy assholes.
Sauce for goose is not necessarily sauce for the gander.
That being said, David if you purchased your 5 properties around 2000, I am sure you are doing quite well. Now, the real question is, do you have the – I quote in your own words “committment, sacrifice, and balls” to invest that additional paper equity into 3 more properties now at today’s insane prices around Seattle?
Hey Tim,
You should check out this link:
http://www.jchs.harvard.edu/publications/markets/son2007/metro_affordability_index_2007.xls
It was posted on CR and details a very relevant statistic for various metro areas: Median home price to median income. (Notice how seattle really took off from 2003 onwards and this spreadsheet doesn’t even cover our 2007 peak, it only has data until 2006).
Just signed up for another year on my rental in “downtown” Redmond. No rent increase this year.
Actually, I couldn’t be happier.
*shrug*
I guess I’d write comments like this if I was watching my “wealth” evaporate. But I’m just a loser renter.
I live for free and am not selling ever as far as I can see. I’m not bitter at all to live for free. The market would have to drop 60% for me to start wondering about being underwater, but that would take another 10% drop.
Sure, whatever. But your paper net worth is dropping every day as the “equity” you hold in each of these homes deteriorates. That can’t be a good feeling.
I live in Greenwood. That would be one of the places that hasn’t lost any value. It feels really good.
Anyone who thinks they are living “for free” doesn’t understand opportunity costs and relative returns. And there’s this other thing called deflation that won’t be understood by many until it’s too late. Get ready for interesting times.
It’s only lost opportunity if I put a lot of money into it. I haven’t. I don’t plan on selling for at least twenty years. I don’t see defation of that length of time. Solyent green is PEOPLE, It’s PEOPLE.
I quote in your own words “committment, sacrifice, and balls” to invest that additional paper equity into 3 more properties now at today’s insane prices around Seattle?
How do you mean insane prices? I don’t hold long term. If I did yes there are many properties that I have looked at that are good properties very reasonably priced.
In the long term it’s about cash flow. It’s about paying the property off. It’s about hard dollars going in for a return in the future.
As you buy it’s about rental income. How are you going wrong with that? Are rents going down? Have rents really gone down that much in the past year? I’ve heard some landlords say they are raising rents because people can’t buy.
So even if you bought at the top of the market in 2007 with rental in mind that’s how you structured your offer.
Today, hell yes, there are good properties for sale. I’ve heard some people are paying $2200 to $2400 to rent a house. How insane is that?
That is completely insane. Renting anything for more than $1500 a month is nuts. Live a little more frugally and invest that money in ANYTHING.
mikal -
Do you use a property manager, or are you the direct landlord? If you are not using a property manager, then you certainly are not living for free. For some people playing landlord for $x/month is worth it, for many others (myself included) they’d rather have one job and relax instead.
David,
What kind of numbers do you consider to be cash flowing? Do you have a quick formula that you use to do your initial evaluation, i.e. the 1% rule or some other such equation?
Owning Real Estate and being a land lord is a job. It’s a job I don’t enjoy.
In terms of cash flow there are present dollars and future dollars. Each person has thier own criteria. Most investors will take a negative cash flow if it can be off set by other circumstance. Some people create additional living areas in attics or basements, others rent rooms. Most improve a property to create added value while having tenents.
In all cases, if you plan on keeping the property for thirty years, they will cash flow over time. That fifteen hundred dollar rent used to be $750, not that long ago.
It’s a job and a business.
I’m my own landlord and spent maybe an hour on stuff last year. This year I had to do a paint, cleaning, and carpet replacement. That was the first time I had touched the unit in six years. I did the remodeling in all four units and did it right. All I will have to do for the next twenty years is paint and keep them rented. It is pretty easy. After the remodels, all were cash flow immediately.
I own some rentals in the midwest, and it’s obviously a different ballgame. I’m wondering if you can find many properties in the greater Seattle area right now that are cash flowing from day 1 – assuming 10-20% down. I’ll be moving home in 12-24 mo’s and will look to do some investing in the NW.
Mikal…perhaps each time you post about your properties “cash flowing”, you should also include the fact that you bought at the bottom of the last cycle during the 90’s.
When it was bought I was told by family that I overpaid and was nuts. 96 and 97