# Real Seattle Home Prices Rewound to March 2000

Wow, has it really been three months since I posted the national Case-Shiller losses map? I guess so! Sounds like it’s time for a refresh.

In the map below I’ve put the Case-Shiller home price index data from all twenty cities on a map. The size of each circle represents how far back prices have rewound (larger = further back), and the circles are color-coded by how much prices have fallen from their peak value. Float over a circle for the details about that city.

As an added bonus, here’s a simple plot of Seattle’s Case-Shiller HPI both as-published and adjusted for inflation (using Seattle’s CPI) from the beginning of the index in January 1990:

Real home prices for Seattle are roughly equal to where they were in March of 2000. Yipes.

On the plus side, I tried to make a switcher for the map above that would allow you to flip between real and nominal drops for all twenty cities, but there were too many cities that have fallen so far that their real home prices are well below where they were at the oldest point in the Case-Shiller data (January 1987 for some markets). At least Seattle wasn’t one of them!

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.

1. 1

Since most people are leveraged in real estate, the nominal figures would be more relevant to them. Assume you had someone buy a \$250,000 house in 2000 with 10% down. With the 30% gain it would now be worth about \$325,000, or \$296,000 after costs of sale. Assuming an interest only loan, they would have turned \$25,000 into \$71,000 in 11 years. Of course you need to back out rent vs. own calculations, but how many people realistically save/invest to gain \$50,000 over 11 years. Some, but not many.

The “real” figures would be more relevant to those who paid cash in 2000. They’ve only broken even (assuming their property is average), but they either were able to live in the property and/or rent it out for 11 years.

2. 2
Ray Pepper says:

Rick Santelli on CNBC this morning…” look….were gonna find out what your home is worth in the coming years but we are not near a bottom nor is there one in site…there is no amount of QE that will stop your home from falling in value so get over it……

“Love it when he gets all pumped up!I think EVERYONE is starting to get it FINALLY…They are all coming back but its just a matter of time through short sale, foreclosure, and deed-in-lieu. The masses will NOT continue to hold onto these upside down homes as the years pass .

a timeless classic: http://video.cnbc.com/gallery/?video=1039849853

3. 3

I’m Seeing the Same Price Tags I Paid in 1999 in My Neighborhood

I purposely bought low tier to “reduce my future losses” back then [and most people thought I was nuts]. Well, I paid off my principle 2 1/2 yrs ago and lost about \$40K to date buying a house [excluding paying out rent] in 1999. Who was nuts? Me or the ones that spent even more to lose to date?

4. 4

The \$40K Loss Was Interest Paid Minus Principle Pay Down From My Mortgage Payments

Before I paid the remaining principle off in one swoop payment in 2009.

5. 5

Call It Selfish Kary

There was a rosy result to the defaults and short sales cleaning out a a good percentage of my neighborhood the last several years…most of the vermin has moved out or were evicted.

6. 6
Ray Pepper says:

home prices back to 1999 and 2000!!…kinda funny that we find this so terrible and some think we are nearing a bottom.

In Nevada homes built in the late 1980’s that sold for 130k are now selling for 60-80k from a high of 270k if they even sell at all.

We are VERY VERY fortunate that we still have the ABILITY to even sell now and to be living here in the PNW!

7. 7

RE: softwarengineer @ 5 – Financial difficulties of a neighbor helped me in our old house.

Three to four years ago my thinking was that landlords owning SFR houses was bad for a neighborhood. That was before I saw what some owners did to their own property. To some extent there’s a financial limitation on what some owners can do, but some of the stuff I’ve seen has nothing to do with finances. Some people just live in incredible filth.

8. 8

RE: Ray Pepper @ 6

LOL Ray

Its like that old saying, “as bad as it is, its the best we got”….

9. 9
Cheap South says:

Help, please. Last check we were at early 2005 prices (and about 25% off peak). How did we end up at 2000 prices?

10. 10
Lurker says:

RE: Cheap South @ 9 -The Tim is talking real prices here, not nominal. Nominal is at 2004 prices. I was initially confused at first too :)

11. 11
Scotsman says:

RE: Cheap South @ 9

g = 32.174 ft/s2

http://www.engineeringtoolbox.com/accelaration-gravity-d_340.html

A house leaves Chicago traveling east at 60 mph, then falls off a cliff. . .

12. 12

RE: Lurker @ 10 -Is Nominal Another term for Unsellable?

LOL

Albeit, I’d add from my periscope….even the \$119K excellent condition double car garage rambler on a lot at 1999 prices had only one offer in the last 6 months….it was rejected by the banks [didn’t qualify]. I told the owner, good gosh, I paid \$118K in 1999 for a similar unit and thought he priced it to sell well….perhaps ole SWE is way too optimistic….LOL….or the bankers do exercises all day, shaking their heads “No”….

13. 13
The Tim says:

RE: Cheap South @ 9 – Real (inflation-adjusted) vs. Nominal (raw value). Usually I just talk about the nominal value since that’s what everyone else focuses on. I thought it would be interesting to take a look at the real value.

Note that the chart shows both real (rewound to March 2000) and nominal (rewound to June 2004).

14. 14

RE: Cheap South @ 9 – I assume you didn’t read my first post?

15. 15
HappyRenter says:
Since most people are leveraged in real estate, the nominal figures would be more relevant to them. Assume you had someone buy a \$250,000 house in 2000 with 10% down. With the 30% gain it would now be worth about \$325,000, or \$296,000 after costs of sale. Assuming an interest only loan, they would have turned \$25,000 into \$71,000 in 11 years.

What about interest rates? With a 7% 30-years fixed interest loan, after 11 years, you have paid over \$35,000 in interests to the bank.

16. 16
Cheap South says:

Duh! – Thank you all. I don’t recall real prices were discussed in the past; I was stuck in nominal.

17. 17
By Kary L. Krismer @ 1:
Since most people are leveraged in real estate, the nominal figures would be more relevant to them. Assume you had someone buy a \$250,000 house in 2000 with 10% down. With the 30% gain it would now be worth about \$325,000, or \$296,000 after costs of sale. Assuming an interest only loan, they would have turned \$25,000 into \$71,000 in 11 years.

What about interest rates? With a 7% 30-years fixed interest loan, after 11 years, you have paid over \$35,000 in interests to the bank.

For that you would have to read the next sentences which you didn’t chose to quote.

Of course you need to back out rent vs. own calculations, but how many people realistically save/invest to gain \$50,000 over 11 years. Some, but not many.

I would note that such calculations are much more complicated than looking just at interest paid and rent not paid.

18. 18

Yo Also Mentioned Rent Not Paid because You Bought In

So did I….during the bubble period the rents were/are very high in the Seattle area….so even my \$40K loss to date was small compared to alternately renting even a studio apartment in the Seattle area for 12 years.

IMO, real justification for rents to fall in this market too.

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Pegasus says:

RE: Kary L. Krismer @ 7 – “Financial difficulties of a neighbor helped me in our old house.”

I am assuming that is the neighbor from hell that you so often bring up? I am guessing with your personality type and a jerk for a neighbor you could have had your own reality show. Tell us more about this fiend that was a spoiling your hood.

20. 20

RE: Pegasus @ 19 – He was basically so messy that it would have been virtually impossible to sell while he was there. Even neighbors from across the street complained about the piles of garbage in his back yard. We waited until his property closed before even starting to look, which we found out about as soon as they started tearing down the 6′ fence he had built in his front yard to hide his mess. The fence took longer to build that it did to start falling apart! We started looking immediately upon learning the sale was final.

I feel sorry for the flipper that bought from him. He (and his workers) had to deal with many issues that no one should have to deal with. I didn’t even realize some of the things going on over there until after he left, and let’s just say some of them cannot be repeated at the dinner table (and wouldn’t be in good taste here either).

21. 21
Pegasus says:

RE: Kary L. Krismer @ 20 – So……did you ever confront him or try in other ways to get him to clean up?

22. 22

RE: Pegasus @ 21 – At times. I never did complain to him about the stuff in his back yard, even though I could see it better than anyone else in the neighborhood.

But talking to him did little good. I had to get the city (or Humane Society–I forget) after him just to get him to stop washing his dogs’ feces onto our driveway!

We actually got along reasonably well considering. It was mostly civil.

And I didn’t hate the guy or anything. When he started his remodel the trusses came and were the wrong slope. I actually felt really sorry for him, and was glad when the manufacturer admitted it was their mistake and rushed him some new ones.

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MichaelB says:

I believe this chart is based on CPI rather than wage inflation? Big difference as only wage inflation drives house prices and CPI has the opposite effect. Especially important in a global economy where all kinds of jobs can be outsourced and the USD is dropping in value rapidly.

24. 24
MichaelB says:

Only 40% more to go to get back to 1997 when the bubble began! That is, if there is no wage deflation.

25. 25
Pegasus says:

RE: Kary L. Krismer @ 20 – “I didn’t even realize some of the things going on over there until after he left, and let’s just say some of them cannot be repeated at the dinner table (and wouldn’t be in good taste here either).”

Were any goats or sheep involved?

26. 26

By Pegasus @ 25:

Were any goats or sheep involved?

Nope, all human.

27. 27
Pegasus says:
I believe this chart is based on CPI rather than wage inflation? Big difference as only wage inflation drives house prices and CPI has the opposite effect. Especially important in a global economy where all kinds of jobs can be outsourced and the USD is dropping in value rapidly.

Great point. Usually the two follow each other. This time…not so much. In fact not at all. Wages did not soar with the real estate bubble nor did they plummet much in the decline (thanks to the higher incomes getting boosted). I wonder if that is in real or nominal dollars?

28. 28
ARDELL says:

RE: Cheap South @ 16 -The bias is always to over-emphasizing the negative. So when numbers are from peak, there is no need to adjust the nominal. But when going back to a time when prices were lower in 2000, the adjustment is needed to create the bad news story that prices are not “really up” when they are factually up.Just the spin of it…pops up whenever the data is positive.

Same thing applies when prices are down 1/2% they are “plummeting” or “falling off a cliff” but when up the same amount it’s explained away by “seasonal adjustment”. Seasonal adjustment for Spring…but not Winter.You get used to it, kinda like watching Fox News instead of “real” news. Real news without spin is pretty much a thing of the
past.

29. 29

RE: ARDELL @ 28 – If you can’t cover it in three minutes, it’s not news–it’s weather. ;-)

30. 30

I bought my old house (sold 5/2008 for 484,000.00) on the edge of Maple Leaf neighborhood in 10/2000 for 237,000.00. It is no where near that price right now. I did fix it up a bit, but I don’t think the desirable Seattle neighborhoods are at 2000 prices yet. I could be wrong though. I’m wondering if it’s a decent time to consider finding a deal in Bellevue. I think the bottom is not in yet, but would love to find a great deal on a project and rent it out. Any thoughts?

31. 31
MichaelB says:

RE: Pegasus @ 27

The past is not necessarily a good predictor of the future. Having said that, assuming the bubble began in 1997 – the ratio of the average wage to median house price might be a good starting point to predict the end of the bubble. Then again, wages could go down in the future, there could be a glut of foreclosures on the market, accompanied by severe limitations on the availability of credit as well – this would have a devastating impact on real estate since most consumers still have huge debt loads. As prices drop, more home owners are underwater. Is a home that could be purchased in 1999 for \$300k really worth \$450k today? Not so sure, as wages have not increased that much.

When you think about a business model like Redfin – it is really moving real estate transactions into the Internet / cloud. Cloud computing is the equivalent of renting computing space. Renting a home may be soon known as “living in the cloud” with all of the flexibility and freedom. Don’t like pulling weeds and maintaining a property on the weekends? Want to move to San Francisco next month? Not a problem for those renting / “living in the cloud”. Tired of Everett? Not happy with the schools? No problem for those living in the cloud, rent in Bellevue or downtown Seattle.

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The Tim says:

I bought my old house (sold 5/2008 for 484,000.00) on the edge of Maple Leaf neighborhood in 10/2000 for 237,000.00. It is no where near that price right now. I did fix it up a bit, but I don’t think the desirable Seattle neighborhoods are at 2000 prices yet.

Well now to be a fair comparison with this post you need to adjust the October 2000 sale using Seattle’s CPI. That comes out to \$301,000 in 2011. I don’t know the scale of “fix it up a bit,” but if we assume you added ~\$20,000 worth of value through some sort of refresh or remodel around halfway through your time there, add another \$20k adjusted for inflation from 2004 which would be worth \$24k now, for a total value of \$325,000.

Looks like most homes like your old place in that neighborhood are going for closer to \$375,000, but \$325,000 isn’t unheard of: http://www.redfin.com/WA/Seattle/558-NE-100th-St-98125/home/110403

Good luck finding a deal in Bellevue. You might have some luck if you focus on fixers that need some work. Sounds like most of the serious buyers over there are focused on the “move-in ready” homes.

33. 33

Thanks for response Tim. Very good point, plus I put about 40-50k in so I would guess you are in the ball park… wow..

I just looked at some homes in the Lake Hills, Eastgate area of Bellevue and there are some bank owned homes in the 250k range. They need some work, but I think if I could get into one for closer to 200k that could be a GEM. :-) RE: The Tim @ 32

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Jonness says:

At least Seattle wasn’t one of them!

Otherwise, it would be a good time to buy.

35. 35
Jonness says:

By ARDELL @ 28:

Real news without spin is pretty much a thing of the past.

And keeping that line of thought going, your 2009 bottom call was biased toward selling houses for a 3% personal stake in the profits.

Otherwise, you would have warned people about the double-dip like

I did.It’s all bias.Mine, yours, and everbody else’s. It’s just that some people exhibit more bias than others. I’m not claiming you are particularly bias. I’m just saying this topic is a lot like a religious war with everybody choosing their side of the fence.

In two months, national house prices will appear to be stabilizing, and the RE bulls will come back out of the closet screaming about a new bottom. A few months later, the bears will be back in control.

36. 36
LocalYokel says:

By The Tim @ 32:

Good luck finding a deal in Bellevue. You might have some luck if you focus on fixers that need some work. Sounds like most of the serious buyers over there are focused on the “move-in ready” homes.

Lake Hills is a crap shoot. Some of those houses are former rentals sold during the bubble
or just plain worn out. Some are nice and ready to move-in. If you have kids or
want to rent to families, schools are a big issue. Like in Seattle, depending on your
address, there are great schools and mediocre schools. Do a mapping of section 8
and low income housing in Bellevue.

Self selecting, of course, but people in our larger circle who are looking for homes
on the eastside, are pre-approved, 20%+ down, and ready to go.
I would love to live in Beaux Arts and be a “villager”, but like many people, I am keeping
my powder dry for bad times or an awesome deal.

37. 37

My thought was to test the waters by looking for a fixer upper for investment in Lake Hills/Eastgate area. Newport High School is very sought after so anything in that district would be great. I have a good contractor friend who was so busy during the bubble that he was always booked… now he offered to drive up from Bonney Lake to refurb a house for me if I buy. He says he can fix up pretty much any house that has good bones for 30k. So if I can get a decent deal (215k-ish?) and put 30k into it, it may be a worthwhile endeavor. My ultimate goal would be to find a place near downtown Bellevue, but I have a feeling those “deals” have somewhat of a floor with all the foriegn money around…RE: LocalYokel @ 36

38. 38

OK, this is crazy, but is there any chance that they would drop real estate taxes to lift home prices?

39. 39
Real World Express says:
Only 40% more to go to get back to 1997 when the bubble began! That is, if there is no wage deflation.

Exactly!Part of the bubble was not only rising real estate, but the expectation of a higher salary, new job prospects and gains from intangibles like the stock market.All of those has been in jeopardy…so, people may have been more “flippant” in their housing purchases…they might have said, “hey, lets bid an extra \$30,000 to get the house, we’ll make it up easily with our two incomes and rising 401k’s”.

But not any longer.

40. 40
Real World Express says:

OK, this is crazy, but is there any chance that they would drop real estate taxes to lift home prices?

Coughing on morning coffee!

Good grief are you serious??With a \$2 billion dollar tunnel and 25 billion dollar light rail funded by property taxes and designed to externally tax the populace?!

41. 41

OK, this is crazy, but is there any chance that they would drop real estate taxes to lift home prices?

Ignoring the budget issues, it wouldn’t have that much impact. Taxes are roughly 1% of value, so on a \$400,000 house you’d have taxes around \$4,000.00 a year, or \$333.00 a month. If someone believed they would never tax real property again that might increase the value of the property by maybe \$60,000, but in reality it would probably just increase the value by \$4-8k, because that’s probably about all the savings someone would realistically expect (absent perhaps a constitutional amendment prohibiting taxing real property).

42. 42

I know I hear you…just trying to think outside of the box.RE: Real World Express @ 40

43. 43

Good comment Kary. I was thinking more in terms of a way for Fannie and the banks to get rid of the REOs as opposed to simply price appreciation. They have a ton of properties they need to clear from the market. A draw back to “ownership” is that you are always renting due to property taxes. RE: Kary L. Krismer @ 41

44. 44
Scotsman says:

“is there any chance that they would drop real estate taxes to lift home prices?”

No. There is zero chance. The entities that rely on those taxes are already broke and reducing their budgets. There is a chance that taxes may go up in the future.

There are only two things that lead to higher home prices on a sustainable basis. Sure, demand considerations are comprised of a wide range of factors- population growth, peer expectations, government regulations, momma’s nagging, etc. But all demand factors are ultimately constrained by two issues- income growth and financing costs. Without income growth and steady or positive trends in financing costs home prices will not go up. Accept this, then sit back and wait.

Unless, like Tim, you are spending a small fraction of your income to purchase a home with the simple goal of providing shelter, this is a terrible time to buy a house. No one is suggesting employment and incomes will be rising in the near future. Most are suggesting things could get much worse, and the foundational data suggests that is exactly what’s happening. And no one expects financing costs to reduce, or lending standards to loosen. In fact, they are clearly trending in the opposite direction.

I would suggest that anyone who buys today will soon enough lose 20+% of their home’s value, then sit on that loss for years. The only argument to justify such a situation would be that the loss will be less than or equivalent to what renting would have cost over the same period. There is no investment potential out there- just opportunities to minimize the cost of providing required shelter.

45. 45

Excellent comment Scotsman and I pretty much agree. I guess I’m just trying to see this from a traders perspective. If I can rent a nice little 3bd/2bth in Bellevue for \$1400-1600 per month, at what price is it worth buying and throwing 30k into to make it decent? At what purchase price would this rental be cash flow neutral/positive? Let’s assume 20% down…RE: Scotsman @ 44

46. 46
Scotsman says:

I would say it’s impossible to calculate. We really don’t have clear picture on what’s going to happen to either incomes or unemployment, along with household formation (kids moving out verses 15 people moving in together) so it’s hard to come up with accurate rent numbers. Sure, it’s \$1500 now, but what will it be three years from now?

When doing NPV calculations in an attempt to come up with a rate of return any hit up front- like a 20% reduction in capital, taken as a cost, has a disproportionate impact. You may never see a positive return under those circumstances. Some investors (our own Ray and his friends, for example) have already bought “gems” then unloaded them at a loss or break-even as prices continue to decline.

Here’s my take. I see the next several years as very uncertain in terms of national macro economic trends and success. One thing is certain though- it will be very hard to miss any rebound in prices because it will likely happen slowly over a long period of time. In short, the risk of missing the recovery is zero, while the chance of buying too early is currently high. Those who are patient, who still have cash, credit, and income, and buy at or near the bottom will see the opportunities of a lifetime.

Just sit tight. Continue to save. Get out of debt. Work hard at your job. Continue to read. Do your own thinking. Live the life you have today, and enjoy it. Get ready for an even greater future. But like I said above, there are no “investment ‘ opportunities today- only chances to minimize the cost of required minimum shelter.

47. 47

Scotsman- I agree with you on all levels. I have no debt, I have been on top of this from the start, summer of 2007. I’ve taught myself to day-trade by following the market 24/7 for the last 4 years. I did have some market experience going back to 1998 though. Here is my take on Bellevue. EVERYONE wants to live here. As areas further out get less and less desirable, more and more will want to live in the good areas with the good schools and low crime rates. No one really knows how this is going to play out, but I think it is a good time to beat the crowds and start looking for deals and making low ball offers. I like Tim’s idea of another 10-15% down, in the nice areas, but I think areas a little further out could see 20-40%. So I’m thinking why not just lowball 10-15% NOW if/when you find the right house? If they say no, move onto the next one. Use the current uncertainty to your favor if you have a laser focus on what you want and where. Things can change quick and I love the idea of having all the time in the world right now to find the right house. So I agree with you on how things will most likely play out, but I’ve got cash doing nothing, and if they accept a low ball offer, I would like to lock in these rates. Odds are it could be a year or two before I buy, but I’m ready now if the right price and house was offered. Also, keep in mind currency valuations moving forward. What better asset classes are there to invest in right now?RE: Scotsman @ 46

48. 48
Scotsman says:

Fair enough. I would disagree though that your cash is doing nothing- it’s increasing its’ buying power with every passing day, at least for hard assets and real property. And what’s the value of liquidity?

East Bellevue is a mixed bag- still expensive and a bit rough in places with the potential to get much rougher if things deteriorate significantly. Long ago I lived off 165th and NE 8th. Lots of rentals, lots of section 8 in the apartments to the west, lots of crime in/around the mall. Might you be confusing cheap/affordable with desirable from an investment point of view? Parts of Seattle, along future rail lines, might be a better fit with the reasoning you put forward.

49. 49

RE: Scotsman @ 48 -Liquidity is great but if you have decent income it is a good idea to look for investments in SOMETHING. I don’t need anymore precious metals although I would add to silver on big pullbacks, at least for the next couple months. We have no way of knowing what tomorrow brings. But I would think one of the only ways the powers that be will try to get us out of this mess is the eventual and continued deterioration of the dollar, although it will definitely have it’s rallies here and there. Think like a criminal my friend… they will find a way to continue to punish savers and get people back buying homes. It is never different this time. We may pull a slow slide like Japan over the next 20 years, but what if we don’t? East Bellevue is where I would look for a rental. Some pockets are decent as you know. I know the area like the back of my hand. I grew up on Woodridge since 1980, near Factoria, if you know the area. I think the most desirable area is the blocks north and northwest of downtown, like Vuecrest, etc. When I say desirable, I mean as an investment, of course there are more expensive desirable areas that are way out of my league. :-) That is what I’d like to focus on for myself. Not sure how low those properties will get, but I’m going to start watching the area like a hawk.

50. 50
Jonness says:

So I’m thinking why not just lowball 10-15% NOW if/when you find the right house?

Because in a couple of years when prices are 10% lower, you will be able to lowball and get the house 10% lower than that.

Here’s the deal. If you buy now, you pay a minimum of 10% user fee for using the house while you wait for prices to decline. Depending on how things go, you could end up paying a lot more than that. So you have to ask yourself, how much money is it worth for you to hold the house for a couple more years. If you don’t mind losing 10 – 20%, then go for it. Otherwise, take Scotsman’s advice and keep your powder dry for a while.

There are many people in your exact same boat. We can afford to buy. We have wives or girlfriends who want a nicer house. We are not in any financial jeopardy what-so-ever if we decide to buy. Yet we sit on the sidelines, because it’s a whole lot easier to sit back and do nothing and make a \$100,000.00 than it is to go through a lot of effort and lose \$100,000.00.

How early you choose to buy mostly depends upon how much control you have over your impulsivity.

51. 51

Johness, odds are yes, but no one knows the future. All that I’m saying is that it could be time to start reconsidering things… It’s the first time in 4 years that I am. I’m not going to do anything impulsively. RE: Jonness @ 50

52. 52
Jonness says:

Johness, odds are yes, but no one knows the future. All that I’m saying is that it could be time to start reconsidering things… It’s the first time in 4 years that I am. I’m not going to do anything impulsively. RE: Jonness @ 50

True. We have to look at probabilities in order to make sound investments. There is a 95% chance prices will continue down after a period of Spring support. There is a 5% chance we’ve hit bottom.

53. 53

Johness, odds are yes, but no one knows the future. All that I’m saying is that it could be time to start reconsidering things… It’s the first time in 4 years that I am. I’m not going to do anything impulsively. RE: Jonness @ 50

If you’re looking to buy a house to use a rental, the only thing to really consider is cash flow. And it’s going to be difficult to get positive cash flow from a rental home in Bellevue.
Some numbers: let’s say you buy a house for 350,000 dollars, putting 20% down. At todays interest rates, that would be a payment of about 1400 per month, another 350 a month in property taxes, another 80 a month in homeowner insurance. If you could rent it out for 1600, you’d have a negative cash flow of 230 per month, not even counting the time where there might be a vacancy or monies you’d be spending on maintenance and repairs.
Let’s say by some miracle you find a house for 275k. You put 20% down, and have to dump in 30 thousand to make it nice enough to rent out for 1500. Payment is 1100, 300 in taxes, 70 insurance. After allowing for maintenance, repairs, and vacancies, it would still be only about a break even proposition. It’s tough to get positive cash flow from a single family home, and buying it anticipating future appreciation is just lunacy.

54. 54

RE: Ira Sacharoff @ 53 -Thanks Ira, excellent information and this is exactly the things I need to weigh. I’m actually seeing a few of the bank owned property in the 275k region. How about looking for a SFR with a mother-in-law and waiting to see if I can snag that for 200-220k-ish. Then throw the 30k at it to fix it up.. Think that might make sense if I can rent the 2 units for both roughly \$800-1000? Thanks for the thoughts.

55. 55
GrizzlyBear says:

Here is my take on Bellevue. EVERYONE wants to live here. RE: Scotsman @ 46

Ummmm, no, not everyone wants to live in Bellevue. In fact, it’s my idea of hell on earth. Just because you like something, doesn’t mean everyone else does.

56. 56

RE: GrizzlyBear @ 55 – I was waiting for someone to call me on that. That was obnoxious wasn’t it? :-)

Lot of people do though…

57. 57
corncob says:

Think that might make sense if I can rent the 2 units for both roughly \$800-1000? Thanks for the thoughts.

If you cannot do an even rudimentary analysis of potential rentals yourself before getting into one, stay very very far away unless you hate having money.

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David Losh says:

By coincidence you made these comments on a day I visited an open house of a dear Real Estate professional who has been selling investment single family homes for 30 years. Her husband has done property management for the same amount of time.

The place she had open today is \$260K, but they will probably take an offer. Another house, in I think a better location near by, is \$250K listed by another Real Estate investment agent. Both need work, but are solid properties, on good lots, in good locations.

They are both worth maybe \$180K, and in time will be worth less than that. The numbers never work out the way you want, but my rule is if the property will cash flow with 10% down, and 10% interest it may be OK. Will it?

I, personally, wouldn’t bank on these historically low interest rates. They will only lock you into the debt, on a falling price of property, and probably falling rents. Do you really want to wait out 30 years for this loan to amortize?

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RE: David Losh @ 58
Hi David, appreciate the feedback. I agree with you on the price levels… and I may just find out that I need to wait a little longer to buy. And that has been my point, although maybe I wasn’t that clear on it. I just now is a good time to start paying attention again. I haven’t even bothered to think about real estate since selling my home in early 2008. Were these listings in Bellevue?

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ARDELL says:

It’s usually called “a mother in law” when the lot and area is not zoned for multi-family. Be careful about banking on treating it like a duplex or an ADU when you do your numbers. The mother in law is not likely a qualified rental. If the neighbors complain that you are using a single family zoned home as a duplex for rental purposes, your numbers can fall apart overnight.

The person who rents it from you can have a relative stay there, but your having two separate leases on it to unrelated parties is likely a violation of the zoning.

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Scotsman says:

RE: David Losh @ 58

It seems the allure of residential real estate as an investment, over the past 30+ years, has only worked because of inflation and appreciation. If you didn’t have falling interest rates to help inflate a bubble above and beyond standard inflation rates it would have been a very different story. Commercial or multi-unit buildings would be different.

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Scotsman says:

This might show a positive cash flow:

http://www.johnlscott.com/propertydetail.aspx?IS=1&ListingID=300937834

Of course, the whole thing would probably have to be done “under the table.” ;-)

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David Losh says:

RE: Scotsman @ 61RE: Toad37 @ 59

Actually it is interesting that the house I saw today was purchased for \$30K thirty years ago. In the 1980s houses were that price up to \$50K for rental property. Rents were low, but if you look at the comparison you see it was easier to expect a little cash flow at 20% down. That was the rule of the day, back then.

Today people are saying home owners should invest 20% of thier savings just to get an affordable house payment. Other people are talking about buying properties for cash to get a return on investment. There’s no leverage there. It’s dead cash on a declining price, and a very low return for the risk of having some one living in a home you own.

Commercial, in my opinion, is worse. Rents are high for apartments. Pretty much it’s agreed that is because we have vacant houses. We have properties that are “off” the market, in transition, or waiting for the title to get clear. There are two houses near me that have been vacant over two years. One is a new construction that has been discussed here. In addition there is a lag in construction. Houses being built aren’t selling readily, and there is plenty of dirt, and ground breaking to go around.

We have a long way to go to compensate for what happened in the real estate market. If I had the cash burning a hole in my pocket I would invest in a business that I enjoyed. It would be a short term profit sort of thing that may give a local business a boost. The returns are unlimited in a micro lending kind of way.

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RE: David Losh @ 58

It seems the allure of residential real estate as an investment, over the past 30+ years, has only worked because of inflation and appreciation. If you didn’t have falling interest rates to help inflate a bubble above and beyond standard inflation rates it would have been a very different story. Commercial or multi-unit buildings would be different.

Except for the part about falling rates, which I personally think was just a kicker, but not necessary, that’s similar to what I wrote at the end of this post in the Global Economic June Thread.

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David S says:
RE: Toad37 @ 45 – But like I said above, there are no “investment ‘ opportunities today- only chances to minimize the cost of required minimum shelter.

Very true. 20% down, 15 year mortgage won’t get us ahead but will minimize the cost of our requirements type shelter.

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David S says:
RE: Toad37 @ 45 – But like I said above, there are no “investment ‘ opportunities today- only chances to minimize the cost of required minimum shelter.

Very true. 20% down, 15 year mortgage won’t get us ahead but will minimize the cost of our requirements type shelter. It’s all we can come up with.

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RE: ARDELL @ 60

Thanks Ardell, very good point. I had a MIL basement when I owned my home in Seattle and rented it out for the better part of 8 years. Never had a problem, but then again I lived in it. I imagine it would be a little risky to buy a property that wasn’t zoned as duplex and rent both spaces out. Plus I could see Bellevue neighbors being much more picky about that then Seattle neighbors.All great things to consider. Thanks for all the great feedback from everyone here.

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RE: Toad37 @ 67 – Seattle is relatively friendly to attached dwelling units, although that still may vary by neighborhood. This is a relatively old link–I think things may have expanded since then.

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RE: Kary L. Krismer @ 68
Thanks Kary, good stuff and worth looking into.

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A friend of mine has recently bought two condo’s in the Pasco County area of Florida in the 20k-30k range. Wow. May have to look into the that. Supposedly they have a low tax rate and love retirees. He is letting his two sons live in one and bought the second for his ex. He mentioned something for me to consider is getting one and then renting it furnished for 1/2 the year to snowbirds. Hmmm…

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David Losh says:

We just came back from Florida with the same idea. We’re going again in August to see how that is.

I also meant to include that you would still have to make your money some place other than Florida in order to live there. It’s kind of like living in a foriegn country of wealth. It’s hard to explain other than to say there isn’t a lot of opportunity that isn’t already taken.

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RE: David Losh @ 71

Hi David… yes, understood, there is not much industry in that area. Here is one of the condos he bought, he said he got it for \$33,400. I told him if his realtor could find one in that complex it would make sense for me. This way he could keep an eye on it and handle the snowbirds for me.

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ARDELL says:

The primary issue is you can’t price it out based on two rents. You have to price it out based on one, and if you can get two for a time…or forever…that’s what they call the gravy! Don’t use two rents for penciling out pricing on a SFH with an MIL.

Another is parking. When neighbors complain it is usually not because of the two renters, it is the 4 to 6 cars at one house. Even though a single family can have a lot of cars, when the neighbors are annoyed by too many cars at one house, they will check to make sure it is not being used as a multi-family.

One way around this is to have a high rent and let the primary renter take in a room mate. There is a way to structure it so it complies with the zoning. But how many cars can become the issue that triggers the complaints from neighbors.

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RE: ARDELL @ 73

Hi Ardell, great info, thank you very much. The street I lived on in Seattle had a lot of cars and my renters always had to the two spots in front of my house since I had a rare two car garage. I think I may pursue this condo idea in Florida as an investment and then sit and wait like the others here suggest for our area to bottom out. I’m going to continue looking around though just to stay on top of it.

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By ARDELL @ 73:

The primary issue is you can’t price it out based on two rents. You have to price it out based on one, and if you can get two for a time…or forever…that’s what they call the gravy! Don’t use two rents for penciling out pricing on a SFH with an MIL.

Another is parking. When neighbors complain it is usually not because of the two renters, it is the 4 to 6 cars at one house. Even though a single family can have a lot of cars, when the neighbors are annoyed by too many cars at one house, they will check to make sure it is not being used as a multi-family.

You totally missed the point that it’s legal in many/most parts of Seattle to have these MIL units. The neighbors can complain about parking all they want, and they will just get laughed at. There’s no restriction to how many cars you can park on the street as long as you don’t park them for too long.

Also, I would note that units with a MIL unit don’t really carry much of a price premium over those without. So I wouldn’t say it’s an impact on what you pay, but I would agree that he shouldn’t buy based on being assured that income will be available, because Seattle’s policies could change. Since they aren’t part of the formal zoning, I’m not sure grandfathering would exist.

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