“Vast Majority” of Buyers Bail, Moda Condos Goes Rental

Lots of local real estate news hitting today.

Here’s another short one: Moda Condos in Belltown goes rental.

Moda: For RentWhen Moda Condominiums started accepting reservations in September 2006, prospective buyers lined up hours early and quickly locked up all 251 units.

Now, with the Belltown building two months from completion, Moda’s developers have changed it to rental apartments.

“The market and the financing conditions for condominiums have really taken a drastic turn,” said developer G. David Hoy, head of HMI Real Estate Inc. “The vast majority of (Moda’s) buyers decided not to proceed with the purchase of their unit.”

Some buyers found they could no longer get a loan, particularly for second homes or investment units, while others just got cold feet, Hoy said. “Because the vast majority have bailed out on us, we have no choice now but to turn it into a rental.”

Dang. The “vast majority.” I wonder how many of the other condo projects coming online in Seattle over the next couple years will meet the same fate.

(Aubrey Cohen, Seattle P-I, 08.12.2008)

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About The Tim

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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    tarzanchuck says:

    This is definitely not surprising. So many apartment buildings were converted to condos in the last 5-7 years that there is a serious lack of rental properties. Now that there isn’t crazy easy credit, everyone is going to rent. We’ll see rents shoot up in price here over the next two years I’m sure.

  2. 2
    EconE says:

    Not surprised. Many condo buyers were flippers. If they ran the numbers including carrying costs they would find that it would have actually been cheaper to walk from their deposit.

    More condos going apartment + flippers that can’t sell = more available rentals = more competition for tenants = lower rents.

    I wonder how many of the high end condo presales are going to close (Olive8, Rollins, et. al.)

    Maybe people are waking up to the idea that a 400-800k 1BR condo is a JOKE!

  3. 3
    Zintradi says:

    makes the 3000 per s.f. at the Four seasons condos look pretty rediculous.

  4. 4
    disbelief says:

    This guy sounds really dejected. No optimistic language or damage control here; he’s tits-up and knows it.

  5. 5
    Harley Lever says:

    Rents have already gone up 10% this year. I believe that article stated that, but for some reason it did not make the quote.

    “As of March, the average rent for a Belltown studio apartment was $1,045, up nearly 10 percent from a year earlier;”

    It would be interesting to see the median income household income versus average rental rates in Seattle. Rents should be able to move up another 10 – 15% based on median income and the 3.9% vacancy rates.

    Here comes the run-up of the rent!

  6. 6
    Sniglet says:

    This is EXACTLY the kind of thing that will start to bring rental prices down again in the Seattle area. It’s eerie how closely we are tracking the cycle that has already played out in other markets. At the peak fo the boom rental rates rise as iniventory is removed (e.g. condo conversions, etc) and prices become so outrageous that renters decide to stay put.

    Later, as condos start reverting to rentals, and single family homes are placed on the rental market (by owners who can’t sell) rents come down.

  7. 7
    Harley Lever says:


    What about all those foreclosures that the Bubble is always talking about. Now there are more renters in the pool too!

  8. 8
    EconE says:


    And those foreclosed houses will probably become rentals too…unless a renter buys it. Sounds like a wash.

  9. 9
    crispy&cole says:

    In every market that this has happened around the country rental prices went down. Seattle, you guys are following the same script…

  10. 10
    David McManus says:

    In every market that this has happened around the country rental prices went down. Seattle, you guys are following the same script…


  11. 11
    masaba says:

    It’s hard to believe that rents will go up too much if there are going to be more units available for rent. Could it be that rents in Belltown have increased because more of the rentals there are now luxury condos as opposed to years old apartment buildings?

  12. 12
    mikal says:

    It wouldn’t surprise me if the rates go either way, but rents have been flat here for years and have started going more towards where they should have based on inflation. I can see both sides of the supply and demand but the reality is that most foreclosed properties won’t see renters for many months if not longer for the changing of hands. In the mean time those people that moved out aren’t going to be staying in a tent. The last open house for an apartment I was renting had forty people show up which I had never seen even remotely before.

  13. 13
    Flotown says:

    that wouldn’t be a bad project to have to go rental, given the lack of high-end finishes and small unit sizes. They won’t make a killing like they might have, but they can find a buyer at stabilization and make money

  14. 14
    smeegs says:

    A friend of mine had a contract for a unit at Moda, but he was able to get his earnest money back because the actual square footage of his unit was less than advertised. I believe this same reason may have allowed a lot of the buyers an out in their contracts as well.

  15. 15
    EconE says:

    Interesting how all of the people that state that we won’t see a foreclosure problem are the same ones stating that rents will rise because of foreclosures.


  16. 16
    deejayoh says:

    This “rent run up” scenario is hilarious to me. One point that Ardell made over at RCG was that for the last 5 years, people who wouldn’t qualify for a rental (low credit score, no first/last) COULD qualify for purchases – they could get a zero down loan with a weak credit score.

    Now we have more units coming onto the market as rentals, increasing unemployment, flat incomes. Yet “industry analysts” predict that rents will continue rising. Well, “industry analysts” all predicted that home prices couldn’t fall as well. And they were wrong.

    Rents have run up in the past year as a catch up to ZERO rent growth since 2002. Forecast that trend out as a landlord at your own risk.

  17. 17
    deejayoh says:

    Ardell’s comments: (see #12-14)

    The sad reality is that many people purchased in the last few years that couldn’t get approved for a rental, or didn’t have the up front monies needed to secure a rental, but could buy.

    Cash needed to purchase equalled zero. Cash needed to rent equalled 1st month plus last month plus security deposit and pet deposit and if you had 5 kids…good luck.

    Credit score needed to rent was higher than credit score needed to buy.

    Pets? Many can’t rent a house with 2 or 3 big dogs, but can buy a house with no questions asked about pets.

    No money + 580 credit score + 5 kids and three dogs equalled buying vs. renting.

  18. 18
    TJ_98370 says:

    And on related news from across the water, we have this story……..
    Bremerton Condominium Developers Ask for More Time to Repay Loan
    Slow sales of condos along Bremerton’s waterfront has the project’s developer asking for more time on its loan.
    The Kitsap County Consolidated Housing Authority got an OK from Kitsap County commissioners this week to get a two-month extension from Bank of America on the current loan, a bridge measure while the bank and the housing authority negotiate how to handle the remaining balance.
    The principal balance of just under $5 million out of the original $25 million borrowed was due July 24 for the construction loan the agency received to build the Harborside Condominium project along the Bremerton waterfront.
    To date the housing authority has sold 34 of the 78 units available. The rest need to sell for the agency to meet its construction loan debt and the $22 million in bonds issued to pay for the project, said Norm McLoughlin, the housing authority’s executive director. He said the overall credit crunch and the slow economy have combined to hurt sales……..


  19. 19
    Jon says:

    Can you really rent the same place you did 5 years ago for the same price? I doubt that is the case, and would love to see some data on that statistic. I have a friend who has had their rent raised every year, usually 30-60 dollars a month, for the last 9 years in a row. I tried to convince him to buy 9 years ago, but that didn’t happen. He regrets it still to this day.

    For Econ, (how are you doing, btw?) Olive 8 and Rollin Street both have much stronger backers than Moda. Moda was done all wrong, and it certainly hit a segment of the market. They were sold out, then unsold, then sold out again a couple times, but they weren’t smart in how they took the contracts.

    Does anyone have any statistics about migration in and out of the city?

    I can imagine the employment numbers having a bad run, but my guess would be most of those people are laborers, in the construction field, who never buy homes anyways. Microsoft, UW, Fred Hutch, Amgen, Boeing, etc continue to hire high paid positions… so I would worry more about the numbers of who is coming in, who is leaving, before speculating that the numbers are all bad.

    #13 – They put in high end finishes, but in order to compete in the rental market downtown (read: Metropolitan, Harbor Steps, etc), you need high end finishes.

    The article also said they are leaving room for the conversion back to condos, which is what Arbor Place did intially.

    Money for condos is drying up, not because of Seattle, but because those are the hardest hit in CA, FL, etc.

  20. 20
    masaba says:

    Jon, so your friend is paying greater than $3240 – $6480 in rent per month? Wow. I have lived in a town home near Green Lake for the past 2 years and haven’t had rent raised once. We have been off contract for the past year, so it’s not like our landlord hasn’t had the opportunity either.

  21. 21
    deejayoh says:

    The long term (20 year) trend for rent increases is 4.2% per year. From 2000 – 2006, rents went up 2.8% in total – not per year. There’s a fair amount of catch up going on right now.

  22. 22
    Jon says:

    Masaba – The rent started aroudn 400 and now it’s about 700… on Lower Queen Anne… a bit more desirable than Greenlake. We are talking pricier real estate in general, however, considering Moda is in the heart of Belltown.

  23. 23
    Jon says:

    Deejayoh – So 2.8% in the last 6 years… so rents are really far behind. That makes sense… maybe it’s a great move on behalf of the developer to rent the units out and garner some appreciation while paying the bills…

  24. 24
    deejayoh says:

    I covered all this in my Rents to Rise post earlier this year, but if you want another resource, here is an image from an article in the Times that references Dupre and Scott


  25. 25
    EconE says:

    Jon…(from Vulcan I presume?)…

    Doing well…thanks. I’m sure that Rollins has strong backing. It’s one of Paul Allens gigs. Even if it were financed…I’d bet that he could pay off the balance with the change he finds in the couch cushions on Octopus. What % of units have been sold there? Rumor is…it hasn’t even hit 50%.

    To me…it really doesn’t matter how strong the backing of the “project” is, it’s how many speculators/purchasers with exotic financing etc. there are and how strong (or willing) their backing is. I guess we will see.

    I do have to say…it was fun watching Vulcan bury that flipper here at 2200! I never did do a follow up post with the final tally on the 2200life blog…but I gotta let Chucky’s post sit for a while…it’s a good one!

  26. 26
    crispy&cole says:



  27. 27
    Demersus says:

    I’ve lived in my place for 3 years. After the first year, the landlord increased the rent by $25, or 2.7%. That’s a reasonable increase, I suppose, on an annual basis. But, I felt that I was already paying a bit too much. So, I refused to sign another year lease and when month-to-month. Guess what? No mention of an increase since….

    Rent always paid on time with no real problems vs. UNKNOWN

    This is called negotiation folks, give it a try.

  28. 28
    Jon says:

    Demersus- I would have kicked you out! I would have served notice to you in a heartbeat, especially in this market. Places seem to be renting for a whole lot more than what I thought they could rent for recently… (no real problems? Hmm, what aren’t you telling us?)

    Econ – I will check out the post:)

  29. 29
    Joel says:

    We have an oversupply of housing units. Some of the oversupply will go to the rental market some will go to the buyer’s market.

  30. 30
    LUC says:


    Amgen had a layoffs last year and currently have a hiring freeze. They stop all capital projects corporate wide including the Helix site

  31. 31
    ThomasB. says:

    Were all those buyers just flippers? The developer didn’t do a good job of selecting people if the “majority of buyers” bailed and they had a line of people waiting. I have a feeling that the “majority of buyers” in the last few years weren’t interested in living in the condos. They were flippers. I still remember news stories of people jumping in on lists to reserve a condo. I guess it was all smoke and mirrors.

  32. 32
    Sniglet says:

    The developer didn’t do a good job of selecting people if the “majority of buyers” bailed and they had a line of people waiting.

    I doubt the developers had much of a choice. If they had carefully screened for people looking for a primary residence they most likely never would have had enough customers to even justify building the project in the first place. Real-estate has been one big ponzi scheme for years, and developers have just been gambling they could complete their projects and get the pre-orders to close before the bottom of the market fell out.

    Any developer playing a conservative game simply wouldn’t have undertaken most of the projects that took place over the last 3 or 4 years.

  33. 33
    ThomasB. says:

    EconE said “Maybe people are waking up to the idea that a 400-800k 1BR condo is a JOKE!”

    I concur. The median income of King County was in the area of $58K/year. Even with dual income, no kids, 50% of the population probably couldn’t afford the condos and that’s assuming everyone is a DINK. The simple truth of urban economics is that there are more administrative assistants and janitors, than professionals. Hence, there is a binomial distribution of wealth within the city. The pool of willing and able buyers is slim. Once the flippers left the market, the true number of willing and able buyers revealed itself. Ergo, the extreme decline in sales.

  34. 34
    Ron says:

    Jon // Aug 13, 2008 at 2:19 pm

    Masaba – The rent started aroudn 400 and now it’s about 700

    PLEASE: Your to funny.. your talking about someone wishing they bought- why? because there paying 700. dollars for something probably priced in 2000.+ dollars renting from the bank?

    Woow 700. dollars is a great deal- take those savings and make them work for you in other ways… feel sorry for many of the house poor people that are making rental payments to the bank that purchased in the last couple of years.

  35. 35
    mikal says:

    ThomasB, you are right about the flippers to a point. The lending standards tightening have played a big part as well. I know someone looking to buy a condo last year and the lending standards changed just before he was able to close. He is still renting.

  36. 36
    WestSideBilly says:

    Demersus- I would have kicked you out! I would have served notice to you in a heartbeat, especially in this market. Places seem to be renting for a whole lot more than what I thought they could rent for recently… (no real problems? Hmm, what aren’t you telling us?)

    I hope you’re neither a landlord nor involved in making financial decisions for your family or a business.

    $925 lost from one month’s vacancy = over 3 years of that $25 rent increase

  37. 37
    mikal says:

    West side Billy, Taxes have gone up more than that over the last few years and the are alot of people chasing apartments right now. That may change, but it hasn’t yet.

  38. 38
    mukoh says:

    Rents rising or not are in fact related to the landlords ability to track the market. If a landlord has 1 – 2 rentals and they are flowing for him then he really is not that aggressive at raising rents by $50 a month which is only $100 extra, especially when they really cannot handle a vacancy well.

    When a landlord controls 30-40-50 and more units a $50 raise is worthwhile if the market justifies it as they can handle a 10% vacancy across the board.
    The guys that I know who have big number of units always have been laughing lately with quotes like “When I need more money, I just go and raise rents”

  39. 39
    Demersus says:

    Thanks for the support, you get my point clearly.

    No real problems from me; she’s had to ask me to turn my music down like twice in 3 years. My only problem with her is that she tends to talk too much, so I try to avoid her. It’s a duplex, she lives above me.

    It’s not like I haven’t rented before. Like all things, it’s a market place and I’ve got a degree of savvy. I know what I can reasonably risk.

  40. 40
    Demersus says:

    Oh, and my final point is that if you were a landlord, I’d not rent from you for very long before. You think there aren’t choices in all markets? Just Ray Ray’s tune; find those GEMS!

  41. 41
    Greg Perry says:

    Hey guys and gals,
    You’re all so focused on rent, etc. This may just be part of the story.

    Many developers in these new construction condo developments ran into financial difficulty and had a hard time paying their vendors. Vendors place liens and (worse) lawsuits against the property. Lenders will not lend in condos with liens and suits against the property.

    The people who get hurt here are the early buyers who closed. They may find themselves unable to sell for the same reason. And now they find themselves living in an apartment.

  42. 42
    Harley Lever says:

    The average rent in Seattle is $1350 and the vacancy rate fell to 3.5% from 5.2% in 2007. Experts consider 5% vacancy to be in equilibrium. http://www.bizjournals.com/seattle/stories/2008/06/02/daily32.html?ana=from_rss

    Based on median income data the rents are still 10 – 15% below what renters could afford to pay. If the same holds true for the housing market, as every bubblehead screams about, then it must hold true for renters as well… right? I would expect rents to increase at least 10 -15% in and around Seattle, Redmond, and Everett. You could see much higher increases if in fact renters and homeowners flock closer to the city centers to avoid high gas prices and access to mass transit.

    Yes you can look towards the permitted housing slated for construction for rent relief, but how many investors are going to go ahead with plans to build? Some lesser backed companies will have to hold off which will further depreciate the pool of available rentals.

    The fact the Moda condos is switching to rentals does show some savvy, especially in a rental market with so much upside. The Bubbleheads have long cheered the fact that rent is a much better choice, now you just have to live with the realities of vacancies going down and your rent going up.

  43. 43
    explorer says:

    From the article below, it appears that it is very important, when discussing when and how much of an increase has/is happening, to identify, especally from a D&S survey, exactly what it covers. Generally the D&S survey’s cover 20 or more apartment units only. Generally, raises for those are smaller in total because of the economics of scale mentioned in the thread by others.


    I tend to look to non-local and more unbiased sources (if possible), for more perspective. Not knocking dejayoh’s research, but just trying to put it in perspective. http://www.realfacts.com/

    The current survey there is focused upon a larger number of apartment units, but they also do smaller and under 20 unit surveys, as well as rental housing.

  44. 44
    mikal says:

    Harley has made a point that I was just wondering. Many of you state that until the house sells at a certain percent of what it would rent that it is worth it. I believe that you may get some of that equilibrium back through houses dropping in value and rents increasing. Many of the markets you guys through out there for comparison had rents also increase while ours didn’t. Maybe they won’t continue to rise, but maybe they will. There is some underlying reason that rents didn’t climb more over the last 6 years other than there were lots of vacancies. All the condo conversions would make that seem less likely. Comparing markets and using historical data in this area for this area doesn’t work very well in trying to make points.

  45. 45
    Harley Lever says:


    I could not see the survey you are referring to. Is it subscription based?

  46. 46
    phil on qa says:

    Harvey – just cause you wish for something, doesn’t make it true.
    I can see so many new buildings going up, that’s it’s a joke (I’m on the south slope of QA, great view/location for the money). Where do you think these renters are going to appear from to fill them all? Have you heard of a major new company moving downtown or anybody expanding? Please tell.

  47. 47
    Alan says:

    Rents may rise. Those dynamics are too complex for me to predict. Falling RE prices will make more people want to rent than own. That will drive up demand. Rental prices will rise but then people who are selling their homes will reach a point where they would rather collect rent than sell. That will push rental prices lower. In the end, the market will bear what people are willing to afford. I don’t have a clue where that price point will be, but DJO’s model using historical rent growth is probably pretty accurate. According to that model, rents have not risen as much as they should have. That makes sense to me since a lot of demand has been on the ownership side due to the rapid price appreciation.

    Falling RE prices will drive the rate of return on a rental higher than historical averages. If 6% is the historical return on a rental property, then that rate may get to 7-9% before we hit bottom. Why would you spend $300k on an asset that pays $18k a year if you think that asset is going to be worth $250k next year?

  48. 48
    mikal says:

    I really need to drink less before I post.

  49. 49
    deejayoh says:

    The fact the Moda condos is switching to rentals does show some savvy, especially in a rental market with so much upside.

    you are delusional if you believe this. The builders of this thing want nothing to do with holding it as an apartment. They have a construction loan, not a commercial loan. And now they have to go into the lending market in a tough market and refi the property at what is probably a heinous rate because they couldn’t sell it. They are doing the only thing they can to bail their butts out and they will get nowhere near the cash flow in terms of rents that they would have gotten had they locked on those “buyers”

  50. 50
    deejayoh says:

    I tend to look to non-local and more unbiased sources (if possible), for more perspective

    Explorer – FWIW, I look at multiple sources (HUD, Dupre & Scott, Conway-Pedersen) for analysis. Whatever I can find, as long as it is free :^). Doesn’t look like the source you pointed to is free.

    Dupre & Scott tend to be most quoted in the newspaper, and hence referred to here. I don’t have any great allegiance to their numbers – but if anything I suspect big complexes are more aggressive on rental rates when they can be vs. smaller ones. The owners of these big complexes are quite sophisticated vs. the mom & pop owners of small buildings. So I would tend not to agree with your assertion that “Generally, raises for those are smaller in total because of the economics of scale mentioned in the thread by others”.

  51. 51
    BrianL says:

    Over the last three years, my rent went up by 30% in total. landing at $1200. And we fought to only increase by that much to the point of looking at other places last year. I expect they’d try to up it to $1300 or $1400 – new renters are paying $1400 to $1600 for the place we are in now..

    Granted, the biggest part of that spike came when we were forced to change apartments because they were ‘updating’ the apartments. Houses of a similar size can be found within a few miles for $1,800 a month P&I if you have 15% down.

    This is all on the east side, between Kirkland and Bothell so perhaps this isn’t interesting data for people trying to purchase in Seattle. If you move slightly out of the city center areas though, prices drop off rapidly. This is definitely different from the Bay Area for example, which has much more consistent sprawl over many areas.

  52. 52
    Harley Lever says:


    Well because you are not paying for it, the renters are. Making 18k a year on a house that costs $300,000 puts you pretty to close to break even.

    Can I find a cheaper house next year? Probably. Has the costs for a loan gone up? Absolutely. Will I have to put a lot more down? Absolutely. Will the interest rates be lower? Probably not. But if they are, I will look to purchase another home(s) and do the same thing.

    As a landlord, the idea is that you do not sell it the next year, you hold on to it for as long as you want to.

    My personal goal is to keep these for the rest of my life. At the end of 21 years, I will have my 30-year mortgages paid off by the renters. At that point, it is money in the bank plus whatever the value is.

    Yes, there is maintenance, vacancies, and other issues to contemplate, but in the end, the renters will pay the majority of the cost of the house and not me.

    Being a landlord for me is more about the end game more than trying to sell the house next year.

  53. 53
    BrianL says:

    To be explicit, there are plenty of cheaper apartments around by a significant margin. We decided to buy.

    We found a place well within our budget, two miles to my office, near a bus route, in a quiet neighborhood, a decent interest rate, etc. We plan to here indefinitely so we’re prepared to lose a decent chunk of equity in the place.

  54. 54
    Peter Taylor says:

    Yes, there is maintenance, vacancies, and other issues to contemplate, but in the end, the renters will pay the majority of the cost of the house and not me.

    Harley, how much of the work (maintenance, management, etc.) are you required to do as a landlord? When you say renters will pay the majority of the cost, do you factor your own time into that? I’m just curious what cost you attribute to your own time when doing the financial math here.

  55. 55
    mikal says:

    Peter, on my 4 units I have spent a grand total of a week (five full days)on them in the last five years if not longer. I spent alot of time remodeling in the beginning which was in 97 and 98. But since then I have done next to nothing. The rents have more than doubled since. Many of you claim that houses must resort to there historical rate of appreciation. Do you feel the same way about rental rates?

  56. 56
    mikal says:

    Deejayoh, what is your connection to this site? I think Tim does it for fun and some money. How are you involved in the market? You know more than most here and are smart enough to bite your tounge when others don’t.

  57. 57
    explorer says:

    To answer the questions about RealFactscom: Yes the bulk of it is subscription-based. However they do a quarterly newsletter for free. Those are very focused on the West Coast, and the Seattle area has been a particular subject of attention in the last two years. They are also occasionally quoted in the local MSM. I had a subsription up to the beginning of the year.

    You really have to be actively seeking a rental, especially not a SFH rental, like the poster on the East Side, to know what’s happening now on the ground, vs. statistics that could be up to a year old. His experience is also mine in Seattle. Few landlords, especially those who bought in the bubble are willing to negotiate. More renters are staying put now, as the relization that the grass is actually brown on the other side now. That infuences the vacancy rate, but if many of those who stay put lose their jobs, like in the dot com crash or worse, the vacancy rate will surely climb. Seattle is not the only relatively well paying tech job market.

    The rent increases have more than made up for the flatlines from 2001-2004. I measure that by the lack of income to match it. Income basis for renter affordability is also deliberately skewed towards double incomes, even for studios now. The price difference between a studio, or a 1 bedroom and a 2 bedroom is narrower than I have ever seen them in the 18 years I have lived here. The baseline bar was reset high, and that is skewing much of what is considered “affordable.’

    What is really obnoxious and insulting to me is the landlords that think they can charge the same rents now as new construction, which is itself overpriced. I have seen a lot more expensive turds, and lipstick on rental pigs vs. last year.

    Talking about percentage increases, without acknowledging all the offsetting factors, income stagnation, etc. does not provide the big picture. A 10 percent increase on $700 is less real money than 10 percent on $1000. Meanwhile, other than taxes, the owner’s mortgage rate should be fixed. Unless they were leveraging the hell out of it, or bought on an ARM. So, the real reason in that situation is greed.

    BTW, my triplex was sold in May, and my rent increased 45%. They would not negotiate, as there is no appreciation they can expect for quite some time. My affordable apartment was converted to an overpriced condo last year. My situation may not be common, but it’s certainly NOT atypical.

  58. 58
    mikal says:

    Explorer, If a landlord doesn’t try to get what the market bears they are an idiot. Do you also get mad at Albertsons when they raise the price of oranges. You expect the landlord to keep your rent cheap while exposing himself to all that can go wrong. He needs to be able to be exposed to all that can go right. Why negotiate if you don’t need to?

  59. 59
    Ron says:

    Theres a lot-of-landlords lurking on this site… there easy to spot by the posts, anyone here wonder why?

    personally “I Think there a little pissed off and scared– scared there appreciation might loose and some here are actually doing it the right way with rental houses for positive cash flow.. however couple of these people here, if I was renting THERE BE NO WAY, I Would EVER RENT FROM THEM.. ..

    also I believe were going to be seeing a lot of Apartments to Condos coming back into the Rental Pool– Riverstone has to be on its last leg here in Bellevue only roughly 25 out of 98 units sold..
    CHAMPAINE– they threw in the towel about 3 weeks ago… 45 units there, there in Bellevue, will become apartments again.

    I think the Landlords have great interest in this story of the Condos threatening there revenue stream… serious threats are coming to everything REAL ESTATE..PERIOD.

  60. 60
    mikal says:

    Ron, you would rent at the cheapest place you could get. The tenant doesn’t make a landlord give any references. Maybe you do. I have great interest in everything. If it drops, it drops. I”m not overexposed. But you have answered my questions with anger instead of any answers to what I had written. If real estate returns to it’s historical gains, shouldn’t rentals?

  61. 61
    Ron says:

    The Story is that People need to live somewhere however the Question arises… if people cant afford they get real creative on cutting costs.

    Room rentals– people renting houses in groups– moving in with friends family etc. there is many ways this plays out.

    People that loose houses, might not have the means or the credit to rent houses or apartments…

    Divorces- I always remember the saying “when poverty comes in the front door loves flys out the window– in these situations many times the people resort to renting out rooms. I recently placed an ad on craigslist and had several people contact me because of financial problems forced them to seperate and look for a room to rent.

    It was just a few years ago during the dot-com era that I Would place an ad and have 30 people would respond its not as good now as it was… seems the market isnt as good as it was then. Now I get about 15 responses… I think theres a lot of people renting out rooms now and less people moving to the area, thats just the way I see it.

  62. 62
    mikal says:

    Ron, If real estate returns to it’s historical norms, shouldn’t rentals?

  63. 63
    Ron says:

    I see Real estate doing much worse, I see it loosing a vast amount of the inflated value.. I dont see any other way out.

    im in at 94 prices and not at all tied into the current inflated values..

    I Like the idea of society not having so much of there resources being tied to paying bankers for creative financing.. everything is Built on Credit, prices are tied to this Credit.. without this credit prices have no where else to go but down.. I see easily 30% price cuts coming, thats a best case senario– unless we have some serious wage inflation… the Question is how bad is the Recession going to be and how many dollars are going to printed to save the Banks and Fannie-Freddie?

    inflation that will rob many people of there savings seems probably be the only course the Government can take.

  64. 64
    mikal says:

    Real estate is LOSING it’s value right now. There are those here that think it will revert to it’s historical norm. Shouldn’t rentals also revert to their historical norm? I bought in 96, 97, and a steal in 01 so can see it LOSE 70% before I give it much thought. I hate hypocrites and self righteous and those that want it all ways. I type better after 10 beers than I do at 4.

  65. 65
    Ron says:

    I had justed listened to a Professional apartment course the last couple of days.. Sure is nice to be on the Professional apartment landlords side however let me tell you, I would never rent an apartment from the professional landlords- Seems to me there in the Business of extracting as much money as possible and figuring out every angle in the process..

    if this course was handed out to all the apartment complexes– Maybe a Apartment Union would be started..hahahaha… Lets just leave it at some pretty Ruthless tactics, then again its called making money, however with all the problems facing our society currently, I suspect were going to have some very interesting times going forward..

  66. 66
    Ron says:

    mikal- I dont see anything wrong with what your doing.. market sets the price and people pay it. I just think that currently people no matter what there doing better have a very good cushion in whatever stategy there using “so if things change then there’s options. always have a backup plan- if rents were to drop like in 2004 would you still have that cushion, nothing in life is Guaranteed.. Even Seattle Real Estate.

  67. 67
    Ron says:

    Hope for Best but still be prepared for the Worst..

  68. 68
    mikal says:

    Ron, you still haven’t answered my question. Nor have any of you. If you expect real estate to return it’s normal historical gains, shouldn’t rents?

  69. 69
    Harley Lever says:


    What you are failing to understand is that the vacancy rate is not in the renter’s favor anymore. You think you have an over abundance of choices, but as a pool of renters you in fact DO NOT.

    Your idea that you can pick and choose your landlord with ease does not exist. If vacancy rates increase above 5% then you may have a leg to stand on, but you are simply not there yet.

    Landlords will begin raising rental rates to get the now deflated prices back to historical trends. It is currently estimated to be 10% – 15% under what the market should demand based on income.

    You cannot have it both ways. If more people are renting that decreases the number of vacancies. Landlords will raise rental rates based on what the market can bear.

  70. 70
    Ron says:

    Mikel- maybe in the Future Tenants will ask for references from Landlords..hahaha maybe if the Tenants become financially educated they would play hardball and say well I have cash and my cash gives me POWER– then again Cash is Trash..

    However Fat Chance this will happen–not a lot of Financially educated people in the masses..

  71. 71
    mikal says:

    Their cash only gives them power if there is no one else that wants the apartment that has more cash. Harley, these guys want it all ways. They want houses to revert to historical trends, but rental rates to stay flat.

  72. 72
    Ron says:

    Harley Lever –

    I hear you.. I very much agree- currently the Rental market is tight..

    Only point is that there is so-so many Apartment to Condos that I feel had a stong hand in creating this at the moment. I’ve gone though several different places here in Bellevue and many on the outskirts- take a weekend and go out and tour many of these places for yourself. I spent this last sunday touring over a dozen different places from Bellevue to Kirkland thats without much effort.

    These places will all be coming back in the pipe-line for apartments in the next 12 months, that could cause a great oversupply of rentals coming in the months ahead.

  73. 73
    Ron says:

    Those people were moved out of a great deal of those Rental apartments in the last 12 months or so.. they were squeezed into rentals like yours- its unknown how much of an effect those will have on the rental market of course.. in the end its just about supply and demand- historic noms dont really play a part as far as I see it.

  74. 74
    deejayoh says:

    Here’s a breathless article from 2000 – the last time the rental market was super tight – and we were on the cusp of a recession. That was followed up by 6 years of basically flat rents. Remember 2000? Ooh, scary…

    In fact, regional apartment vacancies are now at their lowest point in three years, according to the fall rent rate/vacancy report from Dupre+Scott Apartment Advisors.

    The firm, headed by Mike Scott and Patty Dupre, semiannually canvases managers of buildings with 20 or more apartments; their just-released report reflects what’s happening at 170,000 units throughout King, Pierce, Snohomish, Kitsap, Thurston, Skagit and Whatcom counties.

    Vacancies in the region have dropped steadily over the last year, standing now at 3.8 percent overall. Six months ago it was 4.1 percent; a year ago, 4.6 percent.

    What’s more, the regional vacancy rate hasn’t been above 5 percent – considered the neutral point, where the market favors landlords and tenants equally – since early 1996.

    “We continue to be surprised by low vacancy rates,” says Dupre. “We would have thought rates to be higher because job growth has slowed so much. Generally job growth is what causes a lot of in-migration to the area, and in-migration in turn creates greater need for housing.”

  75. 75
    Harley Lever says:

    Peter Taylor,

    I have replaced a roof, a breaker box, and had one special assessment that repainted and replaced some rotting wood in seven years. I had to replace a washer machine (renter paid) that a tenant admitted to overloading with a comforter. My tenants have all been great so far. My total out of pocket for all my expenses has been $6000. I will need to replace some carpet soon, but besides that there is not much I am looking towards. I am sure that I will run into a nightmare scenario before my life is over, but for the vast majority of the time it has been worry and hassle free.

    The majority of renters have too much to lose if they trash the place and my rental agreements protects me fairly well. To date I have never had to evict or sue anyone. They are all hard working people who just want a place to live and call home.

    Other than that, the only time needed is to cash the checks each month.

  76. 76
    mikal says:

    Deejayoh, this is the first time I think you might be wrong. Not on point, but why. They may stay flat, but when that happened we had the beginning of the funny loans. From your posts you suggest that housing should revert to historical trends. From that same logic, shouldn’t rental rates?

  77. 77
    explorer says:

    What some of you are missing, is the fact that income, including disposable income left after cost of living, is what actually sets the rental “market rate” in the end. It’s in a situation where the definintion of the median income is being used inappropriately for rental, not per capita income, which is much lower.

    Median income belongs more in the realm of first time SFH or condo buyers. Things have been very skewed on the greed side, especially since the mid-90’s with rents around here. The majority of renters cannot afford to rent a house, that’s why multi-dwellings exist. The majority of renters do NOT make the median income as individuals, and even those who do would have to take 50% or more of the net pay to do so. You won’t get many first time buyers to bail the underwater butts out, or get them to pay the overvalued property mortgage, under present conditions.

    The question becomes who blinks first. The vacancy rate may provide some clues as to when that happens. Hopefully, you will see rents across the board revert back to THAT mean.

  78. 78
    Ron says:

    deejayoh –

    Ive read that myself.
    always seems the information is after the fact. What is a fact today usually turns into fiction tomorrow…. perfect Example Cramers Mad Money- if Cramers telling you to buy, hopefully you have a position there already- if you do you better be selling..

  79. 79
    Ron says:

    Whats your definition of Disposable Income? — anything left over after Gas, Food and paying Utilities? many people dont have much left over…. Saving Rate? what is it today- Ooops is that Disposable, then again from what I understand savings for many doesnt exist.

    My savings and investment money is NOT DISPOSABLE.. Either is my Coffee money, you cant have that either. Personally I would never part with any of these, if I was forced before I gave up any of the above I would live in my car.. hahaha

  80. 80
    Ron says:

    Just having Fun with the Idea of Disposable Income-

    im just spoiled with a 50%+ Savings investment– I like Gold Silver Oil investments.. were still in a Bull market for Commodities, just a blip in the price at the moment the Upward movement is still in tact over the long term.

  81. 81
    Harley Lever says:


    “In-migration” is also caused by high gas prices and the desire to be close to public transportation. As per the poll, The Tim put up asking if people would move towards the city due to high gas prices, 35% answered yes. I imagine that this is true for both renters and home owners alike.

    Secondly, correct me if I am wrong, but rents were flat from 2000 – 2006 because the home ownership became a bargain with those extremely low interest rates until the high run-up. You know… the whole premise upon which this blog was created and what you have been touting since it’s existence! Now it is the renter’s turn to come up to reality.

    You cannot have it both ways my friend.

  82. 82
    mikal says:

    Ron, do you think I send letters to the county telling them that my tenant has used up all his disposal income on rent and that they then can’t raise my property taxes? Until I get no calls on my ads when I have to rent I won’t lower rents. When 40 people show up at an open house it makes me think that I should have asked for a lot more. One thing I have learned over the last ten years is that if you don’t ask enough, the people that would take good care of the place don’t even show up.

  83. 83
    mikal says:

    This is like hearing a field of crickets. Misti May is HOT.

  84. 84
    Ron says:

    Sure right on the Tax issues- Seattle Loves Taxes… hear you- have a great evening, nice chating with you all

    Take Care, Ron..

  85. 85
    Harley Lever says:


    I agree completely.

    I loved it when they put up the information about Zillow the other day that confirms the notion that the job centers Seattle, Redmond, and Everett held their values much better than the outliers. An idea in which the Bubble heads vehemently denied.

    Sorry, but rental rates are going to go up. With further tightening of the financial industry this would limit new developments and create more renters, this will only put further upward pressure on rents.

  86. 86
    explorer says:

    Well dejayooh, aceeration of the bubble curve was not even close to what started in 2003 at that time. There are multiple pressures now on top of creeping unemployment. There are also fewer apartments in comparison to then, due to teardowns and conversons.

    Many people moved out during the dot com crash, never to return. I remember reading articles about a concern for brain drain. So quoting D&S stats on only a segment of one market’s vacancy rate seems suspect to support current conditions when they are not really the same. We are only in the second inning.

  87. 87
    mikal says:

    exploerer, I have had ALOT of beers, but HUHHHH. What? We are still gaining people. The vast majority of this country has NO jobs. Again,,,,,, Should we expect both Real estate values and rental values revert to form? Or is one insulated?Back to the OLYPICS. I still think I could beat Michael Phelps If I drank 1200 calories a day in beer.

  88. 88
    deejayoh says:

    Deejayoh, this is the first time I think you might be wrong. Not on point, but why. They may stay flat, but when that happened we had the beginning of the funny loans. From your posts you suggest that housing should revert to historical trends. From that same logic, shouldn’t rental rates?

    I am agreement with you that rents will return to historical trends. But that is about 4% per year, same as income growth. I’m only responding the the assertion that we should somehow now expect 10% a year projected forward. They were going up at that rate the last time the market got tight – but clearly things can turn quickly, it seems. That’s my point in dredging up the past. I suspect that as the economy slows down rent increases will moderate.

    And Harley, the housing boom didn’t really get underway in earnest here until 2004. So how am I trying to have it both ways, again? My position is well documented here.

  89. 89
    deejayoh says:

    Mikal, you are cracking me up. Let’s just get drunk and blog…

  90. 90
    mikal says:

    Tack 4% on for six years. Most of the people here will not like that. Who asserted the 10%? I probably have a more bearish view on the US economy than most of you based on the the tax cuts and increased spending. How can there be a blog about real estate that can’t discuss politics even though the government helped the banks deregulate which allowed the bubble to begin in the first place?

  91. 91
    Sniglet says:

    What some of you are missing, is the fact that income, including disposable income left after cost of living, is what actually sets the rental “market rate” in the end.

    Actually, I think the relationship between what people are willing to pay for rents (and mortgages) is far more elastic than generally supposed, and does not directly correlate to incomes (disposable or otherwise). In particular, the outlook people have for the future greatly influences how much they are willing to spend. If people become concerned that the economy might contract, and that their jobs might be less secure, then they will look for ways to economize.

    Already, I hear acquaintances at work talk about “down-sizing” to cut costs. One family of four we know in the Lakehills area of Bellevue has just decided to sell their single family home and rent an apartment! A couple of single moms in my church who have decided to rent a home together to save costs.

    I also know of software engineers who have decided to vacate apartments they are renting and move to cheaper shared housing situations. In none of these cases has anyone’s income dropped, or job loss occurred. There is just a growing concern about the future, and a desire to start saving more and paying down debt.

    In fact, I suspect we will find that housing demand in general is far more elastic than generally supposed, and that people can find creative ways to economize and down-size. Kids can share bedrooms, and there is always the basement back at mom and dad’s.

    By the way, I might have a claim to being one of the most bearish on this board. I predict a minimum of 50% Seattle area median price declines by the end of 2012, and believe it could actually be in the 80% range by 2014. Before the coming global recession is over I expect we will see unemployment at over 10%, and lay-offs occurring at EVERY major Puget Sound employer. No industry, or major firm, will be immune from the cut-backs in both consumer and corporate spending that is just beginning to pick up speed.

    So just beat that for a pessimistic outlook. I dare you!

  92. 92
    explorer says:

    Yes Harley, they have been already be going up significantly for the past two or three years now, during the bubble. The standoff is landlord perceptions vs. my wallet, and how much I am willing to downgrade, yet still pay more for less. In my case they often lose the best renter they could ask for. What they get is short term gain, as well as higher turnover. There are only so many high income renters, and the competition for them is going to get stiff when the high priced apartments coming on line in the next year, along with mortgage rent condos. Guess where the turnover is going to go to get more percieved value for the money?

    One of the other assertions here is that rents tend to peak along with the highest peak of a SFH/condo bubble. That seems to be following the pattern. Enjoy it while it lasts.

  93. 93
    mikal says:

    No explorer, according to Deejayoh looking at historical rental rates they have remained flat until last year. What are you basing your three years on. Sniglet, you may be partly right. However, we are one of the few places in this country that makes things for world consumption. There are now countries insulated from what is going on economically in the US that still want the products made here which should mitigate some of that. You need to get on Eleau’s apocalypse bunker work crew.

  94. 94
    mikal says:

    Sniglet win’s the gold for Bear. I plan on winning the Gold for passing out which is now.

  95. 95
    Sniglet says:

    There are now countries insulated from what is going on economically in the US that still want the products made here which should mitigate some of that.

    And which countries are those? Japan is seeing an outright economic contraction. China is starting to shut-down factories due a sudden drop in export orders (and their real-estate market is falling apart as developers go bankrupt and non-performing property loans increase dramatically. India is facing a major decline as western firms cut-back on IT spending. Just look at how Indian and Chinese markets have been collapsing (my inverse Chinese stock funds have been doing VERY nicely this year).

    The oil producing nations will be toast from the demand destruction that will kick in from the global recession. Just look at how quickly commodities took a drubbing in the last few weeks. Sure, a commodity rebound is due now that things are over-sold, but oil will be down below $70 a barrel by the end of 2009.

    Europe? That’s hardly a growth region. Denmark, Holland, & Switzerland have had property bubbles that make what’s happened in the US look like child’s play. Ireland, the UK and Spain are already seeing their economies tank with massive credit contractions. Italy can’t even sell their national bonds!

    So just which are these nations that are going to drive the economy even while the global credit system goes deeper into reverse (certainly not Canada, Australia, New Zealand, or South Africa, which have plenty of ominous economic portents in their own rights)?

  96. 96
    Harley Lever says:


    Based on your logic then rents should have been falling since 2006 -2007. That is absolutely not the case. They have been going up and vacancy rates have been going down. Currently rents are below where they should be based on on current income levels.

    I am sorry, but you do not determine what you will pay for rent especially when the market is not on your side. As a landlord’s taxes, maintenance, and other cost go up with time so will your rent. Don’t get me wrong, sweet heart deals exist, but they are absolutely not the norm.

    Lastly, take a look at these population predictions for the United States. http://www.msnbc.msn.com/id/26186087

    Assuming everything is equal for each state you should expect a population growth of 1 million people each in 15 years. This assumes that Washington will not attract more than other states. I’m thinking when I turn 50 I am going to be sitting pretty. High rents and high property values.

  97. 97
    mikal says:

    We will see.

  98. 98
    Harley Lever says:


    You said “the last time the rental market was super tight – and we were on the cusp of a recession. That was followed up by 6 years of basically flat rents. Remember 2000? Ooh, scary… “.

    Are you not trying to make a correlation between this tight rental market and the one of 2000? I would argue they are completely different markets in that the renters from 2000-2003 may have gotten a reprieve from rental increases due to the recession and 9/11. Rents then remained flat because renters leaving the market for home ownership and thereby creating “Seattle Bubble”. This part of the argument is foundational to this blog.

    How can you not concede the fact that rents are not nearly as high as they should be based on median income levels, historically flat rents since 2000, and decreased vacancies. This is a landlords market right now for most of the job centers.

    I never said that rents will increase 10% per year. I am saying they need to move up 24%-32% from the 2000 rental levels to come in line with the median income and inflation. With tighter vacancies and fewer renters entering the ownership side, rentals will remain in high demand. If gas prices continue to climb you will see more people moving closer to the job centers putting further upward pressure on rent prices.

  99. 99
    Markor says:

    I rarely see landlords mention opportunity costs in their cost-benefit analyses, like those above.

    If you could be sure that the prices on the housing units you’re renting will fall 15+% from today’s fair market value over the next year, seems to me that you’re definitely better off selling those units now, and re-buying units near the bottom. Of course you can’t know the future for sure, but if prices are falling like they seem to be, the odds of losses (compared to selling now) are rising.

    Or, if you hope to make 4% annually on your investment on average, maybe you’re better off getting out of the landlord business and investing in CDs instead. I suppose leverage makes the difference here, but if so, you’re taking on greater risk than the CD, and if you’re okay with higher risk, you could make 7% or so on corporate bonds.

  100. 100
    mukoh says:

    I love some situations with rentals that I have.
    One a totally decrepit oil heat home with single pane windows, old carpet from 12 years ago, appliances that have broken and tenants had to buy their own as they are on AS-IS basis, a killer carpenter ant infestation. And still paying $1200 a month for 4 years now like clockwork. All net too, the house has been paid off for 6 years. They have been month to month for 3 years now.

  101. 101
    Markor says:

    A killer carpenter ant infestation sounds bad for you too.

  102. 102
    Harley Lever says:


    So your advice is sell the units now, pay 6% commission, buy them back later and pay for closing cost again (which are now higher), a higher interest rate, and with a much larger down payment.

    Please do not be insulted if I do not take your advice.

    Can I remind you that the landlord does not pay the mortgage, the renter does? I am sure you are aware that you can depreciate the structure over 27-years. After 21 years the rental income minus costs becomes pure profit (assuming 13 payments per year on 30-year mortgage). In addition to rental income, you have an appreciating asset (house).

    You are absolutely right, it is a leverage play. I paid a total of $12,000 for the closing costs and down payment. After 21 years, assuming only that I break even on rent and maintenance, I will own the house outright as well as receive monthly income that will likely be 2.5X what I currently pay for a mortgage based on inflation. Not to mention a house that would have likely doubled in value.

    Please explain how your 4% CD or corporate 7% bonds are better?

  103. 103
    explorer says:

    You did not seem to comprehend my post very well Harley. Rents should start going down next year, according to my logic and the market forces you are so confident you will retire well on. Of course no one can predict the future 100%, and that goes for you too. They have been rising in the last 2-3 years on the ground, BEYOND inflation, along with the bubble.

    The RE bubble has officially popped in the PNW. There is usually a delayed reaction across the board in the PNW especially. Do you expect it to be different for you? Hold on to that thought and remember it next year.

    I certainly DO have control over my decision to sign an overpriced lease or not. Not everyone just goes along like you seem to believe, and those who have higher incomes are going to want to get some value for it.

    There is no “ground” to make up, when you have really not “lost” anything substanitively in the first place. Other than opportunity. That’s on paper, we are talking real money now. Meanwhile those renters were still covering your mortgage as it was appreciating. Median income, especially based upon two incomes, is not a sufficent crutch to lean on for justification of the rental market, and it does not dictate the rental market rates in isolation. That’s more appropriate for First Time Buyers.

    You are also ignoring the other pressures that are coming to bear. Elasticity in the rental market will not likely work in your favor, according to your own logic. It might work better for those who double up, but does that not cut the number of units in demand in that same market as well?

    I understand your postion more than you think I do.

  104. 104
    EconE says:

    Well…I just spent the evening researching rents in my hood. Downtown new construction condos…not apartments. It appears that they have actually fallen over the last year.

    One condo in my complex rented 04/07 for $2275 and just turned over on 4/08 for $2100.

    That doesn’t even include the $1000 fee that the Landlord has to pay to the complex to move the person in nor the leasing agent’s fee.

    Other renters I know in the complex are paying even less $/ psf…(view units I might add) and nobody I know has had their rent raised when their lease ran out. Maybe the landlords were happy to keep them?

    Now let’s compare apples to apples when it comes to a comparable unit for sale.

    this one…two floors below…pretty much a carbon copy.


    the original asking price of the above unit was $539k.

    Now it’s at $488K

    The buyer paid 508k 03/07 (let’s not forget the $505 Homeowners Dues in addition to taxes and “content” insurance)

    And this is playing out comparably in other buildings also.

    Not to mention… more units to come online shortly with no shortage of rentals at this end of the market at the current time.

    So…Prices falling in my market, rents falling in my market….and I’m downtown. We’ll see if my Landlord really wants to hit me with a rent raise next year. I really can’t see that would be in his best interest however.


  105. 105
    Harley Lever says:

    Econ E,

    You are using two units to measure all of the rents in Seattle???

    $2100 in rent is far above the $1350 median. Remember there is a complete opposite side of the the spectrum too… the bottom is coming up.

    Lastly, I was not the one who made up that data. If you refute the study and its findings that’s fine, but please use something more than two units in your building as a rebuttal.

  106. 106
    EconE says:

    Harley Said…

    “Can I remind you that the landlord does not pay the mortgage, the renter does?”

    Let’s see. After Homeowners Dues my LL has less than $1200/mo to cover his mortgage and taxes. After property taxes he nets around 10k/year (do landlords pay income tax on their rental income?). Even if he paid cash for the place, his return would be less than 2%. on his 500K+ (presale purchase price) condo?

    How’s that better than a CD?

    I’d say that he’s subsidizing my rent more than I’m paying his mortgage.

  107. 107
    EconE says:

    Harley…there are many many more. As I said, YMMV (your mileage may very)…I also specified that the market I was looking at was the downtown market and it’s playing out the same way in other buildings.

    What used to get $3000/ mo at Cristalla now gets $2250

    What used to get $3500 and Hotel/1000 Madison Tower is now asking $2900.

    Same thing happening at Concord, Newmark Tower etc etc.

  108. 108
    EconE says:

    You worry about your neighborhood Harley…and I’ll worry about mine. ;o)

  109. 109
    Harley Lever says:


    Form 2000 – 2006 rents were flat… they did not go up with inflation. They are currently priced 10% – 15% below the norms based on median income. Which means if they were going to stay in line with inflation, like they historically have, they will likely come up to meet that measure in the future.

    When? I do not know. All I know based on the data is that there is a 2.9 vacancy rate which means currently the market is not in your favor and rental rates will likely rise.

    Yes, you do not have to sign anything. But it is does not mean you are entitled to or will receive bargain basement prices on your rental. If you are ever forced to move the rental market if statistically not in your favor.

  110. 110
    Markor says:

    So your advice is sell the units now, pay 6% commission, buy them back later and pay for closing cost again (which are now higher), a higher interest rate, and with a much larger down payment.

    Please do not be insulted if I do not take your advice.

    At some unit price drop % per year you would certainly come out ahead by selling now & buying back later, vs. staying a landlord. Do you know approx. what that % is for you? A 15% drop in the next year seemed conservative to me, esp. since you can sell for a 4% total commission (1% flat fee for seller’s agent, 3% for buyer’s agent).

    Please explain how your 4% CD or corporate 7% bonds are better?

    I don’t know for sure. I was just hypothesizing. At some reward% / risk, another investment certainly becomes better than being a landlord, albeit such investment may not exist. Do you know what that reward% / risk is for you? Risk can be difficult to quantify, but what is the annual gain % (the reward) you expect on average? If it was, say, 5%, a CD is almost certainly a better investment, considering your risk. At 10+% you may be better off as a landlord, even when your risk is factored in. You make being a landlord sound potentially lucrative, but a leveraged investment that does 7% annually (unleveraged) with moderate risk can also be lucrative. (There is a precise way to compare apples to apples between investments, like between your landlord investment and investing in a stock index fund. It’s easily done in a spreadsheet. To calculate the risk you need to know the value of your investment on a periodic basis, factoring in all your costs including your time.)

  111. 111
    Harley Lever says:


    All landlords are not in the same position.

    My sole point is rents collectively are going up and they should based on historic norms.

    There are several dozen neighborhoods in Seattle and several other buildings and units in Downtown. Collectively rental rates are going up across Seattle and vacancies are down.

    Whether it is the bottom moving up on Rainier Beach, I do not know.

    I will keep my eye on area 700!!! ;>)

  112. 112
    Harley Lever says:


    I do not know the specific risk percentage and imagine is varies greatly based on the amount leveraged, annual cost, and the return on investment.

    You can mitigate risk greatly through purchasing intelligently, fixing your costs, and through insurance.

    I purchase properties that are near job cores, with good access to mass transportation, and/or educational districts, where rental demand is high and will likely remain high (no suburbs). Ideally you want to get a house where you can rent it for close to cost for the first few years (obvious).

    I do like sweat equity, so if a slight fixer upper is in a good or transitioning neighborhood I would consider that as another way to reduce downside risk. Look for houses or condos on the lower end of price/sqft in good or up and coming neighborhoods that are not completely trashed. Painting, plastering, moulding, and installing light fixtures are all doable jobs. Stay away from foundation, roof, and plumbing issues. In general, I have lived in the houses for two years and gradually made them look pretty, before moving on. So far, all have cash flowed when I have turned them into rentals.

    I only buy properties that I know I can afford to pay for them even if they were to be vacant. As the rental begins to cash flow take the profit to first develop a rainy day fund (maintenance and vacancies).

    I then take any extra profit to pay down the mortgage with the goal of one extra payment per year. If you make one extra payment per year you can reduce the mortgage by 7 years and save almost 1/2 the cost over the life of the loan.

    I mitigate increasing costs by getting a fixed rate loan. I have also been able to refinance two properties to lower rates. However I think I have seen the bottom.

    The problem with the flippers was they over leveraged themselves well beyond what I would consider for risk and never fixed their costs. Many bought as many houses as they could possible leverage with out ever thinking they would have to make a mortgage payment. The other bought as much house as they could afford at 1.99%. 30 Year fixed is the only way to go!

    Insurance covers me for catastrophic events.

    As rents go up and my profits increase I look for new houses.

  113. 113
    mikal says:

    Yes Harley, but we expect rents to go down and real estate values to go down because we want it both ways. Bleeeeh, Winning a gold medal in beer drinking used to be easier on me. Markor, how much have I lost on my inintial $25,000 that turned into $1,000,000. It really hasn’t lost much, but even if or when it does I don’t care. I’m not selling for at least another 20 years so I should be able to outlast Sniglets global depression. I have to go now. I have a JOB.

  114. 114
    Sniglet says:

    As a landlord’s taxes, maintenance, and other cost go up with time so will your rent.

    No, rental rates have little correlation to the landlord’s costs. Look at how rent prices are dropping in Miami, San Diego, Minneapolis, Phoenix and Las Vegas even while taxes, maintenance, have remained the same or even risen. The median incomes haven’t even declined much in the last couple years, yet their rents are falling anyway.

    The key factor governing rental rates is the quantity of units for rent and the number of people looking to rent. In regions where there are high numbers of foreclosures, many home-owners turn to renting their properties on the “shadow” market since they can’t sell. Further, people living in declining markets are re-assessing their needs for accomodation, and deciding to downsize. Thus, you wind up with people who used to live in individual appartments moving to shared accomodations, some people moving back in with their parents, etc.

    I’ve read plenty of stories from these declining markets where landlords proclaim their pain at being forced to rent their properties for far less than their costs. As I said, the landlords “costs” have little to do with the rent prices when there is a mass of vacant inventory.

    Unfortunately, Seattle is headed in the same direction as these other declining markets. The inventory of unsold homes is growing, more and more condo projects are being converted into rentals, and people are starting to change their preferences for accomodations (see my anecdotes about colleagues who are down-sizing). Even the foreclosures are starting to pick up around here. Given another year of continued expansion of the foreclosure rates we should expect to see a lot more properties show up on the rental market.

  115. 115
    mikal says:

    Sniglet, you would be completely right based on what the other markets are doing if everything was the same. Those other markets had appreciations in rent also while we did not. That does make our market different. I agree that you can only get what you can get, but right now that is pretty good. You guys want it all ways.

  116. 116
    Sniglet says:

    you would be completely right based on what the other markets are doing if everything was the same. Those other markets had appreciations in rent also while we did not.

    Not really. Florida, California, Arizona and Minesota saw very little rent price appreciation during their boom years. Rents only rose right at the very apex of their real-estate markets (when buying prices stopped appreciating while fewer people wanted to buy). San Diego is an excellent example of this. Their rents were in the dumps, with almost no increases, for a LONG time. There was a brief period of a couple years where rents rose (right when all their new downtown condo complexes were under construction), but then things headed downhill as soon as all the new construction came back on line.

    In short, rents never really appreciated all that much in these currently declining markets. That brief 2 or 3 year period of rental appreciations was quickly undone when the foreclosure rates grew significantly and countless home/condo owners began throwing their units on the rental market since they couldn’t sell.

    I don’t see how our market is different. Our rents were in the tank for most of this decade and have really only started to see increases in the last year or two. Additionally, we have a tonne of new condo developments under construction. Lastly, our foreclosure rates are now starting to increase at dramatic rates. It looks like we are following EXACTLY the same pattern as everywhere else. By mid 2009 I expect to see Seattle area rents see a lot of downward pressure.

  117. 117
    RG says:

    Here’s my rent increase anecdote on the 1200sq ft, 1.5 ba, 1 car garage townhome apartment I’ve been renting for 8 years in West Seattle:

    January 2001 $1050
    January 2002 $1050
    January 2003 $975
    January 2004 $975
    January 2005 $975
    January 2006 $995
    January 2007 $1085
    January 2008 $1170
    January 2009 $1290

    As you can see, my rent pretty much stagnated until last year, when my rent increased nearly 18% to its current price. However, if you factor in how much it’s increased since I moved in 8 years ago, I’m roughly at a 2.6% yearly inflationary increase. My rent only increased as housing in Seattle hit its actual peak in the summer of 2007.

    But, I suspect that my once apartments-condo-to-apartments landlords won’t be able to squeeze out much more. And since at least 3 apartment-to-condo projects have all reverted back to apartments in the last 8 months in West Seattle, the contraction of available rental units that forced the uptick is now reversing into an expansion of available units. I can only imagine this will at least dampen any rent increases in the area.

  118. 118
    Markor says:

    Harley Lever, sounds like you’re doing everything right in the landlord business.

  119. 119
    SeattleMoose says:

    We call that area “the hive”.

    But Belltown is so “hip”…..LOL!!!!!!

  120. 120
    Joel says:

    The average rent in Seattle is $1350 and the vacancy rate fell to 3.5% from 5.2% in 2007.

    In 2007 houses and condos were still appreciating. My how things can change in just a year! I think the rental market is still fairly tight, but don’t expect it to continue that way. The simple fact is that there is an oversupply of homes in this market. Some of the oversupply will go to the rental market which will flatline rents. No amount of former owners becoming renters or landlords rasing rents while laughing all the way to the bank is going to affect the housing oversupply.

  121. 121
    david losh says:

    The developer sold MODA out, but had trouble finding a crane to build it until recently. As the market changed the past year he sold to an investor who is renting it out.
    The whole thing was based on numbers with the developer originally making about ten million dollars. Worst case, he only nets four million. All in a year’s work.

  122. 122
    mukoh says:

    There are a few large apartment holders currently in buying negotiations for some condos that are unsold or have broken ground. These will be bought and rented by these groups. Do not however expect lower then market rents as these groups are not using financing and have the pulse of the rental market pretty well tuned.

  123. 123
    Alan says:

    Do not however expect lower then market rents

    Any business that rents out property for less than market rates would certianly be foolish.

    However, that does not mean that market rates will not drop.

  124. 124
    Andris Virsnieks says:

    A simple income analysis could have prevented some of these unfortunate people from buying. In Seattle, from 1976 to 1981, I was able to buy new condominiums at an average 7.45 price-to-rent ratio (based on data contained in my book: How to Invest in Condominiums). These condos when rented yielded an immediate positive cash flow. In 1986 I purchased my last investment condo with a 14.2 price-to-rent ratio. It had a negative cash flow. Too many buyers were willing to pay much too much driving up price-to-rent ratios to about double from where I stared to experience a negative cash flow. How could they take on such incredible risk? In my book I warned how over-priced condos in downtown Seattle were, already in 1998!

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