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.

12 comments:

  1. 1
    Blurtman says:

    Let’s say you plunk down $500,000 on a 3 BR rental, and can rent each BR for $1000 per month, or $12,000 per year. Times 3 that is $36,000 a year, or a 7.2% return. That simple calculation does not take into account vacancies, insurance, maintenance, and other costs. I would be there are existing spreadsheets that are plug and play to do the scenario analysis.

  2. 2

    I have little/no interest in being a landlord. I would need to factor property management into the equation.

  3. 3
    FlipperInSeattle says:

    Another option that I would have chose: would you/did you buy a few years ago when the price vs rents ratios were better?

    We picked up a few houses, a couple duplexes, and a couple of condos over the course of 2010-2013 when the purchase price-to-rent ratios were solid. Between the the run-up in prices over the last couple of years, and the hedge-funds buying the bulk of the easily-rented inventory, it is a lot harder to make the math work nowadays…

  4. 4
    enatailurker says:

    Definitely not. My parents and my grandparents were landlords. It’s not a fun lifestyle. Especially if you’re a small-timer who is managing a few rentals on top of a regular job.

  5. 5
    Macro Investor says:

    By Blurtman @ 1:

    Let’s say you plunk down $500,000 on a 3 BR rental, and can rent each BR for $1000 per month, or $12,000 per year. Times 3 that is $36,000 a year, or a 7.2% return. That simple calculation does not take into account vacancies, insurance, maintenance, and other costs. I would be there are existing spreadsheets that are plug and play to do the scenario analysis.

    $3000 a month seems high.

    Hearing the horror stories from my landlord, and seeing all the hard work they put in… it would have to pencil out to a LOT MORE than 7% gross.

    They could call you at 3am because the toilet is flooded. Or they could cook meth and your $500k shack is a total loss. Better know what your insurance does and doesn’t cover.

  6. 6
    wreckingbull says:

    RE: Macro Investor @ 5 – Which leads us to the 50% rule. It is a crude rule of thumb, but many like it as a conservative exersice to weed out possible rental properties.

    It basically is this. Over the LONG run, your non-mortgage expenses will usually average out to 50% of scheduled rent payments. These include all expenses, including the expense of vacancy. Makes that 7% seem a little flacid. I don’t doubt that Flipper in Seattle picked up some good ones a few years back, though.

  7. 7
    wreckingbull says:

    Another interesting post would be comparing landlording to low-cost REIT fund investing. Of course the drawback of the latter is that leveraging is more difficult.

  8. 8
    Blurtman says:

    RE: wreckingbull @ 6 – Interesting. But as RE only goes up, you’d have an always appreciating asset that is also throwing off cash, so returns would be 3.6% in the example plus appreciation.

  9. 9
    FlipperInSeattle says:

    By wreckingbull @ 6:

    RE: Macro Investor @ 5 – Which leads us to the 50% rule. It is a crude rule of thumb, but many like it as a conservative exercise to weed out possible rental properties.

    I don’t doubt that Flipper in Seattle picked up some good ones a few years back, though.

    I wish we were consistently getting the 50% rule. In King County, even in the “good years” it was near impossible to get those rates. You could choose to get way out-market (way north, near JBLM, – not KingCo), but for those of us that want rentals within 45 minutes of where we live (so as to avoid management), you are hoping for a cap rate of 8-10.

    We got a couple good ones, some OK ones, and some mediocre ones. All told – sort of like any other investment. You don’t hit on everything, but you need to keep chugging along and work the numbers.

    Which, I suppose, is a different way to say – if you were only going to have one rental property – don’t do it. A single investment is a crap shoot or gamble. Diversify, diversify, diversify…

  10. 10
    Erik says:

    RE: Macro Investor @ 5
    My life must be a lot harder than everyone else’s. Managing rentals is easy. I would say not stressful and not challenging. The job, the masters degree, and the fixer all at the same time these last 2 years was much harder. Grow a pair macro idiot. I hate when people born with a silver spoon in their mouths cry about the struggles of being a landlord. It makes me rage full.

    If you get woken up in the middle if the night, you should have done a better job on your construction. In the freak case you do, be a man and go fix it for them. Call someone if you can’t fix it before work. Tough the day out and go home and crash. Being broke and constantly stressed about money sucks a lot worse. I am glad I am not a wanker that was given a free ride like you. I may be trashy, but I am tough and I am not lazy like you. Plus I had to learn to remodel out of necessity, or I had to go to mcdonalds to use the restroom, which really blows. Going and making a repair is the least of my worries. I have been through a lot worse.

  11. 11
    enatailurker says:

    RE: Erik @ 10 – Erik, I can see why you think managing rentals is easy. You have a lot of handyman skills, which is why you’ve taken on two remodel projects already. Someone who doesn’t enjoy fixing her own house is really going to hate managing a stream of rental fix-it issues. And those are really the beginning of rental issues. The tenants who pay irregularly, the tenants who trash the house, the tenants who stop paying all together and have to be evicted, etc. It’s a lot of work and a lot of risk. Especially for someone 10 years older than you, who has to fix the tenant’s plumbing and then still go home and help with the kids, fix her own house, try to spend a few minutes of quality time with her spouse ….

    I’ve been on the other side too, a tenant of someone who had a full-time job at Boeing and 7 rentals on the side. It meant waiting 3 weeks once for him to fix a broken heater. If something broke on Monday, it wouldn’t get fixed before Saturday. And anytime he came over for maintenance, his wife came along. She would stand in our living room and complain about how much time they spent on the rentals and how they never had any good family time. As a renter I learned the hard way–rent from professionals who are managing lots of units, and see taking care of your rental as a job, not as a chore that is screwing up their weekend.

  12. 12

    RE: enatailurker @ 11 – It’s also a matter of how busy you happen to be at other things.

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