Do you love the idea of investing in real estate and wondering how to buy your first investment property in Shoreline, WA? This is a great question. Due to tight (or negative) cashflow and high property costs, many people wonder if it even makes sense to invest here.
Well, if you can afford to get in, the numbers can look pretty favorable. The benefit of buying your first investment property here in Shoreline, Washington is that this is a strongly appreciating market, at least it has been historically.
Whether buying an investment, rental, house-hack, or living in a home and then renting it out when you’re ready to move up is a property buying strategy that you’d like to consider implementing, I’d like to help. As both a real estate investor (since 2003) and a real estate broker here in Shoreline, WA, I can help you understand the numbers and whether it makes sense for you to invest locally in Shoreline, WA or if you’d be better served investing out of state, which is how I got my start.
How To Buy Your First Investment Property in Shoreline, WA: Step 1 – Understand Your Investment Objectives
If property here in Shoreline, WA makes a good investment? Well, that all depends on your investment objectives and as an investor for 18 years myself, as well as a real estate broker here in the Shoreline area, I will tell you what I like and what I DON”T LIKE about the idea of investing in rental homes or small multi family properties here in the Shoreline area
I’m Emily Cressey and I’ve bought over a dozen rental homes as well as put together some syndications with partners on bigger apartment buildings and retail properties… mostly out of state.
I’ve looked at investing in property here in Shoreline, and like many, I expect… wish I had done it 10 years ago after the market tanked in 2008.
The trouble with investing in real estate in the Seattle area in general is that it does not cash flow unless you use a huge down payment. You have to have cash and credit to play this game.
How To Buy Your First Investment Property in Shoreline, WA: Step 2 – What Does Negative Cashflow Look Like?
I recently looked at a 3/2 in Shoreline, Washington that was a small 1-level 1200 square foot home previously used as a rental. It was selling for $580,000. Yes, over half a million dollars for a house that would rent for about $2,000 bucks a mont
Looking at a loan, if I put 25% down, and paid 4% interest over 30 years, my mortgage payment would be $2077, not including insurance – maybe $100/month, taxes, $400/month.
If you hire professional property management, you’re paying another $200/month, plus there are the inevitable expenses for things like vacancy, paint and carpet, new roof, yard maintenance, etc. These expenses will vary a lot depending on the age and condition of the property, how long the tenants stay, and so on. Let’s allow $300/month, because Shoreline, WA ain’t cheap. Getting tradesmen here can be fairly expensive.
So, from an income perspective, you’re probably spending about $1000/month (averaged over time) on your property expenses.
That looks like Income: $2,000;
Expenses: $3,000
Leaving you paying $1,000/month negative cashflow out of pocket each month.
Not that exciting, especially when you have to tie up a lot of cash ($145,000 down payment) in order to do it.
How To Buy Your First Investment Property in Shoreline, WA: Step 3 – Appreciation- The Secret Sauce?
So why DO people do it? Appreciation. This is an appreciation market, rather than a cashflow market. And over time, appreciation is a much stronger driver of wealth.
In 2011, Shoreline, WA Median Home Values were $302,000 to $672,000 in 2020, according to https://www.zillow.com/shoreline-wa/home-values/, indicating an average of over 8% annual appreciation, although this accounted for an especially strong growth period which included the recovery after the 2008 crash.
https://goodcalculators.com/home-appreciation-calculator
https://www.zillow.com/shoreline-wa/home-values
Using a more conservative number of 6% annual appreciation if your $580,000 house appreciated at 6% for 10 years, it would be worth a million bucks.
So what’s your rate of return on investment if you put in $155,000 upfront (i’m adding in 10K for closing costs) and then $1,000/month to cover negative cashflow?
Value: $1,038,691
Mortgage Balance: $342,710
Equity: $695,581
https://www.cchwebsites.com/content/calculators/AnnualReturn.html
That gives us approximately a 12% rate of return. It could be more if you calculate things like tax savings or rent increases. It could be less if you had to do a lot of expensive repairs.
Of course, if you were to sell there would be some transactional costs and taxes to pay, and things like that, but even if I take off $100,000 to account for those expenses you’re still looking at a 10% rate of return.
Those rates of return are very powerful for making money work for you and that is why people continue to invest in Shoreline area real estate, and real estate all throughout the Seattle area, frankly, even though it doesn’t cashflow well.
How To Buy Your First Investment Property in Shoreline, WA: Step 4 – Does This Make Sense For Your Situation?
In fact, many people here earn enough from their jobs that they don’t need cashflow. What they need to do is put their money to work for them, and historically real estate has been a great vehicle for doing that.
If you’re not sure, it might be worth considering a strategy like turning your first home into an investment property after you’ve owned it for a while, or starting with a multi-unit property that you can “house-hack” by having tenants pay part of your mortgage.
Questions About Moving Forward?
If you have an interest in investing in the Shoreline, WA area, or other areas, you can reach out to me and let me know what questions you have. I subscribe to a number of information service providers and we can drill down on zip codes to help you identify the areas with the best appreciation and rent growth. I also invest out of state and if investing in Shoreline, WA doesn’t seem like a good fit for now, I can help you find other markets nationwide that also offer attractive appreciation rates without the intimidating price points and negative cashflow found here in the Seattle area.
My name is Emily Cressey and I am here to serve. Just let me know what your questions are and I’ll see if I can point you in a hlepful direction.
