Choose Properties For the Scarce Times

The Seattle real estate market continues to rise. Seattle, Portland, and Dallas seem to be the last urban markets standing in the Lower 48 housing boom. I, of course, want it to continue for years, but I can see the increases slowing down. The thing is…there’s just not much inventory right now in Seattle, so that won’t encourage prices to level off. Right now, the market looks good.

Unlike cities like Atlanta or Dallas, Seattle is built between two bodies of water – Puget Sound and Lake Washington. In some places, I believe there’s only about 35 or 40 blocks between them. This means there’s a relatively small, finite number of lots available “in-city” and it’s not growing. When you rent or sell, a lot here will probably be more desirable than farther out. Sure, there are many suburbs across the waters and North and South of the city, but the farther you go, the less you live in Seattle and the less a buyer (or a tenant) will pay for it.

When you hold rental property for the long term, you have to be able to weather the scarce times, even though that may be a little difficult to see during the good times. When there aren’t enough tenants and too many For Rent signs, tenants in Seattle tend to choose a place close to the city (preferably in that 35 block range,) even if they work across the water. They also tend to choose a house rather than a condo or apartment – because they can suddenly afford the lowered rents and the extra private space.

Another key factor – space for a dog to safely be outside. This means either a fenced-in yard or a lot close to one of the many public dog parks. Yes, it’s important. I heard somewhere that 40% of Seattle households have a dog, so it’s better to be open to that market.

I love a city that loves dogs.

Assuming there will be a time in the future with wide availability of both apartments and houses in and around Seattle, my goal is to find a property that falls into a desirable category that tenants would choose first. This careful approach and preparation pays off in the long term when I have less stress about finding tenants during the harder times. Of course there are other important factors in choosing a lot, and I will be writing more about them soon.

Seattle Rental Houses Become Scarce and Expensive

Rental houses are becoming harder to find. This article may be good news for rental property owners…I am linking to Tim’s Seattle Bubble for the article as I think his comments are an interesting explanation for what this means to those planning to buy a first house right now. His message: renting may still be the better way to go.

Be Ready For the Long Haul Before Buying Rental Property

If you know you’d like to be a landlord, rental property may be a long term investment path for you. Investments in rental property should be viewed as longer term. The money you sink into a down payment should be funds that you would otherwise put into long term funds, so don’t sweat the smaller ups and downs in property value. Yes, with the real estate market rise in the last decade, many people have done well in the short term, but you can’t count on that to repeat or to continue. Here’s one view of Seattle’s property value timeline.

If you buy now and must wait seven years for that property value to rise, it’s okay! You aren’t supposed to touch that money until you retire anyway. Say you put down $15,000 on a $150,000 property (10% down.) Assuming the rent (or use of it) covers your mortgage and monthly expenses without a significant profit, your main financial concern then is probably the selling price.

If the market value falls to $130,000 2 years after your purchase date, you’re not really affected because you’re not selling it yet. (Hopefully your property taxes went down too.)

If the market value then spends the next 5 years rising to $190,000, you may be ready to sell. This would mean a $40,000 increase from your original purchase price, which if you had paid cash (100%) would have been about 3% rate of return over seven years. Not great.

However, you put down 10% not 100%, so based on a $15,000 investment, you took away $55,000 ($190,000 – $135,000 mortgage). That’s an over 18% rate of return over seven years plus possible tax deductions along the way. You leveraged your $15,000 with a mortgage, giving you a better chance of a high rate of return, and helping weather the time through lower market value periods.

You have to be ready to be in it for the long haul. As long as you only use money earmarked for long term investments or retirement, and leverage your down payment at a rate with which you are comfortable, rental property may be a great idea for you.

My disclaimer: This, of course, doesn’t take into account certain aspects like real estate commissions, closing costs, periods without rent, paid mortgage principal etc. This is just a very general illustration of how to think long term about rental property investment and the power of leveraging your investment dollars. Every investor needs to carefully analyze the property for rental potential and that’s a whole other series of posts. Please consult a professional for advice.

What is Your Magical Number?

Zillow is one of those real estate resources you hear in daily conversation with your friends. Even if they aren’t planning to buy or sell a home, they have usually looked up a few spots out of curiosity. It’s popular because the site gives an estimate (or “Zestimate“) for every property, on the market or not.

There’s always one in every neighborhood: A monster house with huge gaudy Christmas decorations that suck up all the electricity in the area; a place where you never see anyone, but the neighbors try to guess what kind of people live there. This morning I saw this house in our neighborhood had a “Make Me Move” price offered on Zillow.

Zillow describes this price designation:

Make Me Move is a free and easy way to tell others the price you’d be willing to sell your home for, without actually putting it on the market. It’s that magical number you just can’t refuse.

It was high for the current market, I think, but that tells me it would take a good amount of money for them to move from it. Of course, it also made me think of what it would take for us to move from our house, what would that number be? Something based on the market value? Or maybe based on the cost of the next house we would choose? Everyone has a price, right?

We love our street and our neighborhood. If we encouraged our friends and neighbors on this street to enter a “Make Me Move” price for their houses, I think we would find prices much higher than current market value. Does this say anything about our street?

If you saw Apple street on Zillow with lots of “Make Me Move” prices that were double or triple market value compared to Orange street with “Make Me Move” prices close to market, would you think Apple street was a more desirable place to live? Or are Apple street homeowners being ridiculous and you would want to live on Orange anyway because the neighbors will at least be reasonable and realistic?

Is it better *not* to enter a “Make Me Move” price if you’re not planning to move anytime soon? Or should every homeowner do it, because…why not? It’s your magical number.

Should Great Service At a County Government Office Be Surprising?

I spent the morning at the county Land Use department. I know – you’re hooked already! I had several questions about a piece of property we’re looking at purchasing. Having only been to the county records building – with a somewhat scary old fluorescent lit interior with a humming snack machine – walking into this much newer building was a very pleasant surprise. The warmly lit lobby with a digital directory, Starbucks, and very helpful security guard was almost as nice as the service in the Land Use Transportation office. I couldn’t believe this was a county office. They spent time with me, answered my questions clearly without sending me anywhere else and offered extra assistance with a smile. Wow.

I wonder if the housing and construction boom has changed the office’s perspective a bit, or if they were always such a competent and helpful group. Or maybe I need to change my expectations? The county records crew doesn’t show any change, so I don’t think it has been a successful county-wide initiative. Kudos to the transportation office! This property will probably lead me to more government offices -  I’m crossing my fingers for it to continue to be this easy!

Addicted to Redfin

A good friend of mine, Jeanine, recently admitted she watches Redfin like a hawk. This was exciting – I thought it was just me! New property listings appear every day and we are there to see it first.

Redfin’s tagline is “Find, Buy, & Sell Homes Online.” It’s a real estate agency, but I use their site to find potential properties. It’s the best site I’ve found for this and so much faster than my old process.

My old way to search properties:

• I would search for new Seattle listings in my price range on Realtor.com.

• Then find the exact address, more pictures and info on the real estate agency’s site.

• If a listing was still interesting, I would find sales history, tax info and neighborhood info on the King County Parcel Viewer.

My new way:

• I check Redfin. And once in a great while, I’ll check the King County Parcel Viewer for minor neighborhood info. How cool.

It’s easy to keep up with new listings, and doesn’t take very much time – not nearly what it used to.

Even if I’m not actively looking for property to buy, I check it occasionally to keep tabs on the local market. Sure, Redfin doesn’t tell you all the complications transactions may be having, but you get to know a market fairly well by watching prices, duration on the market, sales history, and visiting a few open houses to get a feel for price ranges and neighborhoods. When you’re ready to buy, you’ll have a head start on knowing where and what you want to buy.

Is AAA Membership Worth It?

Recently, I listened to a cashier at Safeway gathering her three customers in line to commiserate about costly AAA memberships. She described how she wasted almost $400 in the last five years because she’s never had to use any of the services. She’s planning not to renew this year.

AAA’s annual renewal usually brings up the question of “Did I use it last year?” and the resulting decision to renew always brings a little pain for me. In the last couple of years, I can only remember using them to unlock a door. But in the 90’s it was a life saver when my friend’s car hit a huge rock heading back from skiing at Crystal Mountain. The weather had turned rough, the roads were icy, and we were one of eight victims of that rock slide. It was wonderful to have them tow the car all the way back to Seattle. That scene repeated itself at different ski areas two more times during and soon after college.

I must remind myself that I have to treat this as insurance, and as my truck ages, there’s a greater chance I will be using it. Most people don’t ask themselves if they made any claims on their car insurance in the last year, when it’s time to renew. You are paying to insure the future period, and if you made it through the last period without any claims – all the better. Lee and I both have trucks that we intend to keep for the long haul. Lee’s truck is turning nine this year, and mine, eight, so these are the years to have roadside coverage.

In my evaluation, I admit I neglect to take into account the discounts we receive over the year, which turn out to be many, from hotels to frame shops. It even works in our beloved Vancouver B.C. where a little help to ease the strain on exchange rates is much appreciated. The total amount we save annually must be at least 3 times the membership fee of $89 (for Plus.) We also order the maps with ease, though I’m not sure how much these are really worth.

Now, if you decide you should have roadside assistance coverage, should you go with AAA or buy it as part of your regular car insurance policy? Does it depend on the amount you would expect to save in discounts during the year?

Telling Our Friends “We’re Heading Out!”

In January 2006, fresh off New Years celebrations, co-workers, friends, magazines and TV were, as usual, discussing the merits and trials of New Years resolutions. The air in conversation was full of doubt that anyone would accomplish all of their stated goals for the year. We decided it was time to tell some of our friends our goal – that we were leaving Seattle in December for a year-long trip around the world. Yes, it was almost a year away, but we wanted to share our excitement! Here’s what we heard:

“What? Wow! I hate that you’re going to be away for that long, but that’s really cool!”

“Seriously? Are you quitting your jobs? How is that going to work?”

“Why? Where are you going? To safe countries?”

“That’s awesome! You know, I know a few people you should talk to who have done something like that.”

“Nice – but what about Amos?”

We received so many different responses that I was sure a good portion doubted we would actually leave, or be away for that long. I think most of those folks thought we had too much going on in Seattle to just drop it all and leave.
This was all great input for us. Those that only had questions for us about what we would do with our lives in Seattle helped us make sure we had every house/car/dog question covered before we left. Those who thought it wasn’t safe, helped us keep in mind the best things/ways to keep safe. Those who doubted us only helped us keep our departure date firm.
But mostly, friends just wanted to help! Over the next 11 months we would hear innumerable suggestions of beaches to visit, things on sticks to eat, bungalows to rent and other travelers we should meet before we left like Matt and Rebecca who had done a nine month trip like this a few years earlier. What a resource!
Telling our friends was the biggest external motivator because we had self-imposed peer pressure to do everything we could to make it happen. We set the date, we told our friends, and then we began detailed plans and preparation, which meant – the Monetorium.

Setting the Date For TwinF

December 24th 2004 at about 11PM, Lee and I sat in front of our fireplace discussing plans for the next year and we decided to go for it. We decided to leave for a year-long trip around the world. The name of our travel blog and our trip would be The World is Not Flat or TWINF (coincidentally this was before Friedman’s book The World is Flat was published.)

The next week we huddled over a wall map of the continents and mapped out a general itinerary figuring out at what times of year we wanted to be in certain parts of the world. Then we set our departure date: December 11th, 2005, and our first international stop: New Zealand.

Sure, there were so many questions to answer – what about the funds it will take, where will our sweet old dog Amos go, what would we do with our house?

We had until December 11th to figure out the answers and prepare for our departure. It felt so great, so new! A mix of giddiness like kids in a candy store and the sobriety of a great weight of planning to be done. Setting the date cemented it for us; it was the first step to making it happen. Everything we did from that day until we left in December was preparation for the trip.

More to come…

Getting High and Dirty

Lee and I have a rental house that has a huge laurel hedge wrapping around the backyard. It looks very much like the hedge in our own backyard, 20 feet high, lush and full. They both need trimming once a year and a major cutback every 4-5 years. At our house, this was the year for the cutback. From previous experience we know it would cost $300-$450 to have a company cut it back,and take away all the branches.

A few weeks ago I decided I would do it myself because of the Monetorium. We have ladders, a lopper and I could use the exercise. It took me about a full day to cut it back 3 feet and down 5 feet, with Lee and my brother Mark moving the ladder for me every hour. Mark also took away all the branches in two large loads to the dump. Other than a few bruises from leaning over the branches, it felt really good to do it myself.

Now we have the rental house hedge to tackle, which is at least twice as much work. Should we do it ourselves? Lee would help me on this one and we may get a chain saw to make it faster. If we do it ourselves, we would save $800-$900 on both hedges.

Why didn’t I use a chain saw on our house’s hedge? – I don’t feel comfortable hanging over the edge of our ladder 18 feet up with a running chain saw. If we bought a new chain saw, Lee would be the one holding it at higher elevations.

What about a hedge trimmer? – This works very well on new branches and leaves and is what we typically use for annual trimmings. For major cutbacks, it can’t get through the tougher older branches.

I think we’ll mark off a sunny weekend coming up and see how much we can get done.