As 2016 comes to an end, and we make plans for 2017, it’s always great to reflect on the amazing Investment rental property deals that we were able to help our clients purchase in the last year.
2016 experienced substantial price appreciation, along with rent appreciation. We were able to use the low interest rates and rental appreciation to our clients advantage, to find diamonds in the rough that were under-rented and significantly under rented.
According to zillow research the median home value has gone up 11.2% over the past year, which puts the median list price for Snohomish County at $ 379,250. As of October 2016 the median rent for all of Snohomish County was $2,022. In October 2015 the median rent value was $1860, so in one year we saw rents increase 9%.
As a company, it is imperative that we keep our pulse on the rental market and make strong estimates on what we believe a property will rent for after repairs are made. It is a huge benefit to our clients that our agents also happen to be investors and own rental properties, so much of our knowledge on rents come from first hand experience with our own properties.
What we found to be true, and what the Zillow Data does not reflect, is that an investment rental property that is in good condition and in a desirable location will rent for much higher than their averages. Many of our clients have taken our advice on what types of repairs to make in order to maximize the amount of rent they can get, ultimately increasing their ROI.
Now for some of the best deals that we found for our clients in 2016:
Burke Ave Arlington, WA
This was actually a listing of mine that also happened to be a fantastic investment rental property deal. The property was zoned Old Town Business District, which allowed for multiple commercial uses. It had a one bedroom 1 bath main house (which we suggested our investor buyer convert to a 2 bedroom since there was room) and a detached garage that had been converted to a one bedroom one bath mother-in-law home. It also had covered RV Parking accessed from the main road, and lots of parking from the alley access.
Whenever we are suggesting an investment opportunity that is either under-rented or not used as a rental, we are making our best estimate on what rents will be to decide if the investment is worth it or not. Since these two homes were unusual and had no rental history, and one would have a second bedroom, we conservatively estimated the total rents to be $2300 ($1200 for the main house, $1000 for the smaller MIL, and $100 per month for the covered RV Parking to a third party tenant). This gave us an estimated cash on cash return of 11.8% and our investor buyer jumped on the opportunity!
The great news was that after our client purchased the property and added the second bedroom, Real Property Management was able to get her total rents of $2450 per month, $150 per month more than our projections!
Here is the actual ROI Calculation after the property was rented out:
Both clients were thrilled about this sale as our seller was able to sell the property for more than they originally thought, and our investor buyer was able to get a fantastic rental property that will not only produce a solid 13% cash on cash return, but high future appreciation in the growing Arlington area AND an opportunity to develop into a commercial property in the future!
64TH PL NE Marysville, WA
We had an investor client who was looking for what we called “the perfect investment rental property.” She had been looking for some time, and had passed on a few based on the inspection findings.
Finally, the perfect duplex came available in Marysville. There were multiple offers, but we knew that our client could get much higher rents than the current month-to-month tenants were paying, which was $1200 each side.
We conservatively estimated $1450 per unit as the new fair market rent, and we felt that there was no work needed to be done in order to achieve that. The only strategy needed was to have the current tenants vacate and re-rent.
Here were the numbers we based our offer on, and our client was willing to pay $6,000 more than list price to compete. She also handled her own property management, but lived in Seattle so we suggested she consider hiring our favorite property management company to lease the property for her for a lease up fee of one month’s rent.
Amazingly, they were able to secure new tenants in no time and for a rental amount of $1550 each side. This was $200 per month more than our projections! Here is the actual ROI calculation based on the rents our client was actually able to get:
After it was all said and done, we had a very happy client who was thrilled with her new duplex and the cash flow it will bring her each year!
Rainbow Ln, Sedro Woolley, WA
As the prices began appreciating at a rapid rate in 2015 and 2016, we started looking for more creative ways to find investing opportunities for our clients.
I had helped a client purchase a duplex in Sedro Woolley, WA in December 2015 by searching in the area just to see what prices were doing. What I found was shocking. The prices in Sedro Woolley were significantly less (it being roughly 40 minutes North of Everett and almost an hour and a half North of Seattle), yet the rent to price ratio was very low.
After further research, we found very few rental properties available for rent in the area, and a seemingly high demand for rentals. We also heard that the military had moved 2000 families to Sedro Woolley, so we believed the rents to increase for the next few years. After further research we also found that the school district was better in Sedro Woolley than the neighboring Burlington and Mount Vernon, so many families were choosing to live in Sedro and commute to the larger, nearby cities.
After the initial investment went so well for our other client, I saw a few other duplexes come up for sale in the same neighborhood. Since we had recent rental rate data, I sent the investment calculations to one of our clients, who agreed that even though Sedro Woolley was a rural farm town, the numbers were compelling enough (coupled with the other data) to move forward with an offer.
The seller was asking $190,000 for the duplex and the tenants were paying $770 per month each side. We knew that fair market rents were $950, and I was able to negotiate the price down to $160,000 since there was some deferred maintenance needed.
After closing the owner and Property Manager decided it might make more sense to keep the existing tenants, not rehab the units, and increase the rents to $825 per month each side. The tenants were fine with the lesser rent for them to stay, and the numbers turned out to be even better!
Lesson learned: sometimes it works out just as well by keeping what’s existing and doing a small increase on rents. Eventually when these tenants move out the work will need to be done, but at least the property continues to cash flow and the new owner is able to bank that for the future.
E Gilman Ave Arlington, WA
One afternoon in February I was searching the MLS and saw a deal that seemed too good to be true. A duplex in downtown Arlington, built in 1998 for only $250,000?! I immediately called an investor client of mine and told them we needed to write an offer ASAP. They happened to be driving through Las Vegas at the time, and I told them I was sending them an offer to sign electronically for full price since I knew multiple offers would be coming in.
Fortunately I had worked with the listing agent previously, so I called her and asked what the situation was that caused the price to be so low. She shared that the owner was losing the property to foreclosure due to one of the tenants never having paid rent since he moved in – and that was over a year ago! I told her to call the seller to meet, and that I would be sending a full price over immediately.
We got the deal signed around that same day, and only having been on the market for a few hours. The listing agent even shared that the next day she received multiple cash offers…
During the inspection phase we found that there was a huge back gravel area, perfect for building a detached garage. We happen to love detached garages (insert link to detached garage post) due to the low maintenance and extra cash flow.
During the initial inspection phase, we used the following numbers for the estimated return:
After closing, the owners decided to do more of a rehab and ended up spending close to $15,000. Due to the upgrades, they were able to get $1300 per unit per month in income, increasing their actual ROI by 4%!
Roslyn Pl Seattle
Seattle has been an interesting market to invest in the last several years. Due to the desirablility of the market, the prices have appreciated at a rapid rate. We’ve also seen cash buyers bidding out other cash buyers, and multiple offers have now become the norm.
We’ve helped investors bid on many properties in Seattle, and often times we’ve experienced the other offers go so much higher than what would make sense for an investor. Basically many investors are playing the appreciation game, hoping this solo strategy will pay off in the long run.
We were able to find a great property in North Seattle that did work for our clients from a cash flow standpoint and in future appreciation.
We were able to secure the property by being the very first offer, meeting with the listing agent in person, waiving the inspection, offering cash and offering the owner more than what they were asking. Lastly, we offered to close in 7 days.
Even though the seller had offers $20,000 higher than ours, we were able to convince the sellers that our buyers would close the quickest and it was a guaranteed close for them. This was enough to have the seller chose our offer.
This purchase was different because our investor was planning on living in the upper unit for a few months, and they wanted to do a high end remodel so that they wouldn’t have to do any work to the property for 10+ years.
We got the property under contract for $430,000 and our client put $180,000 into the rehab of two units. Our investor had $610,000 in cash into the property, and they were able to take advantage of the delayed financing strategy, which meant they could get their cash back based on a 75% LTV on the new appraised value.
After the repairs, the property appraised for $650,000, leaving our client with $40,000 in equity and they were able to get $487,500 of their capital back, leaving them with $122,500 of their capital into the deal.
They rented the lower unit for $1900 per month, and next month will rent the upper unit for $2500 per month.
Below is the return after the refinance:
Finding a property in Seattle that will produce an almost 10% return on investment along with achieving $40,000 in equity is very rare, and we were very excited for such an excellent investment opportunity for our clients!
We are excited for the new opportunities that we will find for our clients in 2017, and if you would like additional information on how to get on our investor list for the best deals in Washington, let us know and we’d be happy to schedule a strategy session.