Good area for buying investment rental property?

[Bill Russell]

Investing in Real Estate…so many things to consider. My background; I am a Realtor, mortgage consultant and professional real estate investor. If you were my client I would start with ask some open ended questions. Are you construction oriented? If so, cosmetic work or remodel wall moving type work. If the answers here are yes then a fixer purchase may be appropriate so you can add sweat equity to your return on investment (ROI) expectations. This type of purchase could help solve some of your negative cash flow (CF) concerns however you may need significant upfront cash to pay for the repairs. Remember to factor loss of income during the remodel into the buying strategy. Depending on cash availability this may or may not be a good option. Sit down with your mortgage person first then your accountant. Explore the investment mortgage market to know what type of cash you will need to close even the most basic investment purchase. With this information in hand go to your tax consultant to understand your immediate after tax cash benefit. My rule of thumb; negative cash flow from an investment should never be larger than the cash tax savings.

Once your price point is known then your search area will become clearer. If you are set on buying a home then I suggest you keep it close to your current home. Another option is a condo/townhouse purchase. This might be your best first option. When you buy a Condo/TH you diminish (not eliminate) the maintenance concerns of your investment property. In most cases Condo/TH’s have a property management company in place to develop budgets for planned repairs both short and long term. You may be able to manage the investment yourself as opposed to hiring a property management company avoiding the cost of such. Helps with the CF! Many condo/TH projects today offer some form of buyer bonus. These projects are new construction or conversions. In many cases the appliances and mechanicals are new(er) and under warranty. If you have the seller apply this bonus to future Home Owner Dues (HOD) then your CF will be further enhanced. I am also aware of 2 projects which have 10 year tax abatement on the improvements on the land. To low taxes along with 3 years of prepaid HOD’s would almost surely guarantee a positive cash flow. There are risks in buying condos but I will not go into that now.

Finally, research areas 5 to 10 year master plan. Kenmore is going through a development process which makes it an interesting mid-term (3 to 5 years) investment area. Burien, Renton, Everett all have some redevelopment plans.

Please feel free to contact me for further discussion. Good luck!