Seattle Real Estate Market Annual UPDATE 8/2014

We last visited the Seattle Real Estate for a single family home in 6/2013.  See below is as of 4/2014.  Not much has changed as we are continuing on track.  2015 will bring the transition from the Sellers Market Stage I to Stage II.

Using All Cash Vs. Conventional Financing with Buy and Hold RE

A lot of experienced investors and non-experienced investors use large sums of cash to obtain properties at great discounts (70-80 cents on the dollar) via direct sales of pocket listings or auctions.  Paying cash commands respect and is seen as a more reliable deal which is the reason for the discount on the property.  The following will analyze the numbers behind this strategy and compare it to a typical 20% down payment conventional deal. 

Scenario A: All Cash
Market Value: $100,000
Purchase Price = Money in the Deal: $75,000
Annual Cash Flow: $12,000 (assuming 1% rule)
Cash on Cash Return: 12/75 = 16%

Scenario B: Typical 20% conventional deal
Market Value = Purchase Price: $100,000
Money in the Deal (20%): $20,000
Annual Cash Flow: 12 x $1,000-540 = $5,520 (assuming 1% rule)
Cash on Cash Return: 5520/20,000 =27.6%

Conclusion: Using all cash strategy would yield 11.6% less return on principal investment.

The Mom and Pop Investor Boom

Follow the money and you follow the trend...

1) Back in 2011-2013 hedge funds (google "Blackstone") took their money away from the stock market and started to invest in rentals (low hanging fruit).  A lot of the up tick in home prices in 2013-2014 have been caused by these hedge funds and international investors buying a buttload of homes with cash as evidence by non mortgaged properties statistics. 

2) 2008 recession happens and people lose 40% of their portfolio.  Baby boomers on the verge of retirement are forced to stick around at their jobs an extra 5 years to make up for their loss or let the market correct.  Investor vigor is damaged and an attitude of "anxious money" syndrome takes over where people are investing in less volatile investments or bonds.  Currently there are a lot of wealthy California's purchasing rentals in out of state locations.  Turn key rental companies work for these Cali investors to find properties, do the rehab, find tenants, and the do the property management.  Pretty slick operation and however there is a heavy cut that the turnkey company takes.

3) Fast forward to 2014 and we are seeing the first signs of the hedge funds moving out of buying properties (since they are over-valued) and into the lending world.  See article: http://theinvestorinsights.com/blackstone-landlord-lender/

The future prediction
- New wave of stock market refugees taking money from their 401k/ira/savings and buying rentals with  easier investor lending.
-higher property prices, lower rents, leading to the next bubble *2018-2020

Myths in Real Estate and Investing

I don't link to articles but this one is facinating.

http://www.biggerpockets.com/renewsblog/2014/03/27/strategies-for-managing-equity/

Quote of the Day

"Start thinking outside the Wall Street Box"

Opportunity Fund

I don't like the term Emergency Fund.  It comes from a scarcity mentality.  Going for lets call it an Opportunity Fund to take advantage of deals to come in the future.

Luck = Preparation + Opportunity

SFH Real Estate Market in the Northwest 2014Q1: Sellers Market - Phase 2

This is you public service announcement that here in the Northwest USA SFHs have officially entered Sellers Market - Phase 2.  (See graph below, yes I'm calling the top 2018)  The 8-12 year Real Estate cycle is separated into 4 cycles based on a variety of factors which include a variety of factors in the economy.  Sellers Market Phase 2 is a period where the price to rent ratio has gone over the steady state or in other words things have become over valued.  From an investor stand point properties it is almost impossible to make money and cashflow positively after typical expenses.  Yes there still tricks such as finding pocket deals, financing tricks (owner occupied financing), and finding that magic property that can increase your margins but for the most part the ship has sailed.

Strategies to employ in this market:
1) Stop buying until Buyer Market Stage 1 & 2 for Buy and Hold
     a) Pay off mortgages and dept
     b) Save your Opportunity Fund
2) Fix and Flips will work however need to be executed quickly to avoid the impending bubble burst
3) For those investors find other emerging markets outside SFH real estate or some hobbies because your going to have to just wait it out, like a bear hibernating in the winter.