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.

The paradigm of working to providing money for the family or time

In work you get paid more and given more responsibility based on your experience level/years of service.  With the average length of duty at any one company being much less than 10-15 years it certainly logical to agree with the saying "learn in your twenties and earn in your thirties".  There is a disparity and disconnect in this traditional career path.  In your twenties you are paid the least and in essence you put in the most effort.  (Related reading: The Crossover Point)  In your thirties you tend to get married/have kids and your level of effort dips at work.  I ask the question why is there a dis-correlation between pay and effort?

There is a paradigm shift where they must ask the question now that I have hit my stride in my career... do I pull pack and re-configure my efforts to providing more money for my family or provide more time with my family (less time at work). 

Perhaps because many people take the "path of more time with my family" that those who chose to take the career orientated route are rewarded with higher career paths due to less competition.

30-Day Challenges

30 day challenges for diet/health or business activates have been all the rage to evoke action to a goal.  The structure supports action however if those actions are not aligned with the goal then there is just wasted energy.
In a Results Only Workplace (ROW) known as the modern day workplace model you don't get rewarded for micro goals such as turning your computer on, getting you inbox to zero, etc.  Your value is measured by the end product.  Going back to the 30-day challenge goes hand in hand with the millennium mindset where everyone is given praise for the simplest of tasks.  Didn't lose any inches off your waist (you gained some)??? But hey your still a winner because you exercised everyday!"

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.

Money Flow Theory

Money is not distributed into the economy evenly, instead it is distributed in concentrated areas and distribues out from there.  A good pictoral of is is cones where money flow is injected at a point and them trails out from that point.  The key takeaway is to position yourself as close to these epicenters as possible.

It seems simple but it requires awareness and mobility if not luck.

For further reading check out:
http://www.chaostan.com/feddisaster.html

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/