If you’re considering real estate as an investment, you should definitely take some time to think about which types of real estate offers the best returns with the least amount of risk. In this blog post, I go over some things you should consider if you’re planning on investing in a single-family home in Seattle.
Single-family homes are great rentals with great scarcity. Now, the issue is that single homes are expensive in Seattle. Maintaining the homes is more expensive, so you’ll likely worry about the home more. The advantage of the single-family home is the appreciation rate is the best on these sort of homes, and of course, the rent is the highest.
You’ll have to ask yourself at what cost though. You’ll have to pony up nearly a million dollars or more in any neighborhood ideal for rentals. A little 2-bed, 1-bath turn-of-the-century will not rent for very much, but will cost nearly as much as a new townhouse. Therefore, you need to buy something that has been modernized, has 3 bedrooms and at least 1 ¾ bathrooms to get rent that makes since. But that house will cost you a lot.
With a single family home as an investment you will also experience higher maintenance for nearly every aspect of the home. You will need to maintain the yard because tenants cannot be relied on for that. Single-family homes in Seattle (not townhouses) are generally old to older. So, the structure and systems are more likely to require attention. This is especially true when renting to folks not familiar with the homes idiosyncrasies. Those are not quantifiable but no doubt real and pricey.
Real Life Example of a Single-Family Home Investment at 2510 W Montlake Place E, Seattle
I found this particular home online and would not have recommended it to any client of mine, but someone did go through this experience, so I will share:
This home sold for $975,000 in June of 2016. It’s in a great location in Montlake, and is close to great schools and the home was mildly updated. Now, this home rented for $4,100 per month in June of 2016. You can tell the client was expecting more, because they attempted to rent it for $4600 per month unsuccessfully. If you use a 30% downpayment as your cash investment, you are at $292,500.
But even just using the down payment, higher insurance costs, and higher taxes, your payment with 30% down is $3966. Now, the rent in this case was $4100 per month. That alone makes this the worst return on investment. Now on the plus side, this home has nearly doubled in value since it was last sold in 2003 and this could be a good long-term investment as single-family homes do appreciate the fastest typically. But still, the cash flow is negative and the appreciation is not that much better than a town house. This is why I tell people you purchase standalone homes to live in and not to rent. Of course, there are always exceptions to every rule, but this is a good rule of thumb!