Author Topic: Buy in Seattle, rent or move along  (Read 1257 times)

leland

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Buy in Seattle, rent or move along
« on: May 13, 2018, 02:48:14 PM »
Long time lurker, first time poster. Getting more interested in RE as I hit the 4-0 & perhaps get closer to FI. Mostly unintentional as a result of no kids, the crazy stock market and not buying much. I'm posting in Real Estate mainly to try to get a forcing question to start on a FIRE plan. Probably better ways to think through it, but this is immediate and in my face. We've outgrown our cheap rental apartment (under market rent in Seattle). We want a house with some room for working from home, guests, the dog, hobbies and to breathe. Otherwise we probably split up as we're going nuts in our current space. But what next? Rent? Buy? Plan for FIRE & a future move? Opinions and pointed questions welcome.

Now for the context...

Me: 40. No kids. Committed relationship but not yet married (different but understandably highly related topic). Kids are unlikely but maybe. Live in the PNW (Seattle). Flexible on location for future but family and friends all in HCOL cities (NYC, SF, DC, CHI, BOS, LA, LON, AUS, DEN, basically anywhere pricey). All things being equal would love to stay in Seattle or one of these HCOL areas for good (or at least part of the year while able). At the very least plan to be in Seattle the next 10 years while working, although could handle a move.

My resources:
  • 1.7M net worth
  • 275k cash (~200k for down payment, ~75k for emergency / car replacement)
  • 825k taxable
  • 600k retirement
  • 0 debt
  • Investments are 85/15 mix - ~5% of the 85% in REITs
  • S.O. has some school debt but resources to cancel it out if desired. Some retirement assets, but much savings, though.

Annual income/spending year - very rough numbers:
  • 165k income (some years higher, don't expect to be lower until I'm 50 or I get fired)
  • 50k non-housing annual spending (zero budgeting at the moment but assume any dialing back on nice food/travel would get replaced by healthcare expense in the future)
  • 18k rent (will go up - need a bigger place for domestic peace & working from home)
  • 47k savings - mostly to 401k and roth backdoor
  • 50k taxes

A select few of my (big financial) mistakes:
  • AUM fee-based investment adviser. Got that when I realized I had so much money not in the market during the past two bull markets (another mistake). 0.75% AUM. Still have them. Advice and personal consultation is useful, but I'm paying too much for it. Will go eventually.
  • Not buying a house in Seattle several years ago. There were ok-ish reasons at the time, but mostly was lazy and hindsight is cruel on this front.
  • No goal to motivate me. I don't budget, nor have a game plan. Work is interesting so I keep at it. I like fancy restaurants so I go out to eat. Looking at real estate question as a way to force some decisions.

Finally the question! Here's how I'm trying to think about the buy or not buy question - a bit too many variables below but trying to keep it straight. TLDR if you got bored with the above ;) Need to move at some point in the next several months as in an apartment that's too small, has maintenance issues and is causing real relationship strain. But move to what?
  • Buy a house in Seattle. I can probably swing $1-$1.2M - would just have to work for a longer time and kiss RE goodbye. Buying is betting that housing prices and rents keep going crazy here so I need to lock something in, even at these rates. At this point feels like buying at the height of the market. Not to mention that buying is beyond painful with low inventory and bidding wars.
  • A variant on #1 is to target something local in Seattle that has more MIL/duplex rental/airbnb potential so could possibly defray some of the bill and maybe find a path to stay local and RE? The SO doesn't want to share so that's something to work through. But more my vote since not her money and I need some protection if we split up.
  • Rent given uncertainty and crazy housing market here. Risks getting priced out in the future or having a forced move due to owners cashing out, rent raises, whatever. Given the stock market right now I'm not sure that I'd dump all the saved cash in the market right now either.
  • Start planning a longer-term move elsewhere then rinse/repeat the rent vs. buy question in a new LCOL spot or nomadic lifestyle?

Appreciate you sticking with this dump of writing until the end.

lhamo

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Re: Buy in Seattle, rent or move along
« Reply #1 on: May 13, 2018, 07:03:18 PM »
I really question whether more space will solve your relationship issues. Be sure you don't overextend yourself. You might find yourself carrying the full cost yourself.

Do you have to stay within the Seattle city limits? If not then you will get more for your money in Shoreline, etc. Without too much effect on commute (not an issue if you work at home).

leland

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Re: Buy in Seattle, rent or move along
« Reply #2 on: May 14, 2018, 12:28:06 AM »
Fair question on space resolving the relationship items. Definitely won't fix everything, but we won't work without that change. We were living separately until SO lost her lease so had to merge into one. And she works from home. Just not going to work in our current space.

However my work is east side mostly, with a mix of some airport, WFH and downtown. Shoreline isn't super-desirable for those reasons unless I rule out east side companies. I'd rather those still be in the opportunity set.

uwp

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Re: Buy in Seattle, rent or move along
« Reply #3 on: May 14, 2018, 01:43:01 PM »
All things being equal would love to stay in Seattle or one of these HCOL areas for good (or at least part of the year while able).  At the very least plan to be in Seattle the next 10 years while working, although could handle a move.

Once we've established that you have the means (which it appears you do), this is the most important piece.  If you can commit to 10 years, I would say go-ahead and buy.  Especially if by "needing more space" you mean you are wanting a house rather than a bigger apartment.  The rental units coming on recently and in the near future might put some downward pressure on 2 bedroom (and smaller) apartments, but they aren't building more close-in houses.

The tax-deduction should help swing the math as well, as you would be going from standard deduction to probably 40k+ in deductions.   

Of course, you should also run your own numbers: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

lhamo

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Re: Buy in Seattle, rent or move along
« Reply #4 on: May 14, 2018, 04:19:47 PM »
Given your work situation, I'd be looking for a duplex or triplex (or something on a large enough lot that you could put in a DADU) somewhere between the Central district and Renton.  Check out the area east of the International District -- it is gentrifying quickly but you might still be able to snag something for a decent price.  Parts of Beacon Hill can also provide good value.  West Seattle might also be a good option.

leland

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Re: Buy in Seattle, rent or move along
« Reply #5 on: May 14, 2018, 10:40:23 PM »
Thanks for the thoughts on this.

@uwp - the lack of new houses is what we've been thinking through. We've both been lifelong renters so feels weird to buy, but been here for a decade+ and would like some more time here. Except for going out to drinks with friends and her trying to talk me into Boise (which we've never been to...).

The NYT calculator is highly sensitive to two really hard numbers: future appreciation of real estate and rent. Rents have been somewhat stable. If housing prices keep compounding like this then buying is a no brainer. If not then maybe less of a good deal.

@lhamo - Good location suggestions. We've been trying for Beacon Hill but inventory is really really low in North Beacon. Esp. for a duplex/triplex. We want it all so trying to be near-ish to Light Rail for transit. The SO would love White Center, but I think it would really suck for my east side commute. 

kenmoremmm

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Re: Buy in Seattle, rent or move along
« Reply #6 on: May 15, 2018, 12:22:18 AM »
bothell and juanita are nice. kenmore too. bike ride some nice paved roads with good shoulders. anything in the seattle city limits should only be considered if you work in tech, in seattle. otherwise, you have to deal with the screwed up city council, homelessness, and a bunch of other way-out-there seattle things.

we just sold a rental in seattle (closes on friday). market seems bubbly to me, but who knows. everything depends on amazon this time around. that head tax thing might be the nail in the real estate coffin.

leland

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Re: Buy in Seattle, rent or move along
« Reply #7 on: May 21, 2018, 01:35:53 AM »
I'm in east side tech, would like to move that back to Seattle (or at least be flexible to do it). But SO's work and social life are all Seattle based. Otherwise I'd be checking out Kenmore/Bothell. I kind of like that part of town.

The market seems way bubbly as well. Will it contract? Who the heck knows. I sometimes hope for it, but then remember that probably means things are economically screwed up in a really bad way. And that my hopes don't count for much in macroeconomics so it really doesn't matter what I hope for :D

uwp

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Re: Buy in Seattle, rent or move along
« Reply #8 on: May 21, 2018, 11:09:29 AM »
I'm in east side tech, would like to move that back to Seattle (or at least be flexible to do it). But SO's work and social life are all Seattle based. Otherwise I'd be checking out Kenmore/Bothell. I kind of like that part of town.


While not as cheap as Bothell/Kenmore, Columbia City could give you a bit more bang for your buck than close-in Seattle and still be a reasonable compromise commute for Seattle+Eastside couple.   I also like the Seward Park area, but you start getting out to fewer transportation options. 

EDIT: I know you said you could go up to 1-1.2 million, but just about any house will feel bigger and more private than an apartment.  And if you aren't planning on expanding a family, buying more space than you need just tempts you to fill it.  Having more house/land is actually more work than I expected coming from years of apt-living.  I don't know about your current living situation, but our current house (1,500sq/ft & 5,000sq/ft lot) is pain enough to take care of.
« Last Edit: May 21, 2018, 11:28:00 AM by uwp »

Landlady

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Re: Buy in Seattle, rent or move along
« Reply #9 on: May 21, 2018, 12:24:14 PM »
I had these same questions for myself about 5 years ago. Now I'm selling my duplex which I owner-occupied and then transitioned to a rental. A duplex is a smart investment because you get the benefit of keeping your mortgage the same while increasing your renter's rent.

Take thumbs up for rentals with a grain of salt since I'm currently selling my duplex:


We're selling our duplex in Seattle to simplify our lives now that we've moved to the mountains. It makes great rent and has had zero occupancy in the last 5 years. We owner occupied it for a few years and want to cash out now to avoid some capitol gains. It would be a wonderful owner-occupied house for someone interested in renting the other side or Airbnb-ing it. One unit in July made over $3,000 on short term rentals in 2016. Long term rents right now are slightly below market at $2,430 and $2,400. We see neighboring landlords getting up to $2,750 for comparable units.
My husband is a licensed and bonded contractor and we've fixed up this house and maintained it personally for the last 5 years.
We're offering buyers without agents a 3% discount which lowers the listing price by $31,350.

You can see the inspection report, investor info and make an online offer on the listing here:
Faira: https://www.faira.com/listings/WA/Seattle/98199/3811-23rd-Ave-W/11937
Redfin: https://www.redfin.com/WA/Seattle/3811-23rd-Ave-W-98199/unit-B/home/124290

leland

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Re: Buy in Seattle, rent or move along
« Reply #10 on: May 29, 2018, 12:15:43 AM »
Really good timing landlady :)

Saw your unit on Redfin - seems nice - Magnolia is a good spot for Amazon. The numbers on anything are definitely less attractive now than getting in five years ago. Mainly it just feels weird to to end up in an owner occupied spot where I'm paying more to buy with rental, but that still brings the effective cost back to a zone where the place isn't quite as large / nice for the money as the same amount of rent can buy (e.g. a number of true du/tri-plexes seem to only have 1ba for the owner/occupy unit).

I think I've netted out that I'll jump if there's a place that I'd really want to guarantee living in for at least ten years (whether coupled or solo). That should ideally have some rental income option to defray cost if desired, but that depends on purchase price & location as to whether it's an absolute requirement.

And if not, then I'll just try to be a happy renter and target a situation that is stable for at least a few years going in... @uwp - great points on maintenance and upkeep. I look at my rental and think about how nice it would be to get things in better condition, but the perspective of being able to take action on that isn't one I've really considered across a big house :)

We really like Mt Baker / Columbia City / Seward - bad commute for me, but very pretty neighborhood and nice for the airport w/ light rail. Have looked at some places to buy and rent that way.
« Last Edit: May 29, 2018, 12:18:38 AM by leland »

Linda_Norway

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Re: Buy in Seattle, rent or move along
« Reply #11 on: May 29, 2018, 01:12:28 AM »
Your GF could also look into renting a desk in an office space near where you are living.

You also mention to buy a houses suited for guests. Maybe you should reconsider buying an extra room your guests. How often will they really be there? Can you or they rent a room on AirBnB when they visit you? It is something else if you want an extra room anywant for hobby or office. Then you can turn it into an improvised guest room.

Dicey

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Re: Buy in Seattle, rent or move along
« Reply #12 on: May 29, 2018, 07:29:48 AM »
My Spidey Sense is twitching off the charts re: SO. It feels like resolution there is priority #1. Imagine if things don't work out and you're stuck with more house/duplex/whatever than you want or need. I'd look into Linda's suggestion for the time being and then work on the RElationship before buying RE. I could be wrong,  it's just my two cents.

Landlady

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Re: Buy in Seattle, rent or move along
« Reply #13 on: May 29, 2018, 12:31:28 PM »
Yes, surely the prices in hindsight look nicer 5 years ago, but at the time we bought, the cap rate was not great. We bought for $373k from a seller with unreliable tenants and it took a few years to be in the black, but then rents really started to roll in as we had more turnover and worked on the place. I think any multifamily which breaks even right away will be a great investment in a few years. Mortgages don't rise, but rents do and so do property values, especially in core neighborhoods.
I do think being an owner occupant is a bit of a stoic choice as you can definitely get a bigger/nicer/more private single family home for yourself. But with a single family there is no option to make money on your property unless you sell. OR you can get a single family house with a guest suite or MIL which is airbnb-able. I think this is a personal decision and of course depends on the house you're looking at.