Author Topic: Is it time to pull the trigger? (Seattle)  (Read 5050 times)

Samuel

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Is it time to pull the trigger? (Seattle)
« on: February 18, 2016, 11:53:59 AM »

Hi all,

I've been haunting this forum for a year or so and am really impressed with the knowledge and advice that can be found here. I'm hoping some of you are willing to offer some of that savvy feedback on my situation, especially those familiar with the Seattle area market.

In a nutshell: What's the smartest move for me at this point, buy or continue renting? Or to rephrase: Am I letting my wariness of money stress and hassle lead me to avoid making a smart move or am I right to keep things simple and sit out the local real estate market?

The basics: 36 years old. Unmarried (dating nearly 2 years, but we're pretty independent and don't plan on cohabiting anytime soon). No kids. Gross income 80k. Savings rate hovers around 20-25%. Around 25k in cash and 170k between Roth IRA and 401k (got a late start). No debt.

I wouldn't consider myself truly mustachian but I'm drifting closer all the time... Had some bad anxiety issues in early-mid twenties that taught me money stress is EVIL so since then I've responded by living well below my means and keeping my financial life as simple as possible. I'm a big fan of making solid decisions, automating the mechanics, then focusing on other things.

I currently rent a 1br apartment in a good area for $1200 a month plus around $150 in utilities. It's shabby but quiet, convenient, competently managed and a decent deal for the market. Month to month at this point. No plans to leave the Seattle area (was born here). Not interested in a roommate situation.

I favorite listings on Redfin and watch what they sell for so I have a decent idea of the market in my price range. At this point I think that renting is likely somewhere between $0-500 cheaper per month than buying an equivalent place (apartment vs condo). The Seattle market is very strong with fairly low inventory so a getting a true deal is unlikely, especially as Id be competing with a lot of young tech workers making more money than I am.
 
So option 1 is to continue renting and sock away the difference. Enjoy the flexibility and lack of responsibility. Resign myself to steady rent increases and moving every few years. Build up a house fund for when I do find myself in a situation where buying clearly makes sense. Forgo possible leveraged appreciation and any tax deductions (which are not all that significant in my price range, as far as I can tell).

Option 2a would be to buy a condo in the city (250-300k), since thats where I want to live. This would increase monthly expenses and put me on the hook for repairs, special assessments, and condo association craziness.  But it would also lock in monthly expenses and hopefully see some steady appreciation. Ideally Id try to get something I could easily rent it out down the line.

Option 2b would be to buy a house outside the city (like Lynnwood, for example) for around 300k and rent it out while continuing to rent in the city. Adds in the rental headaches but would likely appreciate better than a condo.

Id appreciate any feedback from you smart (and more decisive) people. Thanks.

not_a_trex

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Re: Is it time to pull the trigger? (Seattle)
« Reply #1 on: February 18, 2016, 01:16:41 PM »
I think this is, at least from a financial perspective, a hard question to answer. In a lot of ways you're trying to compare apples to oranges. First there's apartment vs house living. Then there's the home ownership upkeep costs (both in time and money) to take into consideration. And then there's the opportunity cost of putting money into a house vs continuing to rent (On the other hand a renter loses 100% of their rent and, as you've already pointed out, there are tax benefits they miss out on).

Instead, I think finding a place to live for yourself is more of a personal decision. Do you desire to own your own property? If you do decide to move in with a partner in the short term (things can change) will they want to live in the home you purchased? And I don't think there's a right or wrong decision here.

Option 2b would be to buy a house outside the city (like Lynnwood, for example) for around 300k and rent it out while continuing to rent in the city. Adds in the rental headaches but would likely appreciate better than a condo.

That said, I would not do this option. If you're going to purchase a separate property from where you live, I would treat it as a financial investment rather than a personal one and only do it if the numbers made sense (eg 1% rule, etc). But my guess is that the expectation for a place you would like to live is going to be higher vs a place you would rent out. Probably enough that you wouldn't be able to find one that could positively cash flow.

onlykelsey

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Re: Is it time to pull the trigger? (Seattle)
« Reply #2 on: February 18, 2016, 01:31:35 PM »
2b would mean you wouldn't be able to get that interest deduction, which would bear working in to the calculations.

Malaysia41

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Re: Is it time to pull the trigger? (Seattle)
« Reply #3 on: February 18, 2016, 05:28:45 PM »
2b would mean you wouldn't be able to get that interest deduction, which would bear working in to the calculations.

Samuel should be able to deduct interest as this would be a business expense. Most likely filed on schedule E.

https://www.irs.gov/pub/irs-pdf/f1040se.pdf

Vilgan

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Re: Is it time to pull the trigger? (Seattle)
« Reply #4 on: February 19, 2016, 09:06:16 AM »
I would avoid Lynnwood. Its a crazy hassle to get to/from due to awful traffic and the return would be fairly low compared to other places outside the state like flyover country properties. Its also going to appreciate slower than many other places because of the ridiculously awful traffic to/from Seattle. I would buy in Kent or some other location south of the city long before I'd consider Lynnwood. You are also heavily susceptible to Boeing decisions at that location from my understanding.

As for rent vs buy in the city, I'm a big fan of buying but would want to be more specific by neighborhood. Some neighborhoods are great deals imo: SE Seattle (columbia city/hillman city neighborhoods) have a lot of potential and are well connected and also have transit connections. Columbia City has already realized a good amount of appreciation (50% in 4 years) but Hillman city is just starting. Queen Anne is going to continue to do well, especially with Expedia moving their HQ right next door soonish. I'm a bit more nervous about downtown construction because I don't know the economics as well and there's a LOT of stuff under construction at the moment. Also, condos tend to appreciate slower than SFH from what I've read and seen. I also hate tying myself to maintenance fees associated w/ a condo. Do you really want to be in a situation where a lot of people making oodles of money can vote to increase fees to add a massage parlour for their dogs or some other nonsense you don't want?

I guess this isn't a perfect answer but is hopefully helpful. Lynnwood: yuck, condo: hrmm maybe, SFH: big yes, just be smart about the neighborhood.

If you want to stay here forever, buying seems worth considering so you don't eventually get priced out. A lot of SV companies are opening stuff up in Seattle and more people that might otherwise end up in SV come here instead. Redfin noticed that and it was blogged about here: http://www.bizjournals.com/seattle/blog/techflash/2015/05/the-great-tech-migration-silicon-valley-people.html

Here's a more recent article w/ zillow saying similar things: http://www.bizjournals.com/seattle/blog/techflash/2016/01/silicon-refugees-will-continue-to-flood-seattle-in.html
« Last Edit: February 19, 2016, 09:22:01 AM by Vilgan »

Bearded Man

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Re: Is it time to pull the trigger? (Seattle)
« Reply #5 on: February 20, 2016, 08:52:33 PM »
If I was you, I'd buy a four unit apartment complex. Live in one unit, rent the others out. I just bought another house in Seattle so I say go for it.

You already live in an apartment, so you're used to the typical apartment noise issues. It's a natural transition.

slugsworth

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Re: Is it time to pull the trigger? (Seattle)
« Reply #6 on: February 22, 2016, 10:11:56 AM »
Fwiw, I've seen some pretty inexpensive condos between 90th and 100th and greenwood. They are currently making a Dexter like bike route on that road and it is walking distance to all of the general amenities you would expect. I would do some due diligence on the specific building though.

Previous commenter, Four unit complex for under $1m in Seattle is hard to find. . . a better solution is a single family house with an adu but that is tough too.

zephyr911

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Re: Is it time to pull the trigger? (Seattle)
« Reply #7 on: February 22, 2016, 12:58:29 PM »

Where the hell can you buy a four-plex in Seattle with 25k down?

If you live in a multifamily with four units or less, you can get the same owner-occupied financing terms as a SFH, regardless of the other units being rented.

OP, how much work do you want to do on this place? Do you want to be a property manager or do you just want to own real estate? Owning and living in a condo is probably best if you just want to get your feet wet... if you're OK with taking on more responsibility, the rental options would probably show higher returns in the long run but definitely carry some burden as well.

humbleMouse

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Re: Is it time to pull the trigger? (Seattle)
« Reply #8 on: February 22, 2016, 09:32:31 PM »
Quote
At this point I think that renting is likely somewhere between $0-500 cheaper per month than buying an equivalent place (apartment vs condo). The Seattle market is very strong with fairly low inventory so a getting a true deal is unlikely, especially as Id be competing with a lot of young tech workers making more money than I am.

This right here is how you define a housing bubble.  Wait until this current bubble pops and continue renting and sacking cash away.  When the market in Seattle goes bust (within 2 years max) then you can buy a really cheap condo or house. 

Vilgan

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Re: Is it time to pull the trigger? (Seattle)
« Reply #9 on: February 22, 2016, 10:18:04 PM »
Quote
At this point I think that renting is likely somewhere between $0-500 cheaper per month than buying an equivalent place (apartment vs condo). The Seattle market is very strong with fairly low inventory so a getting a true deal is unlikely, especially as Id be competing with a lot of young tech workers making more money than I am.

This right here is how you define a housing bubble.  Wait until this current bubble pops and continue renting and sacking cash away.  When the market in Seattle goes bust (within 2 years max) then you can buy a really cheap condo or house.

Personal predictions about whether we are in a bubble or not should probably be ignored. There will always be people that think we are in the middle of a bubble and then you never buy.

zephyr911

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Re: Is it time to pull the trigger? (Seattle)
« Reply #10 on: February 23, 2016, 09:01:48 AM »
Quote
At this point I think that renting is likely somewhere between $0-500 cheaper per month than buying an equivalent place (apartment vs condo). The Seattle market is very strong with fairly low inventory so a getting a true deal is unlikely, especially as Id be competing with a lot of young tech workers making more money than I am.

This right here is how you define a housing bubble.  Wait until this current bubble pops and continue renting and sacking cash away.  When the market in Seattle goes bust (within 2 years max) then you can buy a really cheap condo or house.

I really like the idea of this happening for my own selfish reasons, but I'm not about to make plans based on it.

One of the biggest fundamental red flags in the last housing run-up was that it was almost universal across the US and largely based on ever-increasing availability of financing, with less correlation to local economies (jobs, wages) and very little cash buying. The current housing runup is more localized and has a higher proportion of cash buyers. My county is far below its 2008 highs, because it was overvalued - now it's returned to a more fundamentals-driven pricing model, and while we keep getting more jobs here, it's only to the extent that LCOL allows employers to move jobs here and pay less. Other places have surpassed their 2008 highs mostly by importing or growing highly paid tech jobs, and a crash is therefore unlikely unless the wages disappear.

To me, the bottom line is - figure out what you really want in the long run, and figure out a responsible way to pay for it. If OP is committed to owning real estate downtown and can afford to finance it (and eventually pay it off), then I don't support waiting for a crash. I personally would also love to have a home base down in that area, but I don't want it bad enough to pay current prices, ever.

Samuel

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Re: Is it time to pull the trigger? (Seattle)
« Reply #11 on: March 30, 2016, 10:02:07 AM »
Thanks for the replies. Apologies for the delay in responding.

I'm still firmly on the fence. A SFH in Seattle is not feasible, and I'm not interested in the commute from where I could afford one. A condo is still an option (not downtown, more likely in the northern neighborhoods) but it's not a terribly attractive one given the prices and potential headaches.

I'll keep an eye out but will be sticking on with plan A (renting "cheap" and saving a lot) until things change.


« Last Edit: March 31, 2016, 08:52:38 AM by Samuel »

zephyr911

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Re: Is it time to pull the trigger? (Seattle)
« Reply #12 on: March 30, 2016, 02:16:03 PM »
FYI, at the last MMM meetup we talked a fair amount about real estate, and one of the people there (I think she said her username was redbirdfan) was waiting for final written approval on a condo foreclosure on lower QA.  Small studio unit, only around 400 sq ft, but a good price and in that are it will certainly appreciate nicely.  So there are still deals to be had, apparently.
If I could talk DW into living in 400sf... (used to live just below Kerry Park, for $695/mo!...20 years ago)

zinethstache

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Re: Is it time to pull the trigger? (Seattle)
« Reply #13 on: March 30, 2016, 02:30:31 PM »
I grew up in Lynnwood and now live in Everett. I am surprised at Lynnwood rents, they are very high.

If you lived there and worked downtown, the bus would be the way to go for sure. the Lynnwood P&R is easily accessible, however Lynnwood is a sprawling city. There is another P&R at 164th too I believe. I would never drive a car to Seattle (did it in the 80s/early 90s, can't imagine how bad it must be today) I've heard the bus is the way to go.

My MLS report ends at North Lynnwood so I only see a listing here and there, but when I do I see the reported rents...

We bought rentals at the end of the last crash, and I can tell you that properties are WAY, WAY over what they were in 2011/12. I've watched my market like a hawk. We are so deep into the bubble now that DH and I are actually pulling the plug on selling out clown home. We likely will stash the cash until a crash (I didn't even plan this sentence...)

Duplexes that were 235-255k in 2011/12 are now 350-375k. It is pretty crazy in my city and I can only imagine as you go further south toward Seattle it gets worse.

Good luck!

zoltani

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Re: Is it time to pull the trigger? (Seattle)
« Reply #14 on: March 30, 2016, 03:20:17 PM »
Here is my worthless opinion:

Seattle will ALWAYS be short on SFH because there just aren't that many of them compared to multi-family. In fact, I think seattle is losing SFH due to them being replaced by multi. Techie bros that make a ton of money will grow up, get married, and want to buy, this will continue the current price trends. Additionally I have noticed more people moving up from San Francisco, where houses are very cheap for them (compared to SF), this will also help to continue current trends. I said it in 2011/2012 and I'll say it again: Seattle is the next SF. Whether that is a good or bad thing is up to you, I personally see it as a bad thing.

Who knows if this is a bubble or the new norm. Do note that Seattle never crashed as hard as the rest of the country in 2008/2009.

I'd say to move on down to Tacoma, but it is dirty here, crime everywhere, no nice houses, and it smells as I am sure you've heard.

redbirdfan

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Re: Is it time to pull the trigger? (Seattle)
« Reply #15 on: March 31, 2016, 07:35:44 AM »
Hi Samuel,

My advice would be to follow the numbers.  I am now under contract for a studio condo in lower QA.  I was firmly in the lifelong renter camp but decided to buy because the numbers worked (on paper).  When I ran the numbers on buy v. rent calculators, the down payment requirement generally kept me in the "rent" category.  I ONLY decided to buy because I found several options at Verity Credit Union that required a low or no down payment. (*Edited to add with no PMI.)  My monthly housing costs will go down without having to deplete cash reserves. 

The best option is a rental that is owned by an individual/family with a paid off mortgage that just wants a steady, reliable tenant.  The second best option is buying something if the current numbers work.  The third best option is to move on a regular basis to chase lower/similar rent.  I would avoid the rental in Lynnwood unless the numbers REALLY work.  If you don't live in the property you're looking at a 25% minimum down payment and a property that may or may not cashflow and may or may not appreciate.  If you do live in the property you will have a crazy commute.  You would probably be better off throwing that money into some index funds or a few 5% Netspend savings accounts.  Renting is underrated.  Buy only if the numbers and location work.  In the interim, enjoy the freedom and liquidity of being a renter.       
« Last Edit: March 31, 2016, 11:00:04 AM by redbirdfan »