Seattle, University District, condo (most likely 1 bdr) -- is this usually a good investment ?

Asked by Ar, Vancouver, WA Sat Jan 17, 2009

Interesting is using procceeds from a Sale of a unit, avoid taxes, and buying a small rental condo around the university, with a good cash flow. Is the choice of location, condo sensible?
I love the college town concept, should I much prefer Eugene OR to Sealle?
Is the concept of renting to students worthwhile?
Any rule of tumbs regarding prices/expected cash flow I should follow?
thanks.

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8
John Stewart, Agent, Seattle, WA
Tue Feb 3, 2009
There is something to be said about a one year lease. I don't know any landlord in this market who doesn't require them. They go from Sept 1 to August 30.
0 votes
Barbara Mcma…, , Seattle, WA
Tue Feb 3, 2009
At first blush, this may seem like a good idea, since there are lots of potential renters. However, I have found from personal experience that the rental "season" is very short - from about April-May. No kidding! I had a house sit vacant for an entire year until the next school year. I no longer recommend this area for my investors, unless it is a multi-unit building where they can absorb vacancies more easily.

Best of luck!!

Barbara McMahon
Associate Broker
John L. Scott
0 votes
John Stewart, Agent, Seattle, WA
Wed Jan 21, 2009
Ar,

I live in Seattle's University District and have had a daily search going on the NWMLS, specifically for students, for the last 5 years. I have listed and sold a number of properties for this group.
I support your idea of the investment niche because of the steady flow of student relocations. The educational time-frame makes it reasonable to expect average appreciation to have an opportunity to work. It makes even more sense if you can buy 2 beds with 2 baths. Parents are more willing to invest (future resale) if their child can sublet a room to another student.
Location, location and location are 3 critical elements in this case. Location #1 is how close it is to the campus. Location #2 is the building and how functional the HOA is. Location #3 is how far away you are for looking over your investment.
All of this is aside from the 1031 issues and the level of your own capitol investment. You can see for yourself on-line what the rents are going to be in the immediate neighborhood. A student will pay between $700 and $1,200 depending on location, location, location and age of the unit.
Let me know if you’d like some help looking for property near the U of W, Seattle U.or Seattle Pacific University.
Web Reference:  http://nwhome.us
0 votes
Kary Krismer, Agent, Renton, WA
Sun Jan 18, 2009
I had in mind asking a regular tax accountant or tax attorney about 1031 exchanges. I have attended a clock hour class where the advantages and disadvantages of 1031s were discussed by someone with a vested interest in people doing 1031s.

http://blog.seattlepi.nwsource.com/realestate/archives/151200.asp

However, as mentioned in that link, I've also attended classes where that wasn't the case. Only the benefits of doing a 1031 were discussed. And as referenced in one of the comments in that link, one of the risks of doing a 1031 is the exchange facilitator running off with the money as effectively happened with LandAmerica.

http://blog.seattlepi.nwsource.com/realestate/archives/151200.asp

1031s are not that complicated that the person who regularly does your taxes could not run some numbers on the advantages and disadvantages from a pure tax point of view. And the tax person could help make sure that there are no other tax issues that need to be addressed.

BTW, if the other unit has already sold, and you have the proceeds, it's probably too late to do a 1031--but that too is something that the tax advisor could answer.
0 votes
Mary Sunde, Agent, Bellevue, WA
Sun Jan 18, 2009
Ar
Starker exchange services (425-646-7299/800-332-1931), Bill Townsend can answer your tax/exchange questions for you. There are specific time limits to identify your purchase after closing the sale of
your present property so to do this you will have to contact an exchange person/company quickly.
I would suggest you interview agents that work the 3 areas you are interested in as to acquisition price, rents and resale value. With a condo there is only interior maintainence and you can travel to do that or hire professionals which costs should be figured into your purchase. Not all renters in college areas are
students or may not be undergrad students. Certainly most undergrads cannot afford much. The UW
offers grad students, med and dental students as well as others that enjoy living in this location as potential renters. Again I would speak to agents in the area regarding your present and long term plans and investment criteria.
Mary
0 votes
Kary Krismer, Agent, Renton, WA
Sun Jan 18, 2009
Assuming you're talking about doing a 1031 exchange, you should get some tax advice before considering doing that. There are risks to 1031s, and a lot of people think they are not worth it because tax rates are low today--and tomorrow??? Also, it will affect your depreciation going forward. So get some advice first.
0 votes
Ardell Della…, Agent, Kirkland, WA
Sat Jan 17, 2009
You can generally get a two bedroom very close to Microsoft for the same price as a one bedroom near the University. You'd probably have better luck with cash flow on a two bedroom, but it would depend on the amount of your downpayment. The buildings are older, but for a rental property, that shouldn't matter.

Most decent places in Seattle cost a lot more than on the Eastside near Microsoft, and the rent just as easily. I have clients who had a lot of appreciation in a short period of time, but today you have to find a really good deal and plan to hold it for quite some time.

They have held their value much better than most anything else in the Puget Sound, so getting one at a really good price is easier said than done. Still, they are about $100,000 less than what you'd pay in Seattle, for the most part.
0 votes
Patrick Beri…, Agent, Seattle, WA
Sat Jan 17, 2009
I'm going to answer part of your question regarding "a good investment." The answer to that depends on you--How much are you looking to spend? How long will you hold onto the property? Where do you want to be? I don't know Eugene very well but if you're looking for a rental, there are some great neighborhoods for this in Seattle--An obvious one is the U District, but also consider Capitol Hill, First Hill, Wallingford, Fremont, Queen Anne, etc. Almost anything can be a "good investment" if you buy and sell with the right combination of price and terms. Figure out what you want to spend, including HOD, taxes, insurance and then factor in vacancy costs and turnover and you'll get a ballpark idea of what kind of price range you should be looking in.
0 votes
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