The investor climate is in the midst of change with the current environment in Seattle – Tacoma – Bellevue and Puget Sound. Housing options are multi-faceted, but the rental investment property continues to be a strong choice. Even while change is rampant, multifamily value-add real estate deals will still provide golden investment opportunities in the Puget Sound region.
Owning multifamily assets still makes business sense, in particular when coupled with the value-add of rehabilitating and improving the property. At Heaton Dainard Commercial, our team buys, sells, flips and holds commercial investment properties with an added focus of identifying below market properties priced low or languishing on the market that need repair.
The value-add with Heaton Dainard Commercial represents a history of being able to see into the needs of Seattle area renters by assessing market trends and responding to the needs with a quality value-add proposition for commercial investors. The factors that aren’t always seen may include how an area is trending, proximity to a university, proximity to an employer that is experiencing fast growth, and other factors that generally are not visible without research and knowledge of the region. The founders of Heaton Dainard drive through King County on a regular basis and have sold, built, bought, rented or overhauled homes in most of the communities in Seattle, Bellevue and surrounding Puget Sound cities. This in-depth personal experience with purchasing, rehabilitating and selling investment properties gives the Heaton Dainard Commercial team an unequalled edge as your choice of commercial investment property brokerage for the Seattle region.
Real estate multifamily investing requires taking a look at the bigger picture and integrating information from commercial real estate opportunities as well as economics and the single-family home trends. Economic data is still being collected for 2020. However, rents increased in Seattle from 2019 to 2020 by 6 percent, making this region a strong one for increasing CAP rates (capitalization) once a property is fixed up and made desirable to area renters.
Supply and Demand: The Ever-Changing Community Portrait for Seattle Region
Fortunately for commercial multifamily property investors in Seattle and nearby King County, Washington cities including Bellevue, Renton, Tacoma and Mercer Island, the demand for housing has stayed strong and doesn’t show signs of weakening. In fact, 12.3 percent of millennial renters say they plan to “always rent,” according to Apartment List. This is an increase from 10.7 percent in 2018. Nearly half of millennial renters don’t have a down payment saved. Factors weighing further into this renter-happy age group includes student debt. It is now estimated that only 25 percent of millennial renters will be able to afford a 10 percent down payment.
What Makes Seattle Region Desirable for Multifamily Property Investing with Heaton Dainard Commercial
Factors that go into desirability include property markets that show a strong demand, an economic outlook that is favorable, population growth and high occupancy. However, because Heaton Dainard Commercial focuses on value-add properties, some of these numbers even when downturns or economic indicators are poor, will still be able to provide investment opportunities that provide return on investment. For instance, in 2008, when the markets were going down in real estate, a home or commercial multifamily property could still be flipped for profit. It’s just the percent of return was vulnerable to the downturn.
What is a Value-Add Multifamily Property Investment Opportunity?
When you look at some properties that stay on the market too long, it is possible that for most eyes, the property doesn’t “pencil” or show up as a good deal. Properties may initially only seem to be capable of yielding a 3 to 4 percent CAP rate. Even with rents going up, a property may initially not show up as feasible. The value-add opportunity that Heaton Dainard Commercial brings has the capacity of increasing CAP (capitalization) rates by large numbers, although the actual opportunity will be influenced by many factors, some of which are out of control of any one indicator. For instance, a rental property that features one bathroom may be structured with a second bathroom possible. A two-bathroom rental will nearly always rent faster than a one-bathroom property and generally will achieve a higher rent. Suddenly, the 800-square-foot rental property has two baths instead of one. Now, is a second bedroom possible? Is there a large master bedroom that could be broken into two bedrooms? Is there a porch that could be turned into living space? Let’s just say for instance, in this example, there is a five-unit rental property and three of the units have only one bath and one bedroom. Let’s say two baths and two bedrooms are possible. The rent possible on a five-unit property where all have two bedrooms and two baths is going to be higher and there is another advantage: occupants of homes with two baths are not going to be as eager to move up as occupants of rental homes with one bath.
The Diamond in the Rough: An Eye for Opportunity with Multifamily Investing
One of the areas of brilliance of Heaton Dainard Commercial is the eye for the diamond in the rough. The entire brokerage team is trained to see not only what is obvious, but the places where value-add repairs and rehabilitation can add to the CAP rate and long-term investment potential.
The key to being able to rehabilitate for the right price is one of the Heaton Dainard Commercial strengths. The team keeps up-to-date information on per square footage costs to improve. This includes but is not limited to lists of installation fees and even direct relationships with vendors of certain components of most overhauls. The systemization of rehabilitating with quality, dependability, and staying within a budget gives Heaton Dainard Commercial an edge over other brokerages that are not as experienced. At one point, the team flipped over 100 properties in a given year. This made for extreme awareness of what works and what doesn’t work!
When you purchase a property with below-market rents, and bring them up to standards of quality that bring in market rents, you’ve got a recipe that has worked over time. Opportunities exist for investors who seek a return on their investment with a trusted provider. It’s vital that the brokerage of choice has strong local knowledge not just of market rents today, but of trends and opportunities in the future.
The Seattle Region Multifamily Investment Property with a Plan
Heaton Dainard Commercial always provides a plan for a property, with some room for changes in the event of different outcomes factored in. Every opportunity has a plan that identifies possible future rents, projected construction costs, and projected future property value. Before an offer is written, Heaton Dainard Commercial will physically visit a property, review its past, review the reports and conduct due diligence on current market rents and future opportunities that may influence demand and supply. The outcome will be purchase of a property that can be improved in terms of rent and capitalization (CAP) rate. This creates value for investors who are new to the business or savvy in terms of seeing “the deal.”
How to Identify “The Deal”: Commercial Multifamily Investments that are Underperforming
The popular misconception about opportunities in multifamily investment housing could be that you need to identify a seller desperate to part with the property, willing to accept 60 cents on the dollar. Heaton Dainard Commercial runs its own wholesale property investment company for these kinds of opportunities. However, it may surprise you to learn that opportunities can be right there on the open market, misunderstood. It is possible a property that doesn’t sell quickly is listed by a brokerage that doesn’t understand the potential for the property. Wholesale opportunities involve purchasing directly from the seller for cash, below the market value.
Properties listed for sale (on the market) may also present appreciation opportunities. For example, a multi-unit apartment complex listed on the market could appear to have too much damage or too little cash flow in comparison to the purchase price. So, it’s going to be rejected by the masses if it is on the market without showing a strong CAP rate. That’s where the Heaton Dainard Commercial advantage can outperform competing brokerage houses. The team is trained to identify opportunities that may involve adding value in myriad ways. This could include fixing below par rentals; adding beds and baths; converting garages; building small units onto the property; and other possibilities that span quite a wide spectrum of ways to improve a property and bring in more rents. In some cases, a property can be overhauled to provide lots of affordable bedroom units in a big space that wasn’t originally developed to house a lot of small units.
Underperforming properties that need work are the heart of gold behind Heaton Dainard Commercial multifamily investment success stories.
Identifying Opportunities with an Equity Advantage in Puget Sound Region
The discount on the original purchase translates to equity before the work even begins. Heaton Dainard Commercial has long standing relationships with lenders including credit unions as well as traditional banks and hard money lenders with cash ready for investing in your new multifamily unit property right away. “If I give my word, we are going to close escrow,” says James Dainard of Heaton Dainard Commercial. This is because of a longstanding relationship with funders in the Seattle region. The property may have a potentially lower cash flow at the onset, but can begin with equity in place if purchased below appraisal pricing. Then the value-add rehabilitation begins.
One of the goals for Heaton Dainard Commercial will be to get to cash flow with all the original cash recouped from the investment. So, for instance, the purchase could be for 24 units in six-unit parcels adjacent to each other. Once 12 are rehabilitated, the cash flow from the sale of those units could potentially replace the cash needed to purchase the remaining 12 units. Now, all that is left is rehab and then the units will cash flow with the down payment freed up for future investments.
Investing Your Profit: A Game Plan for Multifamily Property Investment Long Term Wealth-Building Strategy
Once the properties begin to cash flow, the investor can keep and hold or flip or sell for a profit. The long-term wealth building strategy will always be to invest profit into future opportunities. Newer investors can get so thrilled with early results, they can neglect to look long-term. Heaton Dainard Commercial will work with you to figure out a long-term strategy that may include keeping some investments for rental income cash-flow, and selling others to free up capital for the next investment.
Conclusion
The multifamily investment property opportunities in the King County, Washington cities of Seattle, Bellevue, Tacoma and beyond are strong when you are willing to go the extra mile. Investing in value-add multifamily rental properties is an excellent wealth-building strategy when done right. Look to Heaton Dainard Commercial for the expertise to help you identify deals, invest, and build long term wealth with real estate.
