Confessions of a Tacoma Real Estate Entrepreneur

Every investor will have their collection of tales in real estate investing. They will have the tale of the "one" that got away. They will have their defining moments in defeat and in victory. I would like to share such a tale with you.

In Late Summer of 2006, I was heavily invested in the Sixth Avenue district in Tacoma. I had researched every parcel up and down that business district, primarily because of the zoning (which is mostly Residential Commercial Mix-Use and Neighborhood Commercial Mix-Use). I felt strongly that Sixth Avenue would become the next Capital Hill in Tacoma. The district is still mostly made up of single family homes but with great zoning and is within walking distance of a lot of great restaurants and bars.

As I dug deeper into the zoning (height limit for most parcels between Pine and State Streets and N. 8th and S. 8th is 45') and the parcels in the area, I realized that sooner or later land prices would become a premium. Why?

SFH prices were high and far outpriced the value of the land they sat on. Homes in the area typically go for 250k plus and usually sit on a smaller than 5k square foot parcel. Actually, there are very few SFHs that sit on anything larger than a 5k lot. I used the mapguide viewer on the City of Tacoma's GovMe site extensively for this. This research led me to make two decisions first I bought a four plex sitting on a 7800 square foot lot that had a nice rental income stream and was well priced at the time. And secondly, I targeted several parcels for acquisition.

One such parcel was located across the Jack in the Box on State Street, it was a small three bedroom rental on a 10k lot. The owner was in the local area and bought it for less than $150k. She had owned it for about three years. I cross referenced her name with White Pages, got a number, and made the call.

I told her I was a local real estate investor and was interested in her house on State street. I asked her if she had any intention of selling and she said she didn't. Not wanting to lose the opportunity, I made a verbal offer of $300k on the spot. She took a deep breathe and asked if I was serious, I said absolutely and said there would be an written offer to her in an hour.

I wrote the offer up with and/or assigns (I like having flexibility), and it was accepted. I knew the land value of the property was worth significantly more than $30/sq ft, so I reached out to several area investors and ended up assigning the contract to a Seattle developer for $17k. Not a bad little deal for the amount of time invested. By the way there are no other SFH on 10k lots in the Sixth Avenue Area that would be at this price point (I have looked).

Look for opportunities, aggressively pursue them, make a strong offer and move the deal.

Rental Market Heating Up WSJ Article

Bidding War May Be Moving to Rental Front

The country's apartment sector is seeing more bidding wars as tenants jockey for available rental units in increasingly tight markets.

Nationwide, rent for a 1,000-square-foot apartment has risen 3.7 percent in the last year to $1,389 a month, says Property & Portfolio Research Inc.

One of the main reasons for climbing rents is the reduced inventory of units, created in part by developers that built condos or converted rental stock into for-sale units during the home sale boom.

In the second quarter of this year, rental vacancy rates fell to 5.3 percent from 6.2 percent in the year-earlier period. This has produced what is known as a "landlord's market," with companies like AvalonBay Communities Inc. raising their asking prices and cutting concessions for incentives like a free month's rent.

Source: Wall Street Journal, Christine Haughney (10/11/06)

What is Your Return on Equity?

I have heard the argument many a times, I don't want to sell because I own the property free and clear. That is a wonderful position to be in but not for the reasons you might think. One of the great benefits to owning investment property is the tax deductions. Mortgage interest is a large portion of it but many people over look the asset depreciation. You don't fully utilize all the depreciation you could get as properties increase in value.

The example below is the difference between a current property almost paid off and a new property bought through a tax-deferred exchange of the current property. Most investors will not hold a property for more than 5 or 10 years, here's why:

I Love the Sixth Avenue District in Tacoma

Great Article about Sixth Avenue in the News Tribune

Sixth Avenue is a growing hotspot in Tacoma, with great restaurants and a strong nightlife. Zoning in the area is robust and there is talk on the city council of increasing the density of the zoning. The majority of my own investments are in this area.

I am a member of the Sixth Avenue Merchant's Association, and we are incredibly involved in Tacoma. Please support Sixth Avenue!

If you need any incentives go grab a pizza from Primo Grill, they have great food.

Article in the Seattle PI Regarding How the Rental Market is Picking Up

Read the Article

While Seattle is a stronger rental market than Tacoma, the basic underlying factors are the same.

The Tacoma Real Estate Market is Slowing Down this is True...

Don't let Real Estate Agents try to fool you, the market is slowing down. The market is swinging back towards a buyer's market. However, there are some key issues I would like to address. Properties of all kinds, are selling quickly if priced and marketed correctly.

For example a 3 bed / 1 bath, 2000 sq ft house right off 6th Avenue went for 5k more than asking price and was under contract in less than a week.

Now is a very good time to buy or exchange investment property. Why?

The investment property market is slowing but still healthy. The market is shifting from a strong seller’s market over the last four years to a buyer’s market. Increasing interest rates and home prices in the single family housing market, condo conversions, and a stable economy are contributing to lower rental unit supply and increasing rents. For the first time in years, renting is a much more viable and affordable option than buying, with owners getting greater cash flow as a result.

Why is it the perfect time to buy or exchange rental property?

• The multi-family property market is still strong with correct pricing and intelligent marketing. Over a quarter of the properties sold in the last two months were on the market for less than three weeks.
  
• Multiplex inventories have doubled in Pierce County over the past year.
  A 4% rent increase in the last 12 months with a projected rent increase of 14% of the next two years.
  
• A projected net operating income increase of 21% over the next two years.
  In Pierce County, the market vacancy rate is 4.8%. That’s the lowest rate since early 2001 and down from its peak of 8.2% less than two years ago.
  
• In 2006, 5,000 rental units in the tri-county region will be converted to condos significantly decreasing the supply of available units, and putting additional upward pressure on rents.
  
• "Mortgage rates are down for the fourth straight week and are the lowest they've been since mid-April." Frank Nothaft, Freddie Mac chief economist, Aug. 17th.
  
• There is now a difference of $550 between the mortgage payment of an averaged price home in Pierce County and the average rental of an updated 2 bed / 2 bath apartment, making renting an attractive cost-saving option for many people.