Are you curious about investing in the Leavenworth or Lake Wenatchee real estate market?
Seems like everyone is interested in real estate investments these days.
I see or hear about three types of “investors” most often in our local market. I use the quotes because most of these are “would be” investors who can’t find what they are looking for in the Leavenworth or Lake Wenatchee real estate market. (I read this article from Broker Agent News, (Top 7 Tips,) after I started my post. Notice the similarities including the use of quotes around “investor”.)
The first is the fix it and flip it investor.
Most don’t have the skills needed to fix the houses with real potential. There aren’t many homes in our market that just need a little paint and new flooring. Much of what is available needs some real love and perhaps even moving a wall or two. Another problem is the high price to get into the market. While $250,000 doesn’t seem high in Seattle or San Francisco, it seems high to a Leavenworth or Wenatchee resident for a house that needs a lot of work. Finally there is the turnaround time. Our time on market, even for great homes, can be a little tough on investors looking to get their money back. If you expect it to sell in a few weeks after you have fixed it up, you may be in for a surprise.
Second, we have the typical landlord investor.
These folks are looking for a property, especially multi-family properties such as duplexes or tri-plexes that have good cash flow. This means that the income coming in from rent is greater than the expenses for management, upkeep, and the mortgage payments. The houses are paying for themselves and the investor only needed to have enough for the down payment. Here’s the bad news- it ain’t gonna pencil. A few years ago you might have found rental properties in Wenatchee (but not Leavenworth) that had good cash flow. Not today. Why? Because real estate prices have gone up, but rental rates really haven’t. Robert Kyosaki, the author of the Rich Dad, Poor Dad series had a good idea. Write rental agreements with language that automatically raises rents yearly. How many times have I heard from landlords that they know their rents could be higher, but they didn’t want to lose their great tenants by raising the rent. Guess what? The investor buyer doesn’t care so much about the quality of the renter as much as the quality of the rent.
Third, we have the vacation home buyer.
This person wants to buy a vacation home and rent it out when it is not in use. This isn’t a bad strategy except for the following caveats.
Make sure the zoning allows it. In Leavenworth, “nightly/weekly” rentals are only allowed in areas with Commercial Zoning. For the most part, this means a condo, although some older houses are located in commercial areas. In unincorporated Chelan County the zoning isn’t as big of a problem.
Be prepared for Management Fees and Condo Association Fees. Managers for vacation rentals locally are charging 40-60% of the rental rate. Some will even charge you a cleaning fee to use your own property. Additionally the monthly condo fees can be a few hundred dollars. These fees make Cash Flow a difficult proposition.
When are you likely to use the property? If it’s just an investment- great. Most folks hope to come over for a few long weekends and holidays. Christmas, New Years, Spring Break, MLK Day, Oktoberfest – these are the big money makers for vacation rentals. The quiet times? Mid week (Tuesday through Thursday) and the in between seasons. Can’t golf or go skiing because the weather won’t cooperate? This is the quiet season. There is a great article about making money from vacation rentals here.
What is my advice for the real estate investor? First of all look to the long term. There aren’t many get rich quick deals. If they exist, they require lots of money and certainly talent. There is however lots of money to be made by investors who can wait a year or two. Second. Look beyond cash flow. What about the other sources of profit? Depreciation, mortgage deduction and market appreciation.
One of my favorite ideas currently is land that doesn’t quite cash flow. Find a house, often a manufactured home, on a great lot that has lots of value. Rent out the house for a few years with minimal improvements. Does the renter pay the mortgage? Of course not, but when’s the last time you got rent on bare ground? In two or three years the lot has increased 20% a year and you can remove the structure and sell the ground.
Similar to this is Rent, Fix and Flip. Buy a fixer upper with potential. Rent it out before you fix it and after a few years of building equity then flip it. We have great appreciation right now, take advantage of it by holding on to it. I think land is a great place to invest right now. Not necessarily large subdivisions, but little short plats of 2 to 4 lots or just keeping a small in town lot or a lot in an existing subdivision.