Posted 07-31-2008 10:43 am by
The number one question buyers ask me is: "How do you make properties cash flow in Seattle?"
The real estate prices are so high in Seattle that it is almost impossible to make properties cash flow. When you compare the rental income with the purchase price, you may notice that the rental income hardly supports the mortgage payments, let alone the property's operating expenses. So how do you make a property in Seattle cash flow?
The first way is to increase your down payment. It lowers your cash on cash return, but having a larger down payment means having a larger safety net, and having lower debt payments. Often times, putting more down is the only solution to make your property cash flow. If you do not have enough down payment, you may consider bringing in a partner who can provide the down payment.
The other way to make a property cash flow is to identify opportunities to increase the rental income. In other words, are there hidden opportunities for expansion? Perhaps the seller is not charging for parking in an area where parking is limited. Perhaps you can perform some remodeling and/or reconfigure the floor plan to increase rents. Perhaps there is additional space where you can build storage units and rent them out. Perhaps the water bill is high and all you have to do is to put in water efficient toilets and shower heads, which in turn reduces the operating expenses and increases your net operating income. How can you either increase the rental income or reduce the operating expenses? Both have the same effect in increasing your net operating income, which increases the value of your property dramatically.
My partners and I have purchased several apartments in Seattle in the last year, and we utilize the second strategy to make our properties cash flow. When we purchased these apartments, they had a negative cash flow. However, the only reason we purchased them was that we saw a tremendous opportunity to increase the cash flow. Within the first 6-8 months of purchasing these multi-family properties, we would double the income. In other words, if a property had $5,000 a month in rental income when we purchased it, we would do certain things to it and the income would be at least $10,000 a month 6-8 months later. Does that increase the value of the building? Dramatically.
---Written by Oliver Wu
Oliver Wu | Advantage Commercial Brokers
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Small Business Owners in Puget Sound
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