Washington Real Estate Investing and Lending

Learn about real estate investing and lending in Washington State. Rocky Butani interviewed Lesa Say from Rain City Capital to learn about real estate trends, hot markets, and much more.

Interview Summary: Real Estate Investing in Washington State

Overview of Washington Real Estate Market Lesa Say emphasizes that real estate is always a viable investment if approached strategically. While some perceive the market as slow due to homeowners hesitating to sell with low-interest rates, investors are actively capitalizing on the limited inventory. Properties, especially those targeting first-time homebuyers, are selling quickly with multiple offers. Investors are adopting a cautious approach, ensuring deals make sense based on conservative projections rather than speculative appreciation.

Investment Trends Several investment strategies are gaining traction in Washington:

• Condo Conversions: Investors are either converting multi-unit properties into condominiums or taking single-family homes with large lots and adding Detached Accessory Dwelling Units (DADUs), then selling them individually after parceling them into separate units.
• Multi-Unit and Value-Add Investments: Investors are focusing on properties that allow for additional development, such as ADUs, to maximize profit potential.
• Regional Investment Variations: Market dynamics vary across different counties. Kitsap County tends to lag behind Seattle trends, making it an attractive opportunity for investors who anticipate market shifts.

Geographical Market Breakdown

• Seattle Metropolitan Area & Puget Sound: The Seattle market remains strong, especially in areas with water views and proximity to downtown, such as Ballard and Beacon Hill.
• East Side (of the Sound): This includes cities like Bellevue and Redmond, which are witnessing growth and condo conversions due to relatively lower property prices.
• Eastern Washington (Spokane, Tri-Cities, Yakima): These areas offer lower price points and increasing rental demand, making them appealing for investors seeking affordability.
• Rural Markets: Despite classification as rural, many areas have strong retail infrastructure and growing populations, making them viable for investment.

Challenges in Washington Real Estate Investing

• Permitting & Regulations: ADU and condo conversion permitting can be challenging depending on the city. Everett, for example, is known for its complex permit process.
• State & Local Regulations: While Washington has statewide policies encouraging ADUs and condo conversions, local jurisdictions interpret and implement these rules differently. Some cities are more aggressive in adopting new regulations, while others are slower.
• Landlord Challenges: Washington State is considered a challenging market for rental property owners due to strict tenant protection laws, making evictions more difficult and impacting cash flow management.
• Higher Property Taxes: With no state income tax, property taxes tend to be higher, which can impact rental property profitability.

Lending & Financing Environment

• Hard Money Lending & Local vs. National Lenders: Rain City Capital, operating since 2009, competes with national lenders but differentiates itself by providing personalized service and understanding of the local market.
• Loan Structuring Advice: Investors should opt for at least 12-month hard money loans to allow flexibility for unforeseen delays.
• Debt Service Coverage Ratio (DSCR) Considerations: While higher property prices make rental loans more challenging to qualify for, higher rents can offset this if the debt coverage ratio remains favorable.

Key Takeaways for Investors

• Washington remains a strong investment market, particularly for those focusing on first-time homebuyer properties, ADU conversions, and multi-unit developments.
• Understanding local regulations and market demands is crucial to navigating the state’s varied real estate landscape.
• Investors should build relationships with local lenders and other real estate professionals to leverage market knowledge and expertise.
• Despite regulatory and tax challenges, opportunities exist for investors willing to adopt creative strategies.

Lesa Say strongly encourages prospective investors to take calculated risks and take action rather than waiting on the sidelines, emphasizing the importance of seizing opportunities while they exist.