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Archive for Seattle, WA Commercial Market

Feb
25

Seattle Real Estate Update From Redfin

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I just got a monthly update on the state of the Seattle real estate market from my real estate brokerage, Redfin.

Showings are up… More buyers are looking but not buying yet.
Redfin’s traffic is through the roof: up 43% in January, and probably another 30% in February. Other websites have reported similar gains.

Seattle Real Estate Market Down 13%
Year over year in 2008, the Seattle real estate market is down over 13% and down 16% from the peak. Read more Seattle real estate stats.

More Distressed Sales
According to Redfin stats man Mose Andre, 11% of the listings in Redfin’s major markets (Seattle, California, Chicago, D.C., etc.) are being sold by banks, up from 3% in April 2008.

Check out Redfin’s blog for more fun real estate statistics and a way to buy real estate without paying your realtor an arm an a leg.

Or register for a webinar on how you can take advantage of today’s distressed housing market.

Time to put out the rain buckets!

Emily

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Jan
27

Is Now The Time For Getting Started in Real Estate Investing?

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The bloom is off the rose.  The real estate market is in the tank.  Foreclosures are popping up all over, real estate values are down, and you can’t find a house that will cash flow.

So Real Estate Investing Sucks!  

Or does it?

If you bought property in the last few years (say 2005 – 2008), you might be thinking that real estate investing is no fun, you got sold a bill of goods by a guru, and you have no idea how you’re going to make money on your properties.

It’s easy to get impatient, especially if the current market downturn has treated your real estate portfolio to a royal trouncing.  This might be a good time to bear in mind the adage: Don’t wait to buy real estate, buy real estate and wait!

Of course, it’s no fun to get rolled by a downturn in the market.  If you want to avoid that happening again, and use the market to your advantage next time, I suggest you learn to take a look at market cycles and understand how they work.

However, even if you bought at the exact wrong time, don’t give up on real estate investing.

Look at the current disaster of a market as a great opportunity to get started in real estate investing (again!).

A lot of investors make money by being contrarian.

When people are fleeing the markets, they buy in.

That’s exactly what’s happening right now, so this might be a great time for getting started in real estate investing if that’s what’s going on in your neck of the woods.

Even if it’s not going on in your area, it’s going on SOMEWHERE – find out where and invest there!

However, you definitely want to make sure that you can afford to buy property before you invest.

What should you look for in your deals if you’re getting started in real estate investing right now?

1) Appreciation Potential.  image

Generally speaking, appreciation is your largest profit center when you buy property.  It beats out the other 3 profit centers (cash flow, debt reduction, and tax savings) pretty handily in markets where it is utilized.  The challenge is that generally speaking high-appreciation market places (like California, Florida, Manhattan, Seattle, etc.) tend to have expensive property and it’s hard to find cash flowing deals there.

However, there are some great markets in Texas and other southern states where property still cash flows and goes up in value all the time.  As you explore the markets you want to invest in, consider the potential for property appreciation over the next five years.  You don’t want to bank on this appreciation, since it’s not a sure thing, but markets do have cycles, and if you can buy and sell at the right time, you stand to drastically increase your profit.

2) Price or Terms.  A good price means 80% of the “market value” of the home or less.  The more volatile/flat/falling your market place is, the LOWER I would insist on getting the price in order for the investment to make sense.  Good terms are things like buying the property with a lease option or subject to the existing financing so you can get in with little/none of your own money and credit.  (For information about investing with your IRA or getting private investors who want to do so, check out my IRA Real Estate Investing Series at www.TheRealWealthBlog.com)

3) Cash Flow.  What is cash flow?  In many markets around the country, this is an elusive beast.  It seems that here in Seattle you have to put 40-50% down on a property in order for it to cash flow.  In other areas of the country, you can break even month-to-month even when a building is 100% financed.

Personally, I like for a property to be able to cover all of its own expenses, including vacancies and repairs.  This is easier to say, than to actually find these deals, but here’s the situation:  What if you are doing well financially right now and want to make an investment?  That’s great, even if the property has negative cash flow, you earn enough that you can feed it, right?  So, no problem.  However, what happens if you lose your job, get sick, or become disabled?  You may no longer have the disposable income you need to feed your alligator (alligator is a nickname for property with negative cash flow) each month.  If you have equity you could sell your property, but you may not want to do that, especially if the market is depressed when your financially emergency hits, like it is right now.

For those reasons, I like to see a property make a good rate of return from its cash flow without my having to feed it each month.  If you live in an area where negative cash flow properties are the norm because property values are so high, you can consider your options.

  • Use a higher down payment to get your mortgage payments down.
  • Have a large emergency reserve fund to cover the negative cash flow on the property for several years, so you’ll be safe in the event of a loss of income.
  • Invest in another part of the country.  Personally, this is what I do…

If Your Personal Finances Allow It, Consider This A Great Time To Get Started In Real Estate Investing

Raw beginner or experienced pro, don’t let the current market conditions rattle you.  Interest rates are low, buyers are scarce and sellers are motivated.  Don’t worry about putting together a “power team” or spending too much time creating your perfect entity.  Now’s the time to go out and take action!

Talk to real estate agents (like me!), call FSBO’s and FRBO’s from the newspaper, get a mentor if you need one, and start taking action – a little bit every day – that will move you in the direction of your goals.

Emily

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Dec
30

What Brokerage Should I Join as A New Real Estate Agent?

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I’m on the warpath again.  Yesterday marked my first post-Christmas interview with a real estate agency.

 

This time, it was Keller Williams in Bothell, who I was fairly impressed by.

 

So far, I have interviewed with or applied to the following real estate brokerage houses:

 

  1. Prudential Northwest Realty – They pay for a lot of your mailings and have a great online corporate presence and relocation business.  However, there’s a lot of expense in supporting the franchise.

  2. Edmonds Realty – This was a Mom & Pop I interviewed with last year.  They say they have great training, but they have a high (50%) commission split when you get started.
  3. Marcus & Millichap – Read about how that started and ended.  They have a great platform to provide value to sellers (namely, lots of inventory throughout the nationwide office, and a nationwide internal MLS to help clients access that inventory.  They also have a lot of 1031 buyers).  The downside is that you’re at a 50/50 split.  Also, Marcus & Millichap focuses just on investment property sales, and they don’t do any leasing.
  4. Fursse & Hall (local Mom & Pop commercial firm).  Generous split (30/70 til you reach your cap, which is also low), but they aren’t a big name and don’t have too many agents or any training.
  5. CBRE – I heard rumors that this public company was courting the big BK?  This is the 200-lb gorilla in our marketplace.  They have a lot of corporate clients and don’t focus much on working with individual Mom and Pop investors.
  6. GVA Kidder Matthews – This commercial real estate firm is big around here (Seattle) and won over a lot of converts from Marcus & Millichap.  Their big advantage?  90% commission split.  They do leasing and sales, and have a lot of signs up in my neighborhood, but they weren’t hiring when I interviewed there, so I don’t have many specifics.
  7. Zip Realty – This is a great firm if you want to be a buyer’s agent and drive people around in your car all day.  There is no out-of-pocket lead generation.  Their agents average 1 closing per month.  Only 10% of their business is on listings, they are working on getting more listings, but they are all about buyers.  Between the discounted commission and fees to the house, you would only make about $3,000 commission on the sale of a $300,000 house, though.  In my market, if I were an average agent there, I would make about $36,000 per year working full time with lots of nights and weekends, presumably.  The top agents seem to do about 3-4 closings a month, so you could make in the low 6-figures with this firm if you were good.  This is perfect for a buyers agent who wants to be in real estate full time and focus just on fulfillment and follow up, not on marketing.

    They don’t charge any desk fees here, but the commission splits are really weighted toward the house.  You’ll keep about 30% of your 3% gross buyer’s agent commission.

  8. Connect Realty – This is the MLM of real estate companies.  This one is pretty intriguing and I would probably pursue them if I just wanted to focus on being a real estate investor and have a place to hang my license for the occasional deal.  They charge $200/year as a desk fee and you are locked in at an 80% commission split (if you’re a new agent your first 5 deals are at 70% because you’ll pay a mentor 10% to work with you and help you get going).  The MLM part of it is that 15% of your commission (taken out of the 20% that you don’t get) goes to the people who brought you into the company… your “upline.”  This means that if you recruit a lot of new agents, you can profit from their deals and their commissions as well as your own.

    However, I don’t think this model makes a lot of sense to me as a new agent.  I need training and support, which Connect doesn’t seem to have available yet.  Perhaps if you had a supportive sponsor to bring you into the business and help you get started you could do well, but I don’t know anyone who is in this firm.

    Since agents essentially get paid to bring you into the company, it’s harder to find a lot of balanced feedback online – everyone is trying to recruit you.

  9. Keller WilliamsKeller WIlliams Realty – This is the firm I interviewed with today.  I really liked them.  You have an $18,000 yearly commission split cap and after that you’re at 100% commission.  The desk fee is only $32/month, so it’s very affordable.  They pride themselves on having extensive training.  50% of the office’s profit is split with the agents (the other 50% goes to the franchisee).

    Even though they’re not a big brand in Seattle, yet, I like what I see here.  They pride themselves on a great training program, which I think is critical.  They also encourage team building so you can work your way into a leveraged business model (e.g. hiring personal assistants, buyers agents, listing specialists, etc.).  They also have a residual income model similar to connect realty, but it seems to be much less of a focus (more the icing on the cake, than half the cake, itself).

  10. Windermere Realty – This is the big “prestigious” local player in the area.  I haven’t interviewed with them yet.  They seem to lead with the company attitude of “you need us more than we need you” when it comes to their agents, and don’t give agents much freedom to agents to market themselves prominently.
  11. Redfin – This is an online broker who pays you “by the job” – you go show a property, they give you $120.  You go let the property inspector in, they give you $50.  This is a great “part time job” or “independent contractor” model.  You can earn a little extra money with your license without needing to build a business or have marketing expenses.  This would be ideal for the person who wanted to be a freelance real estate agent.  Unfortunately, after they initially responded to my resume, I’ve called and emailed about 7 times and haven’t been able to hear back from them.

 

My conclusions as a new agent looking to choose a real estate broker:

Based on my research of the residential real estate brokerage model, I don’t see that any individual firm is able to offer sellers a distinct advantage.  (Am I wrong here, experienced agents?)  What one firm can offer you is pretty much as good as another.  When a consumer chooses to buy or sell a house, he is most often making the decision to work with an individual AGENT rather than choosing a firm.  The exception to this may be the one or two “name brand” firms that dominate a given marketplace.

What that means to me – as an agent – is that I should set up my business to be able to market MYSELF, through blogging, websites, postcards, signs, etc., rather than marketing my COMPANY first and foremost.  I should also align myself with a company that lets me keep as much revenue available as possible (low commission splits and caps) so I can reinvest in marketing myself.

 

Although most sellers choose to work with the first agent they meet, some (about 30% as I understand it) interview multiple agents.  When they choose an agent, what are they going to make the decision based on?

 

What sellers are looking for in their real estate agent:

  1. Is my house priced correctly so it will sell in the desired time frame?
  2. Is my house marketed correctly?  What investment in marketing is my agent willing to make?
  3. Communication – how often does my realtor get in touch with me?  Is she/he pleasant to deal with, return my calls, etc.
  4. Negotiations – How good is the realtor at negotiating on my behalf?
  5. Closing details – How much hassle will I have in getting the closing together?
  6. Price – Will the agent discount his/her commission?

 

What Does the Brokerage Offer That The Individual Agent Doesn’t?

When push comes to shove, most agents don’t sell their own listings any more.  The buyer and the buyer’s agent usually come through different venues – not through the listing agent.  That reduces the listing agent’s job to primarily just exposing the property, making sure it is priced correctly, and then coordinating communication to get the deal done.  As agents, we offer these services and our expertise in performing them.  Assuming we offer excellent service, the only other place for us to compete is price.  The question of whether or not to cut commissions is one that could develop into a completely separate blog post.  I don’t know the inside perspective from the realtor’s view point yet, but as a consumer, I can say the following…

 

I continue to maintain (sacrilege, I know…) that the reason so many realtors flood the marketplace is that it is such a profitable high-margin business.  Especially when realtors market themselves on the basis of availability and relationship (I’m friendly and smiley) rather than expertise, it seems that there is very little to differentiate one agent from another.  We’re ALL nice when we want your business, right?

Brokerages that serve their agents well, will ultimately build a reputation for serving their clients well, too.

Plus, what do agents do with all the profits that they earn in business, they plow it back into marketing… and not marketing to SERVE clients, but marketing to FIND clients.  This giant inefficiency is my primary gripe with the real estate brokerage industry.  It would go away if it was less profitable, and it would be less profitable if consumers insisted on using discount-priced agents.  While some clients use these, many believe that you get what you pay for in life, and are more comfortable going with a full-price agent.  So be it.

 

So, what it comes down to – if the well-informed consumer were really able to make an educated choice is finding an agent who is good at doing their job, and getting the best possible price for the agents services.

Hint to Clients – ask the agent if they’ll negotiate on commissions. 

Hint to Agents:  Don’t offer to negotiate on commissions – show your value and then stand firm on your price, Americans hate to negotiate, so if they’re not sold on working with you, it’s rarely because of price… find out what their other objections are. 

 

In my opinion, finding an agent “who is good” comes down to training and hard work.  As a new agent, I want a real estate broker who offers me in-depth training when I get started, and ongoing training to help me get better and better.  I don’t just want to be trained in how to get leads (this is good for ME) but how to implement systems and serve my clients better.  (This is good for THEM.)

 

In the long run, I think the best agents will choose the brokerage that allows them to serve their clients best, and make the most money.  Brokerages that serve their agents well, will ultimately build a reputation for serving their clients well, too.

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Dec
18

In Commercial Real Estate, Cap Rates Are Up – Is It Any Real Surprise?

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You’re hearing about it when you talk to your real estate agent, you’re painfully aware of it if you’ve thought of selling a property, and maybe you’re excited about it if you’re out hunting for a deal.  The big news is (drum roll…) cap rates are up!

(Don’t know what a cap rate is? Check out my diatribe about cap rates and how to use them and when to ignore them!)

Does This Mean My Real Estate Agent Won’t Laugh At Me Anymore?

If you’ve been following commercial real estate for any length of time, you’ve probably been discouraged by the one-two punch of (1) gurus telling you to get out there and look for high cap rate properties that will cash flow, and (2) your real estate agent chuckling about whether you’ve been to a seminar lately and thinking, “Yeah… sure!  If that type of property comes along, I’ll just buy it myself.”

I will digress again to say that real estate agents are actually NOT usually your big competition in finding good deals.  In my experience most of them do not invest themselves, don’t have the cash on hand to buy big deals when they see them, are more interested in the “quick hit” of getting their commission, and (best!) didn’t know the seller would take that low offer you just made!

Real Estate Agents don’t have the cash on hand to buy big deals when they see them, are more interested in the “quick hit” of getting their commission, and (best!) didn’t know the seller would take that low offer you just made!

The fact is,  you can always snatch up great, below-market real estate deals if you’re willing to be persistent and take the time to look for really good properties.

Does This Mean I Can Find Great Commercial Properties To Buy Now?

So what’s happening now… suddenly you don’t have to be persistent to find the good deals?  Good properties that meet your “guru’s” buying guidelines are starting to pop up all over the place, aren’t they?  High cap rate properties abound!  What’s going on?

Even in the Seattle commercial real estate market, one of the strongest in the country, we are seeing cap rates go up.  Agents are telling investors who are considering selling any time within the next few years – “Sell now, this is as good as it’s going to get, it’s going down from here (or running flat, at best).”

People Are Paying Less For Property Because There is Greater Risk In the Marketplace

The higher cap rates are simply a reflection of the declining expectations for property values.  No one wants to buy a property that’s going to be WORTH LESS in a few years time, that’s why seller’s are having to discount their prices TODAY to entice buyers to come on board.

Pay Less Attention to Cap Rates, and Greater Attention to Market Cycles!

One broker told me he thought there was a 25% disparity between what sellers thought their properties were worth and what buyers thought the properties were worth.

Novice investors beware – there are lots of great-looking properties flooding the market right now, if you only look at cap rates.  This is an important time not to be blinded by the short term or historical performance of the property.  Look at how the property is situated to ride out the still-declining market cycle.

If you’re in it for the long haul and plan to be buying through-out the dip, then yes, by all means, go for the good deals (negotiate hard though, buyers with cash or financing in place are especially in demand right now).

If the deal is right, it’s always a good time to buy.  If the market is right, it’s easier to find a good deal.

But if you can only buy one property in the next few years and you want to make sure it’s a winner.  Keep looking for motivated sellers and CREATING (through offers and negotiation) good buying opportunities.  Buyers are king in this marketplace.

Also, when you’re running your figures, throw in a big grain of salt to account for the risk you’re taking.  There’s a reason cap rates are rising!

– When somebody’s down, someone else is up! –

 

Emily

 

P.S. We haven’t hit the bottom yet, in most real estate markets.  To find out where we are in the market cycle for the real estate markets you’re in – check out this service!

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Aug
15

Marcus & Millichap, Here I Come!

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So, the news of the week is that I have decided to hang my commercial real estate broker’s license with Marcus & Millichap.  I have had good experiences working with brokers from this firm in the past and I believe they have an excellent training program for getting new agents up and running quickly and with best practices.

Why This Real Estate Agency?

After interviewing several other commercial real estate brokerages in Seattle and Bellevue, I liked Marcus & Millichap because I believe their platform creates a lot of data that will support the property sellers’ ability to price their properties well, optimize income and minimize expenses, and anticipate changes in the market places, all so that they sell quickly and for maximum profit.  Basically – by working there, I will be able to provide a lot of value to my clients.

The company has a niche in working with primarily sellers (rather than representing buyers, tenants, landlords, etc.) and specializes in properties worth $1 – $10 Million.  In the Seattle real estate market, most buildings that fit this classification are owned by individual investors (like me!) rather than corporations, REITs, full time real estate professionals, or  institutional investors.

Since I really enjoy *connecting* with people, and being able to relate to their needs, I am looking forward to working with this type of client and being able to provide them services that *I* as an investor myself, would also appreciate.  I think that is exactly what I’ll be in the position to do with this firm.

Getting Started as A Commercial Real Estate Agent!

I start working at Marcus and Millichap at the beginning of September and my understanding is that my first task will be to choose a market area and become very familiar with it.  I’ll be driving the properties, taking pictures of them, finding out what rents are, talking to tenants, chatting with neighbors, and generally putting on my detective hat to get the lay of the land.  It should be a lot of fun and I am pretty excited.

At this point, I’m thinking I might specialize in apartment buildings in the north end of Seattle.   Why? Residential rentals are the property class I have the most experience with and the north end being where I live. :)  I’m open to changing that, though, based on where the opportunities lie.  Maybe I’ll end up working in mobile home parks, self-storage, retail strip centers, or something I haven’t even thought of yet.

The Biggest Challenge of All:

IMG_2858 The hardest part of the whole thing, I think, will be not being home with Blake all day.  Now, working from home, I get to watch him smile when he wakes up from a nap, sing to him, make funny faces at him while we eat lunch together, and smell his sweet baby scent.  I will miss that while I am working, but I know when he is older (his talking, walking toddler years seem like they’re approaching all too fast!), he won’t find it fun to idle away his afternoons sitting in his bouncy seat and watching me work from home the whole time. 

I think he will come to enjoy preschool, learn from the other kids and teachers there, and we can all treasure our time together in the evenings and on weekends when we have time to focus on each other exclusively.  Perhaps by the time that baby number two comes around, we’ll end up having Ben stay home to be with the kids and work on his writing career.  There are lots of possibilities!

So, off I go, embarking on my new career as a real estate agent.  I’m moving quickly and am ready to learn!

About Emily Cressey

Emily Cressey is a real estate investor and licensed real estate agent living in Seattle, Washington. After graduating Phi Beta Kappa with an Economics degree from UNC-Chapel Hill (Go Tarheels!) her focus has been on building business for cash flow and investing in real estate for wealth. If you have questions about real estate investing, personal finance, or would like some flat-rate, affordable advice on one of these topics. Please fill in the Contact form.