Do Duplexes in Seattle Make Sense?

Whew!  I have spent some long afternoons the last few days poring over Seattle real estate listings on ziprealty.com…  looking at several different things…

1. Multi-Family Investment Property  (in a market with cap rates at 4-6% for the most part, it’s hard to find anything realtor-listed that makes sense.)
2. A future home for my husband and me.  We love our like-new 3-bedroom townhouse, but we’re out in Lynnwood which affords my husband a 30-60 minute commute both ways each day… yucky. Plus, with a baby on the way and another one off in the misty future, we know we’ll need more room at some point.  The question is…when will we be able to afford more room?   Prices go up steeply as you get closer to downtown Seattle. (I was looking at $500,000 homes in my search today… that’s the cost of a 4-bed 2,000 square foot house in the neighborhoods we’d prefer.)
3. Duplexes.

 Now let me explain about the duplexes… they are my magical solution to the high cost of living problem and the low amount of space concern.

Here in Seattle, we have lots of older homes that have been converted or modified to be duplexes.  For example, a 2,000 square foot house might have a 2-bedroom upstairs unit and a 2-bedroom downstairs unit.

 My idea was that we could buy something closer in (Greenlake, anyone?) for $500 – $600K and rent out one of the units for $1,000 a month or so. 

 That would mean, instead of our monthly house payment doubling from $1,500 to $3,000 – rent would offset a portion of our costs and we’d only be looking at about a $500 increase in monthly expenditure.

Then after we could afford the “full home” or really needed the extra space, we could kick out the tenant and convert the entire property back into a single family home.  (Or just move our kids to the downstairs unit. HaHa!)

The problems with the duplex idea include:

1. We’d probably be in smaller living quarters (1,000 sq ft, 2-bedroom unit instead of 1500 sqft 3-bedroom unit) but of course that totally depends on the building. 
2. My husband doesn’t like “older homes, dumpy homes, or homes converted into duplexes.”  He says if he were to live in a duplex, his preference would be to have one that was built as 2 separate dwelling units from day one.  Although many of the buildings we’ve seen are gorgeous with gleaming hardwood floors and trendy interior finish (hey, what do you expect for half a million bucks!) I’m not sure if they would meet all of his criteria.
3. If we ever decided to move out of the building and try to keep it as a rental it probably wouldn’t cash flow.  (What else is new in Seattle.)
4. We’re not sure if now is the right time to buy ANYTHING since the Seattle market seems to be stagnating and DOM are increasing and listing prices are decreasing.  We’re not bearish on the market by any means, but it would be cool to buy when prices were going up rather than ….????….????? (We’ll call that sideways!)

When it comes to ROI in Seattle, appreciation has always been the name of the game since, according to my father who owned an apartment back in the 70′s… nothing’s cash-flowed since that time.  It’s a matter of getting in and holding on.

So… I think I checked everything on the market and the conclusions of the day have been.

1. Hubby would prefer to be a little further out to have a much bigger/nicer home (palatial new construction vs. remodeled, but charming 1920′s construction).
2. We’re not going to buy for now (Ed Note:  This subject to change daily.  I love real estate and I can’t be stopped from thinking about it) since we seem to be entering a bit of a soft phase in the market.
3. We’re going to work on saving 20% down for our next home purchase so that even if it is bigger/nicer (read: More expensive) the payment won’t be prohibitively high.

In the meantime, I’m going to consider looking at some foreclosure properties (I have a few buy-at-auction services I’ve been looking at lately) and who knows… I might happen across a deal that makes sense!

Emily

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