ATTOM Data Solutions recently released a “Best Zips for Buying Single Family Rentals” report. The closest investor-friendly zip code to Seattle is Dupont (98327), with a gross rental yield of 10.5%. (ATTOM defines yield as estimated 3-bedroom rent divided by median sale price.)
In King County, the gross rental yield is only 4.7%. And if you’ve financed your purchase with 25% down and a 4.625% 30-year-fixed loan, your annual net cash flow would be a $12,598 LOSS, if you factor in property taxes, insurance and estimated maintenance.
The situation is even more disheartening if you compare these numbers with figures in ATTOM’s March, 2017 single family rentals report. Just 6 months ago, King County’s gross rental yield was 5.8%, and that represented a 4% year-over-year decline. In other words, house prices are growing much, much faster than rental rates.
Windermere Chief Economist Matthew Gardner thinks the situation ain’t getting better: “the single-family rental market in the Seattle area has peaked and rental rates will continue to take a hit.”
So if you, like me, have been fantasizing about investing in a rental house, your only hope is for its value to appreciate. But the more rental rates fall, the less incentives renters will have to enter the home buying market, especially as interest rates inevitably rise. And Amazon’s HQ2 uncertainty may create a climate in which Seattle’s already-transient newcomers feel even less motivated to put down roots.
This morning my friend Aaron shared an article that advocated investing money on learning computer programming rather than buying real estate. One of these days, I’m going to finish that Codeacademy Java class.