Jeff and I recently bought a duplex in North Tacoma that we’re pretty excited about. We weighed the pros and cons of purchasing in the current market and ultimately decided that the property met our needs, both for the short term and the long. In light of our recent purchase, I thought it might be a good time to share some thoughts and observations about investing in real estate in Tacoma’s North End.
According to a recent report from Redfin, Tacoma has the hottest housing market in the nation. That doesn’t come as a complete surprise to brokers in the know. Tacoma has a lot to offer potential residents in terms of amenities and culture, but a big part of the city’s appeal has to do with affordability. You just get more for your housing dollar in Tacoma than you do in neighboring Seattle.
Not surprisingly, rents are on the rise in Tacoma. Between April of last year and April of this year, rents in Tacoma rose about 10%. Developers have been building new apartment buildings, but not enough to outpace demand. That means rents are likely to continue rising for the foreseeable future, making a strong argument for investing in rental properties in Tacoma.
Investing in real estate is a great long term strategy for accruing wealth but, like any type of investment, it does involve risk. That’s why it’s important to educate yourself before becoming a landlord.
With the emergence of marketing platforms like VRBO and Airbnb, short term rentals have become a very popular way for homeowners to generate income. Short term rentals may offer a greater return on your investment than a traditional rental property, but it feels like the short term rental market in Tacoma is becoming saturated. Jeff and I were initially thinking about using our new duplex units as short term rentals but are now leaning towards a more traditional long term rental approach.
If you have questions about investing in Tacoma real estate, please don’t hesitate to contact me. I’m here to help.
Mark Pinto is a top-producing Realtor with Windermere Professional Partners, specializing in residential real estate in Tacoma, Gig Harbor, University Place and Lakewood.
Mark Pinto: (253) 318-0923
As a commissioner for the City of Tacoma's Landmarks Preservation Commission and a former board member of Historic Tacoma, I've had a lot of experience with historic properties. I've also been buying, renovating and selling historic homes myself for more than twenty years (45 houses and counting). Not surprisingly, clients often seek my advice when they're thinking about buying an older house. With the busy spring home buying season upon us, I thought it might be a good time to share some thoughts about what to consider when buying a historic home. Below, I describe some of the “big ticket” replacement and repair costs that you may incur during the restoration of an older home. It's important to note that there are loan programs and tax credits available to help defray some of these costs if you are buying a historic home in Tacoma.
2. Old houses aren’t usually insulated. Builders didn't really begin insulating homes until the late teens and early twenties, and even then they generally just added cellulose (paper pulp) to the exterior walls and attics at very low insulating levels. If you’ve ever demolished the ceiling in an older home, you'll know what I’m talking about. You’re probably still discovering bits of the pulverized paper in your hair, ears and clothes. If you’re doing a major remodel to a home, it makes sense to strip off the old interior plaster down to the studs so that the wiring and plumbing can be updated and insulation can be added. If you’re not doing a major renovation, my advice would be to simply add insulation to the attic and underneath the first floor to increase the insulation value as much as possible. Learn more about insulation at energy.gov.
3. Are the mechanical systems up to date? When buying an old house, people often encounter things like knob and tube wiring, galvanized and lead pipes, oil burning furnaces the size of a Winnebago and broken sewer lines. Older systems aren't necessarily a problem, but a thorough pre-purchase home inspection can identify failing systems in need of immediate attention. Be sure to factor the cost of plumbing, electrical and heating system upgrades into the purchase price of a home before you make an offer, and make sure you can afford to repair or replace these systems as it becomes necessary during your ownership.
4. Original windows and doors are great. Leave them alone! Nothing frustrates me more than buyers who immediately think they have to replace all of the original doors and windows in a house. It is significantly more cost effective to repair original windows and doors and install storm windows. They’ll be just as energy efficient and will last exponentially longer than their cheap vinyl counterparts. For more details regarding wood windows versus vinyl, check out my blog post regarding that subject here.
5. How many layers are on the roof? Many older homes in Tacoma originally had wood shingle roofs with no underlayment to support a modern roof. Over time, home owners have simply shingled over the original roof. If a roof has three layers or more, it's no longer a candidate for re-shingling. The roof will have to be completely torn off, and an underlayment of plywood or particle board will need to be installed before the new roofing material can be added. Tear offs are three times as expensive as simple re-shingling so it's helpful to know how many layers a roof has before writing an offer to purchase an older home.
The demand for rental homes in Tacoma’s North End is high, with landlords charging as much as $1800-$2000 per month for a nice three bedroom house in a desirable location like Proctor or the Stadium District.
Many homeowners were able to secure extremely low interest rates by refinancing when the market was low, which prompts some to consider holding on to their primary residence as a rental property when purchasing their next home. Residential real estate in Tacoma’s North End is certainly a great investment. With the economy stabilizing and job growth expanding in our area, some are predicting as much as a 20% gain in market values over the next 3 years.
So whether it’s a property that you purchase specifically as a rental or a primary residence that you’ve decided to convert into a rental, it’s important to ask yourself a few questions before deciding to become a landlord.
5 Questions to Ask Yourself BEFORE Renting Your Home
1. Do you know how to screen potential tenants? Credit-worthiness? Employment and rental history? You can find out more about tenant screening at Bigger Pockets.
2. Will you allow pets? Cats? Dogs? Large? Small? Allowing pets will obviously increase your potential applicant pool, but pets can take a toll on a house which might cost you more than it’s worth in the long run.
3. If your house is located near the University of Puget Sound, will you rent to students? You may be able to earn more income if you rent by the room, but you can also expect more wear and tear on the property.
4. Have you talked to your insurance company to find out if there will be an increase in your premium if you convert to a landlord’s policy? You can find out options from our preferred insurance agent Jerry Hallman at Farmers.
5. Have you spoken with your accountant about the potential tax implications associated with owning and/or selling an investment property? Capital gains taxes are easier to avoid when selling a primary residence than they are when selling a rental property.
Another route to consider would be purchasing a property for use as a short term rental. The startup and maintenance costs (furnishings, utilities, supplies etc.) may be greater and the property will require more hands on attention, but the earning potential of a daily, weekly or monthly rental will be higher. There are a number of sites available for marketing a short term rental, including www.airbnb.com, www.homeaway.com and www.vrbo.com. Lastly, if you’re reluctant to deal with the active management of a rental property, you can always enlist the assistance of a property management company. Locally we recommend Parkwood Property Management and McNally Property Management . If you’re interested in purchasing an investment property, let us know. We’d be happy to help you navigate the waters.