A Condo Tale & 2017 Explodes

Pretext:

Enter the axiom we all have heard about investing in real estate; it’s all about location, location, location.

For your consideration, I’m going to amend that good old truism with a nod toward timing. If you’ve ever decided to buy Park Place or Boardwalk in a game of Monopoly, you better not land on a series of bad rolls or your property cards go straight back to the bank.

Once upon a time, a condo was born:

In 2006, sub-prime lending was blowing up the real estate market and people were treating their properties like cash machines. The timing was incredibly bad for one condo conversion project in Columbia City, Seattle. Purchased as an apartment building in 2006 and offered as a condo conversion in 2008, Sole Vita Condominium was born.

Sole Vita’s location, in the heart of historic Columbia City, puts condo owners right in the middle of one of the best walk scores and exciting places to live in Seattle.

The story of Sole Vita is a fine example and look back at what has occurred since the historic crash to present day because each of the condo homes in the building were remodeled at the same time and presented to the market in the beginning of 2008 just as the market was falling apart.

There are 12 condo homes as part of the Sole Vita Condominium. The structure is two levels with 6 condos per level with mostly one bedroom, one bath homes. There are three 2 bedroom/1 bath homes.

2008: The nicely updated one bedroom Sole Vita condo at 670 sq. ft. sold for about $260,000. Sales begin in March with brisk sales and by year end the cumulative days on market per sale had grown. All one bedrooms were sold in 2008.

2010: The developer had hoped for the market to bounce back quickly, but finally decided to sell one of the two bedroom homes he still owned at Sole Vita. At 870 sq. ft., it sold for $249,000 which was less than the one bedroom homes had sold for in 2008.

2012: The first resale was a one bedroom short sale, and sold for $134,000.

2013: The developers two bedroom is re-sold for $244,000 and for $5,000 less than it sold for in 2010.

2014: Three one bedrooms are sold. In the beginning of the year, two were sold as short sales at $145,000 and $154,000 respectively. Lenders took the short-fall. At the end of 2014, a non-short sale sold for $210,000 and sellers lost ground on the sale.

2015: Two bedroom unit sells for $260,000 which just happens to be the average sold price for a one bedroom in 2008.

2016: Three one bedroom condos sold for an average of $305,000.

2017: Four one bedrooms are sold. The first, in February, for $305,000. The next, in March, sold for $335,000. In April, the next sold closed for $356,000 and in August, this same size and similar condition property sold for $375,000.

Sole Vita Condo

2017 Went Boom!

The concept of timing in the marketplace is a bit tricky. We are often looking backwards for information that will help us forecast.

In 2017, we saw houses rise 14% year over year. If you look at Sole Vita and average things out, it 2017 fits right into that model.

Yes Virginia, 2017 went boom!

Let’s consider that the condo price at Sole Vita in 2008 was $260,000 and in 2017 the price is $375,000. That’s about a 30% increase of value. When we divide that increase by 9 years, it’s a modest 3.33 percent increase over time.

Real estate, especially home ownership, continues to be an excellent investment over time. The outrageous travesty of the great housing crash won’t likely happen again since the credit industry is now closely monitored and regulated. But, real estate does go through cycles of supply, demand and pricing.

We can’t know for certain what the future may hold and the bubble word floats out in any general conversation about real estate these days. Real estate is highly regional in nature yet national economy does impact the whole.

A resource for Windermere Brokers and our clients is the quarterly Gardner report and frequent blogs of Matthew Gardener, a respected economist for Windermere who specializes in real estate in the Pacific Northwest. It’s an interesting read and Mr. Gardner does not believe that we are in bubble territory here.

Matthew Gardner

Gardener asserts that though we’ve seen housing prices rise dramatically, our regional unemployment rate is steadily falling and creating more incentive for job migration thus demand for housing will likely continue. He also notes that people are staying in their houses a bit longer and in a recent survey, 2/3 of retirees aren’t planning to sell and downsize but to age in place. If interest rates rise, people with low interest rate loans will be encouraged to stay put and remodel instead of move.

Another resource I have to use in looking at the market and forecasting is a program called Trendgraphix which uses the data from the Northwest Multiple Listing Service for Brokers to be able to create general and more specific analysis of the data. This can be an interesting and dramatic representation for specific areas, over time, house size, price range, new construction, condo, etc.

Having all the resources is interesting and helpful but not a crystal ball. The ebb and flow of the marketplace is best measured on a day to day basis by an active, full-time professional and if you ask me on Monday, I’ll likely have a slightly different perspective by Tuesday.

Is now a good time to buy now?

This is where I get to share my opinion and a caveat for you readers is to let you know that I’m somewhat conservative when it comes to advice and your money.

In my opinion, it’s a great time to buy a home for yourself. You’ll have a home to call your own, the market will help you build equity over time and you’ll be able to use long form deductions on your Federal taxes. Buy within your means and plan to keep your home for 3-5 years or more. Don’t underbuy though, because it costs about 9% to sell a home and with loan fees, you can be looking at an expensive proposition if you buy and sell more often.

Selling and then buying is a bit trickier since inventories are still low, you’ll have no trouble selling but finding a new home becomes more difficult. There are a few tools in the bag of tricks to help with this but careful consideration is needed. Buying and selling in the relative same marketplace or time means that you are trading horses, er houses, more or less. Prices won’t fluctuate in a short amount of time to really make a difference.

Investment property purchases are very thoughtful indeed. Lenders will want to see 25% down for a financed investment purchase and I agree with that concept for a less risky proposition. Rents have risen right along with house prices and the rental market is quite competitive. If you’ve put down a sizeable chunk of money on an investment property, you’ll likely have a positive cash flow and be earning money immediately. Again, the same plan for keeping the rental property for at least 3-5 years or more years is important. Therefore, in your considerations, you’ll want to be sure that you won’t need that capital for personal use during that time period. Do be prepared for the trials and tribulations of being a landlord and truly, professional help will go a long way in the process.

Happy Ever After

Remember the sellers who sold their condo at Sole Vita at loss in 2014? They brought funds to closing in order to sell their condo. Since they didn’t default on their loan, they picked up a house which was larger and met their growing family needs. They’ve more than made up for any losses on their sale at Sole Vita.

What about the people who had to short sale their property? Goodness knows it must have been a bit emotional at the time but after 3 years, all is forgiven on their credit so that by 2017, they’d likely be back in the home buying business.

What about the buyers of those short sales? Well, at least one took her substantial equity out by selling in 2017 and buying a much larger townhome in Greenwood near her new job. Had she not been able to purchase the short sale back in 2014, there’s no way she could have purchased her new home in 2017.

The moral of the story…

Buy real estate because it pays, over time.

Plan to hold it. This will help you navigate between the cycles and keep you from losing your investment.

When and if you sell it, buy a replacement quickly in the same marketplace when prices are rising; conversely wait to buy in a slow market.

Don’t under or overbuy.

Don’t use your house like a cash machine and try and pull the equity out unless you’ve got a good plan.

Buy an investment property if you can truly afford to park your money.

Always and frequently seek the advice of your full-time professional Broker!