King County Real Estate Blog

Being Selective

Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This does not mean that profitable investments are not available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and the final topic is “Selectivity with Investments."

Part 3: Selectivity with Investments

As I mentioned earlier and as you’re likely well aware of, investors cannot simply buy any property, put a renter in it, and plan on it appreciating 10% to even 25% as in the past years. Is that going to stop a savvy investor? No! While the buy and hold mentality still works as a long term investment (especially with current rental rates), savvy investors are finding other opportunities in our changing marketplace.

Before I get going too fast here, this seems like a good time to talk about diversity. I do not recommend putting all of your eggs in one basket.  It's okay to have a favorite type of investment and one that feels safer than others, but just like with stocks, investors should at least consider multiple strategies in an effort to alleviate risk. For example, our condo market has recently been outperforming the residential market. Meaning that having both condos and single family residential homes in your portfolio has helped keep things more even and essentially eliminated some risk. In addition, diversifying your portfolio with commercial investments or even private financing helps as the commercial side of real estate often picks up during times when residential investments slip.

Back to picking a solid investment. We are currently experiencing a surplus in inventory which is forcing sellers to try harder to sell their homes, especially in pressure situations. My beloved Title Rep, Molly Cartwright with Pacific Northwest Title, just sent me some stats showing that King County has a current inventory of almost nine months for condos and houses (Total active listings divided by number of closings = months of inventory).  What does that mean? It means now is a great time to buy low! In years past, investors were buying high as they competed with multiple offers. This was fine since the appreciation was so stellar, but now investors have the opportunity to seek out investments that can be purchased at a premium with instant equity at the time of purchase. For instance, I regularly come across homes with instant equity and these are homes in the $300,000 price range that are either pre-foreclosures or simply distressed sellers that cannot compete with the inventory. You might ask "how do I consider this equity if it’s what I paid for it?" The answer lies in the fact that the reduced price you purchased it for does not reflect the appraisal value of a home. By having equity you are afforded with alternative options such as a cash out refinance which can allow you to put your down payment back in your pocket and pull out some additional equity, all while meeting your loan’s Loan To Value requirements. *I recommend always running potential figures and game plans for an investment by your mortgage professional before putting in an offer... make sure those numbers and strategies work!*

One other selectivity issue to consider is your mid to long range game plan for investing. If you know there is an investment or strategy you want to be a part of in six months, take that into consideration as you invest today. Meaning, do not let something you do today (loan, overuse of your investing funds, etc) get in the way of what you want to do in the near future. Make sure that the steps you are taking now fall in line with your overall strategy. Your mortgage professional can help you determine if what you want to do today will hinder what you want to do in six months. For example, our commercial consulting and financing company takes a pro-active approach in assisting our clients with creating an overall game plan. One of the major factors we always consider is whether or not the steps and finances needed for Investment “A” do no hinder your ability to complete Investment “B” in the near future. A Prospera Real Estate specialist is always willing to sit down and talk strategy and game plan, and feel free to email me at robertw@prosperarealestate.com to set a meeting.

That’s it for this three part series… now go out there and put it to good use. Happy Investing!