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15 Sep 2015
Is investing in rental properties a good idea in the Sequim or Port Angeles area? A gentleman was wisely planning for his retirement years, and he knew that rental properties could be a good source of income. My advice to him might surprise you.
He asked about older rental properties. Why would someone who is trying to secure a retirement income look at old homes, like early 1900s or pre-1950? Because those are the homes you can get for under $175,000. Since rental properties must pencil out, with low rental rates in the Sequim and Port Angeles area, it is practically impossible to make an investment above $150,000 to $175,000 that will give you a decent rate of return. A nice modern home with 3 bedrooms and 2 baths is likely to be $250,000 to $300,000, and with rents ranging from $600 to a maximum of $1,400 for a very nice home, rental properties are hard to justify on paper.
Buying a 1930s home that was remodeled with the idea of renting it out to a good tenant with few problems and a sweet positive cash flow is probably a pipe dream in this area. There are only a hundred potential hidden defects in an old home that could cost you $5,000 to $30,000 to repair. Some of these old homes have foundations that could need to be completely replaced. Imagine how much that could cost? Then there’s old wiring. What if the county building department red flagged the house and told you it had to be completely rewired up to the current code? Try replacing an entire heating system in an old home. What if the tenant decides to sue you for mold you didn’t know about? You might as well just quit claim the house to the tenant at that point. There are far too many problems with old homes to seriously consider them as a safe and secure retirement income. Safe and secure they are not.
Good rental properties would be fairly modern, post 1980s, and be the kind of homes that “good tenants” would actually want to live in for a while. While it may not guarantee a good ROI (return on investment), if you can pay in cash, in the long run the small rate of return and the appreciation can and will provide a very solid retirement income in the next 10 to 20 years. If you’re planning to get a big mortgage, it just won’t work. That’s my opinion on rental properties in the Sequim area.
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