Seattle Sweet Digs

September 16, 2008

Maybe It’s Time to Rent Instead of Sell?!?

for rent Maybe Its Time to Rent Instead of Sell?!?Rather than sell a home in this weak market, some owners are opting to rent their homes and condos instead.  According to an article by Brad Berton in the Puget Sound Business Journal, they may be on to something. While there don’t seem to me many home buyers, the area is rife with folks looking to rent:

“ . . . while perhaps twice as many local homeowners as a year ago are looking to lease out their houses and condos rather than sell in the tough environment, there are plenty of residents ready to rent.”

Vacancy rates for rental units are predicted to stay around 4.0 – 4.5 percent through 2009.  Rates of 4 percent and lower tend to favor landlords. Could this help explain why several projects conceived as condos have transitioned to rentals?  After all, every one not looking to buy still has to live somewhere, usually in a rental.

Seattle’s strong rental market provides evidence of Seattle’s growth–even with all the new apartments coming on line, the number of renters competing for those units keeps the vacancy rate low.  Between the influx of new residents and would-be home buyers putting off their purchase in the uncertain market, Seattle landlords should weather the real estate debacle quite well.

If you are one of the few shopping for a new home, here’s a takeaway for you: consider a home with a rental unit. The extra rental income will help with the mortgage as well as give you options.

Should things go wrong, for example, and your spouse looses their job, you could always downsize to the rental unit and rent out the big house to ease the pain. Or maybe you live in the main house until the kids move out, then downsize to the rental unit and retire early.

Renting instead of selling isn’t a solution for everyone, but for those that can make it work, it opens possibilities. For some, renting may even stave-off foreclosure until things turn around.

Posted by rick.williams on September 16, 2008 11:30 AM | del.icio.us | Digg

  • TF
    Getting part of a home defined as an ADU (accessory dwelling unit) would be different from a zoning variance? If I have no interest in permitting an ADU, wouldn't that still be an easy upsell if it largely a matter of paperwork, since the unit is already to code and operational?

    I researched zoning variances before I put my home on the market, but got informal feedback from the city that UW 'protects' the zoning ratios around the school to prove (on paper, at least) that there's housing available for graduate/older students and staff, despite the prevalence of under-the-table rentals). The implication was it would not be granted until UW changed their ratio or impact area. I have not heard about ADUs in the area, nor seen many marketed in houses known to be rentals.
  • Michael P Lindekugel
    This is not legal or tax advice. You seek appropriate legal or tax counsel.

    “with all the new apartments coming on line”
    There are not a lot of new apartments coming on line. Seattle lost over 5000 rental units to condo conversions and development since 2003. The apartments coming on line are a drop in the bucket. The condo conversions reverting back to apartments not many. Those under construction or in the permit process won’t have any serious impact until 2010 at the earliest.

    An ADU is the official term for the MIL. ADU has rules. And ADU is an owner occupied single family residence with an extra livable unit. It is not considered multi family. It is not zoned as multifamily. It must be owner occupied. Lending on property is based on the zoning and use. If a single family home has a non conforming second unit, then the lender will consider it as a single family home.

    Generally, you must claim the rental income as income. You won’t have any capital gain on the rental portion of an attached ADU. The attached ADU such at the basement or attic falls under the owner occupied capital gains exemption up to $250K for a single person and $500k for a married.

    Generally, and ADU adds some additional value.

    The decision to rent or lower the price of the home to get it sold can be a complicated discounted cash flow analysis problem involving cash flows and the Time Value of Money. Ask for help from your CPA or another number crunching professional. What the market rent, cost of renting, cost of owning, lease term, time to sell if the price is dropped, time to sell if the price isn’t dropped, alternative uses of differences in cash flows, investment rate, tax rate, etc?
  • meks
    TF, I've seen the term "MIL Potential" in a lot of listings... listing a separate kitchen and entrance will allow people to connect the dots.
  • Rick.Williams
    Hey TF,

    You bring up a good point: how does adding an additional unit (either permitted or not) effect the value of a home? The way it's advertised? What it can legally be used for?

    I added an attic apartment to my house a few years back when I had to replace the roof. I went through the whole permit process and now have a legal Accessory Dwelling Unit (ADU) recognized by King County. Even so, the city still classifies my house as a single-family (though I believe my neighborhood, Squire Park, is zoned multifamily?)

    I'm thinking a MIL (mother-in-law) unit isn't legal, while an ADU is? Jargon vs. legal definitions: very confusing in the real estate world. Maybe your agent can clarify for you and us?

    Regardless, even if you can't officially advertise it as a multi-family, maybe the remarks could include something like, "3-bedroom suite in lower level currently generates rental income." That way, you're technically not claiming multi-family, but you're letting buyers know that the space exists. How they choose to use that space is up to them.

    Just like in the U-district, there are several shared houses in my hood--some are legal multifamily and some not.

    I'd certainly be interested in some input from agents. What are the legal/ethical standards in advertising snigle-family homes that are really used as multi family? If TF had permitted the ADU could it be advertised as multi-family?

    In particular, I'm curious as to whether having the ADU makes my house worth more or less than if it were a single-family house with the same square footage.

    Any of you pros want to jump in?
  • TF
    My home (complete with 3BR MIL suite in a daylight basement) is currently for sale, but this post brings up something I've argued with my agent: description v. zoning and MLS regulations. My agent's angle is there are strict requirements regarding terminology about rental units, and usually the most compelling owner-occupied rental situations aren't entirely zoned for higher density than single family. My angle is my home is in the University District, and if you think every single-family home around there contains a single family, you're a bit naive.

    For those interested in this thread and part-rental homes, what would you look for when looking for such properties? Under my agent's guidelines, I nearly have to let people discover the rental opportunity in my house.
  • Actually, craigslist doesn't like it when other sites scrape their listings, so we don't do it now for for-sale-by-owner-homes. We probably wouldn't do it for listings, either.

    There are a couple of good sites that do rentals though-mynewplace.com and rent.com.
  • meks
    Great point, maybe Redfin should add rental listings (for a one-time $5 fee maybe?)... You could certainly incorporate them from craigslist (a la housingmaps.com)
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