Seattle Rental Market: A Review and Outlook for 2018

Over the last several years, as the real estate market has recovered, we have seen a dramatic shift in supply. Rental homes and condos have been taken out of the marketplace and replaced with new-construction apartments. A tenant that may have been happily renting a three-bedroom house in the suburbs is asked to move out because an owner wants to sell. That same tenant now enters the marketplace and, due to inventory and price constraints, settles for leasing a new in-city apartment for the same price. This might not be ideal, but it is the only thing available.

What we are witnessing is a shift in the square footage and unit types of available rental units. As a percentage, we are seeing fewer single-family homes, condos and small apartments available and many more new-construction, efficiency apartments. Tenants end up paying the same rent but have less square footage.

While this may not be great for tenants, it has been good for our RPA landlords. We’ve been fortunate to be in one of the best real estate markets for years. Rents and property values have increased like no other time in recent history. We’ve also been in a low-interest environment for about the same period of time. But, while we can all count our blessings now, we also know that the market will not continue like this forever.

At last count, there were 58 cranes in Seattle. When these buildings are finished and the cranes are gone – how will the market absorb all of this new supply?  We believe that as a group, we are well positioned to handle a slowdown or downturn…when it inevitably occurs. As a company, we manage over 3,000 units or doors.   Most of these units are individual homes, condos or units in small apartment buildings such as I have described. A large majority of these properties are located out of the central business district and because of this, will hopefully be less impacted by residential towers in downtown.

The New Year is here and as always, it is a good time to evaluate your property. Here are a few options that you may consider:

1. Do nothing – it is a long-term strategy to buy and hold and many of our owners have done very well with owning the same rental property over a long period of time
2. Is it time to sell? Are there better opportunities out there either in the same location or different cities?  Or, do you feel like you just want to take some of your chips off the table?
3. Refinance for a better rate? Rates seem to be trending upward. If you have been taking advantage of a low adjustable rate mortgage, now may be the time to lock in a fixed rate.
4. If you do refinance, do you pull equity out? If you do this, do you spend it or use the money as a down payment to purchase another property at a low cap rate?
5. Renovate a unit or renovate the entire property? Or leave it alone.
6. If you are nearing retirement years, do you move into your rental property – live there for two years and sell tax-free?
7. And finally, how do you navigate the new tax laws? There is a 20% write off for pass through entities. If you haven’t already done this, there may be a big tax advantage to quitclaiming your property into an LLC to take advantage of this new law.

One thing that we know for certain about the Seattle rental market is that housing is a scarce commodity. As a company, we take pride in being able to provide so much quality and affordable housing and shelter for so many people in our great city. As a landlord, we hope that you share in this feeling. Whatever you choose to do with your properties in the new year, we wish you continued success and prosperity. Here’s to a great 2018!