As of today, only 8 listings are available on the Multiple Listing Service (MLS) in Edmonds, Lynnwood, Mountlake Terrace and Mukilteo. Furthermore, there are only two other listings available on the Commercial Brokerage Association (CBA). This light supply of properties makes me wonder why activity in these markets are so quiet.
Has the market slowed down because of the holiday season? Are owners seeing the upside in South Snohomish County Multi Family apartments? Has there been a tremendous amount of activity in recent years? Are potential sellers worried about finding another property to re-invest into?
The answer to all of these questions is YES!
In my experience with my clients, they tend to hold off of any sale or purchase of investment properties in the holiday season. The most common response I receive is the holiday season is already so busy, why add another issue to deal with.
I can appreciate where my clients are coming from, but one of my stances on why it is good to list, and sell your property during the holiday season is because everyone else is thinking the same thing thus less competing inventory. There truly is a lack of activity during the holidays. Many investors don't care what hour, day, week or month it is. If a property looks good, they are willing to write an offer to acquire the building.
Another reason why properties are not being listed in South Snohomish County can be attributed to the owners finally seeing the upside in their investments. Historically, the Snohomish County area has seen a higher vacancy rate than areas located closer to the city. Areas such as Edmonds, Lynnwood, Mountlake Terrace, and Mukilteo have seen a recent boom in construction in both the residential and commercial core. Areas such as Lynnwood have seen an expanded presence of retail growth tied in with the remodeling of the Alderwood Mall. A new city center, roads, and schools have all attributed to individuals desire to move into these areas. At one point the only jobs available were jobs in the city which took considerable time do to lack of transportation. Now, you can live in the suburbs and take a bus, carpool with co-workers or even bike to work. These new modes of transportation have made it quite a bit easier for individuals to live outside of the city.
All of this takes me back to my original point. People enjoy living in these areas. A sense of community has brought individuals from neighborhoods throughout Washington to call this area home. Because not everyone can own, the rental market in these areas has seen a large decrease in vacancy rates. Owners of Multi Family Apartment complexes now have the ability to rent out units without having to give 'special' incentives to move into their buildings. Owners can now charge market rent for a property that at one point was well below market value. After all of the time owners spent figuring out ways to get renters in, in the past, renters are now searching for places they can rent.
In the recent real estate boom that took place in the last 3-4 years, investors began snatching up as many properties as possible. This included Multi Family Properties. Investors began to leverage their own properties in an effort to acquire. Sellers used the highly effective 1031 Exchange to defer capital gains taxes and re-invest into larger buildings. Major investors, REIT's, and developers from outside of the area began to see the tremendous upside is these areas and began acquiring properties at an amazing speed. This huge influx of movement has sent inventory levels down to staggering lows.
Last but not least, investors are beginning to worry that with the lack of inventory, they will have nothing to 1031 Exchange into. Without having an up leg in the market, for most investors, it does not make sense to sell a building that is close to breaking even, breaking even or even one that is supplying cash flow. With a 1031 Tax Deferred Exchange a seller is allowed to purchase a 'like kind property' to reinvest without having to pay capital gains tax. This allows for an investor, through time, to continually increase their portfolio with larger properties without having to pay capital gains. Eventually, when a principal decides to sell all of his or her property, they will be liable for capital gains tax. All things considered, not having to pay taxes on a property will allow you to potentially invest into a larger property than you may not have been able to if you did have to pay capital gains on each and every transaction.
The upcoming year will be very important to the South Snohomish County market. Without activity in the Multi Family market, it will be very difficult to justify the ever escalating price of investment properties. Areas such as Edmonds are seeing a large increase in sales price but are faced with the problem of getting a property to appraise for the sales price. The market ultimately commands the sales price but without a qualify appraisal, lending institutions will not fund on loans.
In today's market, investors are purchasing properties based on speculation and upside. In the past acquiring a Multi Family Apartment was based solely on income versus expenses. If the property cash flowed with a sizeable down payment, it was worth purchasing. Today, a property is purchased for many reasons. One is to turn the property into a condominium. If a building is in a good enough location, an investor with a vision may be willing to pay an above market price to obtain the building and then turn the property into condominiums which he or she can sell at a large profit. Another reason an investor is willing to pay an above market value for a property is based upon potential upside in rents. If an investor believes the rents are below market or that the rents could be substantially raised with some upgrades, he or she will be inclined to purchase and take the necessary steps to increase rents. The market in South Snohomish County and many parts of Western Washington have seen an abundance of investors buying on speculation in recent years.
The South Snohomish County area continues to expand with large corporations such as Boeing expanding their presence in already dense areas. With the influx of new commercial jobs entering the market, neighboring retail centers and big box stores are sprouting at amazing speeds. In an effort to house all of these new transplants, new developments are being created at an enormous pace. That being said, all of the new transplants are unable to purchase and rent leaving a huge upside for all Multi Family Apartment owners.
The timing is very good to sell your property and invest in larger complexes as long as you have the vision to see that South Snohomish County is primed to become a hub for the next generation of retail and commercial businesses.
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