Evaluating the Investment Potential of a Seattle-Area Home

April 18, 2023
Last updated:
April 18, 2023
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Seattle’s booming housing market and desirable location make it an attractive option for real estate investments. But with so many factors to consider, it can be overwhelming to know where to begin.

In this article, we’ll walk through the steps for evaluating the investment potential of a home in Seattle. This kind of research and due diligence can help you make an informed purchasing decision.

Evaluating Investment Potential in Seattle

When evaluating the investment potential of a home, you’ll need to consider a variety of factors. So let’s take them one time…

  1. Location

There’s a common saying in the real estate world: “location, location, location.” It means that a particular home will either increase or decrease in value largely due to its location. So this is one of the first things to consider, when buying investment property in the Seattle area.

For starters, you want to research the popularity of the neighborhood and its proximity to amenities. Neighborhoods that are closer to downtown Seattle and public transportation tend to be more desirable and therefore have higher property values. Some of the most desirable neighborhoods in Seattle include Capitol Hill, Ballard, Queen Anne, and West Seattle.

Each neighborhood in Seattle has its own unique character and amenities. Capitol Hill is known for its nightlife and dining scene, while Ballard is known for its maritime heritage and trendy shops. When evaluating a neighborhood, consider factors like safety, access to parks and green spaces, and the quality of local schools. You can find much of this information online.

  1. Housing market trends

The Seattle housing market is known for being competitive, with high demand and limited inventory. As a result, median home prices in the area tend to run higher than the national average.

When evaluating housing market trends from an investment standpoint, look at factors such as the number of homes for sale, the average days on market, and the median sales price. Real estate agents can provide you with up-to-date market data and trends. Or you can do your own research using online sources.

The best-case scenario is to purchase a home in a market with strong demand and limited inventory. But market conditions can vary from one neighborhood or community to the next. So you’ll need to drill down to the local level when evaluating supply and demand factors.

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  1. Property taxes

Property taxes in Seattle can be high, with the current tax rate set at around 1.05%. Tax rates can also vary by neighborhood and property type. So you’ll need to research the specific home you’re interested in, to find out how property taxes will affect the investment potential.

  1. Amenities

Amenities offered by the property itself can also influence the investment potential. For example, a home with a garage or outdoor space may be more desirable and therefore have a higher resale value. You can research the amenities by reviewing the property listing, or by scheduling a showing with a real estate agent.

Home Sales, Rental Rates, and Renovation Costs

Local home sales, rental rates, and renovation costs are three of the most important factors to consider for Seattle investment properties. Whether you’re going to renovate and resell the home, or use it for rental income, you’ll want to analyze these three factors.

Recent home sales: You can use property listing websites like Redfin, Zillow, or Realtor.com to find data on recently sold properties in the neighborhood. This information can provide insights into the market value of the property you’re interested in, and how it compares to other properties in the area. You can also ask a real estate agent to provide a comparative market analysis (CMA) for the property, for a more in-depth analysis.

Rental rates: As for rental rates, you can use websites like Rentometer or Zillow Rentals to find out how much similar properties are renting for in the area. This will help you determine if the property has good potential as a rental property, and what you can expect to earn in rent.

Renovation costs: If you’ll be renovating the home before selling or renting it, you’ll want to estimate the cost of those renovations. You can research the cost of common renovations and upgrades online, or by consulting with a contractor. Also consider the potential return on investment (ROI) for each upgrade or renovation. For example, adding a bathroom or updating the kitchen could significantly increase the value of a property and make it more desirable to renters or buyers.

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How to Calculate Return on Investment

You can calculate the return on investment (ROI) for a Seattle-area investment home by dividing the net rental income by the total investment cost. A positive ROI indicates the investment has potential for profit, while a negative ROI suggests it may not be worthwhile.

Here’s an example of what that might look like, using a purchase price of $700,000 and total renovation costs of $80,000:

  • Annual Rental Income: $48,000
  • Less: Property Taxes: -$10,000
  • Less: Other Expenses: -$5,000
  • Net Rental Income: $33,000

Net Rental Income / Total Investment = ROI

Total Investment: Purchase Price + Renovation Costs = $700,000 + $80,000 = $780,000

ROI = $33,000 / $780,000 = 0.0423 or 4.23%

Based on this calculation, the potential ROI for this property is 4.23%.

Need financing? Sammamish Mortgage has been helping real estate investors with their financing needs for many years. We are a local, family-owned company based in the Seattle metro area. Please contact us if you have financing questions or wish to apply for a loan.

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