Many people see enormous potential in diversifying their portfolios and investing in real estate. Traditionally, real estate investment has remained a low risk. It has averaged a somewhat higher return than stock investments. Washington offers a unique confluence of factors that make it an interesting choice for investing in properties.
With some sections of the real estate market getting a little too hot, many investors are looking to expand into markets like Washington. But strategy matters—is it wise to invest in multiple properties? Here are some pros and cons of choosing multiple investment properties in Washington.
The Rental Market Is Hot
The adage that homeownership is best is not ringing true for some segments of the population. This includes Millennials and younger adults. They love the flexibility and freedom of renting versus owning. But people of all demographics are driving an increase in interstate moving as they flee from the tight squeeze of some markets and seek out opportunities in Washington.
With the recent slowdown in new building starts, fewer units are standing empty. Investors starting out may begin with a single rental. But by using some of that rental income to invest in more properties, investors can build a healthy passive income.
Competition Is Fierce
While many people do prefer renting, that has not meant a soft buying market—quite the opposite. In many cities, houses sit on the market for only a few days before buyers snap them up, often sight unseen. The average length of time a home sits on the market this year in Tacoma, Washington, is only five days. Housing prices are up a whopping 29% over last year in Tacoma. Some areas of the state are up even higher. This means prospective investors have to act fast and be ready to try over and over if outbidding occurs.
Cost of Living
The cost of living in Washington state is still reasonable compared to many other parts of the country. The state’s population is growing thanks to gorgeous views and ever-increasing job opportunities. Another big draw is that there is no state income tax. Add in a wide variety of housing options, and Washington looks very appealing to many people. This means that the likelihood of a rental property standing empty for any length of time is pretty low, regardless of the type of property.
Lower Rents, Lower Income
While the market is heating up dramatically, the average rent is still lower compared to other markets. Lower rents mean lower rental income for property owners. While the average rent is on the rise, so is the average cost to purchase a property, whether commercial or residential. Choosing investment properties can be a bit of a guessing game. Investors may attempt to buy a property in an area with lower rent, expecting the market to continue to heat up and reward them later on with heftier rental income.
Diversification Creates a Cushion
By choosing multiple investment properties, many investors seek to create a cushion. Just as in the stock market, the point of diversification is risk reduction. If an investor buys into one market at a lower price and it fails to perform, having several other investments would in theory balance that out.
There are other ways to diversify when it comes to investment properties. Buyers may mix commercial and residential real estate properties in the portfolio. Others look at adding different types of residential properties or establishing ownership in vastly different markets. Some even look to appeal to different generational groups with their property investment strategy. It all circles back to an attempt to reduce risk while creating a stable and steady cash flow.
Spread Too Thin
As buyers add more properties to create a better rental income, they run the chance of putting too many irons in the fire and overextending themselves. While investing in property can be a low-impact game, it is not no-impact, unless the buyer works with a property management group.
Another risk is that the market is moving so quickly. It could tempt a buyer to pull the trigger on a purchase without thinking it through. A property can be hot but not right for the buyer. It can be a struggle to know when to act quickly and when to hold back for a better fit.
And buyers also need to be realistic about their resources. Overextending financially could send the whole business into a tailspin. This is counterproductive to the goal of achieving financial stability.
Identifying Goals and Weighing the Risks
Buyers should create a realistic list of goals but also have a clear understanding of the risks involved. Once the buyer identifies these, the next step is to decide how much risk is tolerable. Establishing these points allows the buyer to know how best to use the resources at hand. Washington offers property investors every kind of option. This location could be a rewarding place to build a diverse portfolio of properties.
Whatever size your portfolio, your success can be multiplied when working with a Kennewick property manager at Real Property Management Tri-Cities. We take over the day-to-day while you focus on the important things in your life. Ask us about our FREE rental market evaluation today!
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