A year and a half after purchasing our first triplex, we were ready for the next one. Once we started looking at houses… it was hard to stop. Since we had no plans to move, we set out to find an income property in Seattle.
Searching for a deal
We started looking for another triplex in earnest at the end of 2014. Prices were starting to increase rapidly, so we opened our search to duplex and single family with ADU. We spent 10 months submitting offers before getting an accept. Below are some of the notable ones that got away:
- 3,500 square foot triplex built in 1900: This is one that I think of often – lots of charm, great location, views of downtown Seattle. The owner recently remodeled the top unit, and it commanded market rent. The middle unit was below market, but with some easy renovations (restore floor, paint, etc), the rents could be raised. The lower unit needed a lot of work, however. Our plan was to quickly flip the middle unit, then live in the bottom while renovating. We submitted an offer, but the seller did not accept due to our financing.
- 3,400 square foot triplex with owner’s suite: This one lacked charm, but it did have one large apartment spread across two levels. Seller rejected our offer because they received a higher bid.
- Diamond in the rough triplex: We made an offer on another triplex that was close to our current place. This one was in rough shape – terrible siding, bad remodeling work, hoarding tenants. But it could be so nice when cleaned up. The amount of work intimidated us, and we did not make an offer. The crazy thing about this place is that it came back on the market two years later when we were looking for our third property; the buyer had completed several projects, but then decided to sell. They had done a lot of the work that intimidated us, including the siding and some mechanical work. We made an offer when it was all cosmetic work, but lost to an all cash offer.
We had started to give up hope by the end of the summer when a friend posted a single-family with ADU in West Seattle. It was a 1961 ranch house with daylight basement situated on a greenbelt – it felt like you were in the woods, even though it was only a 12 minute bus ride to downtown Seattle. It had sat on the market for a month, and the price was great. We offered $12,500 under asking, and the seller accepted.
Financing
We used the VA loan on our first triplex, and we weren’t quite ready to refinance that one yet. We also didn’t have a 20% down payment saved up, so we decided to use an FHA loan for our second property. When it came time to purchase, our mortgage broker recommended using a conventional loan and to allocate some of our down payment to pay down the points. This meant we would not be subject to any FHA restrictions, and it reduced our PMI to a palatable $45 a month. I’m happy we worked with a broker, as we would not known about this financing had we gone with a bank or online option.
Remodeling and tenants
We closed on the property in November 2016… right before I gave notice at my job. We had not reached financial independence yet, I had just had it with the place. That gave me plenty of time to prepare the property for new tenants.
The prior owner had rented the ADU to a family member, so we did not inherit any tenants. Since our vacation rental in the Central District was so busy, we decided to rent the upper apartment short-term and find long-term tenants for the apartment below.
Fortunately the property did not need a lot of work. Most of our renovations were in the ADU – we closed the bottom of the interior stairs, repaired tile, laid new flooring, changed the lighting, repaired the chimney, and gave it all a fresh coat of paint. I spent my time off working on the apartment, and it was ready to rent in a few months.
We went midcentury-to-the-max in the upstairs Airbnb, furnishing it almost entirely from thrift stores and vintage furniture dealers. It looked amazing, and we rented it quickly once listed.
Closing the vacation rental
We ran the Airbnb for a little over a year when we decided to close it. The nightly rate was higher because it was a two-bedroom, but we could only go so high in that location. Guests needed to have a car, which was inconvenient. It was also hard to maintain quality control on cleaning… we were unable to check on it as much as we would have liked. We hired cleaners to turn the apartment between guests, and their work was not always consistent. The stress of operating two vacation rentals became too much.
After realizing that we would not lose too much income if we converted it to a full-time rental, we moved the furniture out and listed the apartment.
Delridge today
Although we purchased the property for income, we haven’t received the returns we’d like. I think we overestimated how much we’d be comfortable with short-term stays – operating short-term rentals is a lot of work. In the end, we make enough on the property to cover all our expenses, vacancy rate, maintenance, and income taxes. We just completed a refinance on the property, which will remove our PMI and reduce payments. We will finally have passive income on this property.