Are Investors Buying All the Homes in Seattle? What’s Really Driving the Market

Christian: [0:00] Hello, hello, and welcome to another episode of the Awesome in Seattle podcast. This is your host, Christian Nossum, with the Awesome Nossum Group at Wilson Realty Exchange, Inc, and I am joined today by my awesome co-hosts. First up, we have Mr…

Varun: [0:13] Hi, I'm Varun Jain. Uh, I am a part of the Awesome Nossum Group. I primarily work with investors, uh, on the, uh, client side.

Christian: [0:22] Yeah. And…

Joanna: [0:23] I'm Joanna Beecher, and I am your fabulous buyer's agent.

Christian: [0:28] Yes, you are. Um, all right. So today, we are going to talk about a topic that we have seen circulating online. It's g- generating a lot of headlines. Um, we even discussed this during one of our Monday team meetings, and, uh, we just wanna debunk it, 'cause it's not really accurate, at least not here. Maybe somewhere, but not here. Yeah. I don't know where that place is, but we wanna debunk it. So- You've probably heard some version of it before, and it's, "Investors are buying all the houses, and that's why housing is so expensive." And it's just not really accurate, and we'll explain why with actual numbers and deals and logic, uh, based on what's happening in the Seattle metro area. Yeah. Um, and why it just isn't accurate. So, um, Varun and I have, are both actively investing in properties, building DADUs, flipping houses, long-term rentals, Airbnbs, whatever. We've kinda done 'em all.

Varun: [1:33] Yeah.

Christian: [1:33] Um, and so we have first-hand knowledge of the costs and the risks involved with doing that, with being an investor. Um, and at the same time, I've helped over 20 years helping end buyers, like normal home buyers, buy houses, and sellers sell houses. And Joanna, like she said, works almost exclusively with buyers. Um, and she hears this concern every once in a while. And so this is why we wanted to, based on our shared experience, explain kind of the, the reality of the situation. So Joanna is gonna play a little bit of the role of the skeptic today, and ask us questions, uh, about what a- investors are actually doing in this market. So- I'm a

Varun: [2:23] skeptic every day, just-

Christian: [2:24] You, you really are. She does play this role quite well- … in real life. Uh, so why don't you kick it off for us? Okay. Start us off. Um, okay.

Joanna: [2:33] One thing I hear all the time from buyers is that investors are buying all the homes, and that's why they can't compete, the buyers.

Christian: [2:41] Mm-hmm.

Joanna: [2:41] Um, so I'm gonna start with this question. What kinds of houses are investors actually buying?

Christian: [2:47] Hmm.

Joanna: [2:48] I'll just start with that. I was gonna go into part two, but we'll just- Yeah go there.

Christian: [2:52] So they're generally buying houses that have major issues. They're not buying these cosmetically ugly places. Um, they're buying houses that have major foundation or structural issues, or, uh, past permitting issues. Maybe an extension was done to the house that it sh- didn't get permits and never got signed off on. Um, I bought a house last year that had an entire second story added, and they never got the final permit added. So- You gotta work through a lot of stuff when this kinda thing pops up. Um-

Joanna: [3:28] That's really scary for- Yeah … a first-time home buyer, I'll say.

Christian: [3:31] Um, some of these houses are hoarder houses. Uh, sometimes they are just filled with animal and human feces. Um, they are just, they are bad houses. They're houses that a normal buyer would not want to buy. Mm-hmm. Um, maybe they have massive mold problem. Like, the, the list can go on and on and on. Yeah. That is what investors are generally buying.

Joanna: [3:54] Um, are they really competing with the typical home buyer?

Christian: [4:01] On a standard house? No. Um, yeah. I, I mean, Varun, do you wanna take this one?

Varun: [4:07] Yeah, so, uh, most houses, people hear fixer, and this is not like the TV show, right? Like, it's not just swapping out a few- Well, it sounds, like,

Joanna: [4:14] easy.

Varun: [4:15] No. Yeah. It's not, it's not like a TV show, and it's not like just swapping out a few cabinets or there are outdated floors. The kind of properties that a end buyer would like and assume to be a fixer would not be a good fit for an investor, because the homes that investors are looking at come with a

slew of problems: [4:37] foundation issues, structural problems, water damage, you name it. A full rewire.

Christian: [4:41] Mm-hmm.

Varun: [4:41] The electrical panel's completely outdated, and so is the wiring. The reason- Potentially,

Joanna: [4:46] like, layout issues as well? That's a big one. Layout issues. You have to

Varun: [4:49] move- Almost

Christian: [4:50] every time there's a layout issue.

Varun: [4:51] Yeah. Yeah. Um, and so the houses are in pretty rough shape that investors would wanna buy, and those are the ones that end buyers will not compete on.

Christian: [5:00] Mm-hmm.

Varun: [5:00] A- and that's why it's never a, almost never an overlap. Sometimes end buyers do take on these deals, but those are few and far between- Mm-hmm … and it requires a lot more capital and a lot, a different kind of a attitude to tackle these problems. Yeah.

Joanna: [5:15] Can we take a second?

Varun: [5:16] Mm-hmm.

Joanna: [5:17] Something in my eye.

Varun: [5:18] Mm-hmm.

Joanna: [5:20] Sorry, it started while you were talking, Varun, so there might be a, a moment, hopefully, that nobody sees, 'cause I did a really wonky face.

Christian: [5:28] Sure. I'm gonna look,

Joanna: [5:29] um- Is there anything… Ah. Hold on. It's really hurting. What just went in my eyeball?

Christian: [5:38] You can go to the restroom if you

Joanna: [5:39] need to. I might have to, but then I gotta stand up. I'll just try on my phone to look at it. Same thing in my left eyeball Okay. Okay, I think I, I think I'm good. Sorry.

Christian: [6:10] You're okay.

Joanna: [6:11] Let's keep going.

Christian: [6:13] Okay. Uh, two, we're gonna say two-

Joanna: [6:17] Are we at topic two?

Christian: [6:18] Eight minutes Uh, yes.

Joanna: [6:25] Okay. Okay, so my next question for you guys- Mm-hmm … um, is, I think it's interesting because I think a lot of buyers assume that they could just buy those types of houses themselves and fix them up, right?

Christian: [6:44] Mm-hmm.

Joanna: [6:45] Um, why don't they?

Christian: [6:48] Well, the reason they don't is because generally they don't have that much cash in order to buy the house in cash, and the reason I'm saying that they need the cash in order to buy is because a regular lender, a mortgage, won't let you buy that. So, uh, they won't give you a loan on a house that is that badly in need of repairs.

Varun: [7:12] Yeah.

Christian: [7:12] Um, you'll, you'll need… You just won't qualify for a conventional loan. There are some renovation loans, um, but they're not for something like this, if that makes sense. If it's needing that much work, it's gonna be a little tough to qualify.

Joanna: [7:31] Is that because you can't get insurance on something like that?

Christian: [7:33] It's a whole slew of different reasons. Um, but it's, it's basically, unless you have cash, and even if you do have cash, you might not want to, 'cause then you're gonna also need the cash in order to do the work on top- Right … of that.

Joanna: [7:45] Yeah. So you're paying mortgage. You'll be paying- Mm-hmm … for-

Christian: [7:48] Property taxes- everything … Joanna: insurance- And then- … Speaker: and all the

Joanna: [7:51] work … reno.

Varun: [7:51] Yeah, so i- assume, right, that you wanna buy in Seattle. You wanna buy a home. Um, you're typically, let's say buying $800,000 home, needs a ton of work. I'm gonna assume 200, 250,000.

Christian: [8:04] Mm-hmm.

Varun: [8:05] A million dollars in cash if you cannot get it funded conventionally.

Christian: [8:09] Mm-hmm.

Varun: [8:10] On the flip side, investors are buying these with some cash in the deal, but then they use hard money lenders, which is a very different lender that works with investors on this kind of a deal where conventional banks and loans do not apply to this part- particular kind of a house, where you might have missing flooring or there was water damage or fire damage where- Mm-hmm conventional banks would not even want to- Would never touch that … get behind that pro- that- Right … particular property.

Christian: [8:37] Yeah.

Varun: [8:37] Because it's a big risk for them. It… For conventional banks, it's all about risk assessment.

Christian: [8:41] Yep.

Varun: [8:41] And they don't wanna risk their capital on a house where they don't know if that particular end buyer can finish it up or fix it.

Christian: [8:49] Mm-hmm. Yeah. And the risk for that lender of a conventional mortgage is if the buyer, the new owner, stops paying the mortgage, the bank has to take it back as a foreclosure. When they take it back, they need to then resell it in order to recoup the money that they have in the home. Mm-hmm. If the house is completely tore up or has fire damage still or mold or water damage, all these different things- They can't immediately do that. They now have to go hire someone to come in, do the work. It's just so much hassle for the bank- Yeah … that they don't wanna take that on. They'll- they'd rather just work with a regular lender, a regular buyer, um, that isn't flipping the house- Mm-hmm … or solving all these major headaches.

Joanna: [9:31] Okay.

Varun: [9:31] Yeah. A- and just one other kind of thing was, like, I mentioned hard money lenders. The other caveat is, uh, people can ask, "Hey, why can't I as an end buyer work with a hard money lender?" Hard money lenders do not lend on end buyer or owner-occupied properties. Yep. There is a, I think, regulation around n- them not being able to lend on owner-occupied properties. Mm-hmm. They're only for investment opportunities, so that's also a very big differentiation on why an end buyer cannot say, "I'm gonna go get a hard money loan, and then live in the property and fix it." No, it, they can't lend on it.

Christian: [10:07] Nope.

Joanna: [10:08] Interesting. I wonder if that's… Is it because it's maybe predatory, 'cause their rates are so high and- Possibly. Possibly … people would be like- Yeah … "Yeah, I can do this."

Christian: [10:15] Yeah. And this is why, like, I think we're gonna get into this, but this is why an end user, a regular buyer, can't even get a hard money loan-

Joanna: [10:24] Mm-hmm

Christian: [10:24] is because, one, the hard money lender wants to see that you have experience- Mm-hmm … flipping and doing- That too … construction work. Um-

Joanna: [10:30] And that's what I was just gonna get into.

Christian: [10:32] Oh, well, there you go. Yeah. And two, they're very expensive. So- Yes … not only is there a big upfront cash, um, fee that you have to pay in order to get the loan, so you're gonna pay 20, 30, 40, $50,000 to get the privilege to pay 12, 13- 14% interest rate on this money-

Varun: [10:54] Yeah … Speaker: every single month.

Joanna: [10:56] Uh- Well, and that, you know, going into my next question, I think this- Mm-hmm … makes this very clear, that, like, even let's say I did think that this is the path I wanted to take.

Christian: [11:08] Mm-hmm.

Joanna: [11:08] Um, could I even realistically handle the renovations, right? It's like- Yeah understanding, A, what the renovations are- Mm … and being able to do them in a timely manner so that a hard money loan would make sense.

Christian: [11:25] Mm-hmm.

Joanna: [11:26] So, I mean, yes, so w- I wish you guys would talk about that a little bit too. Yeah. Just why- Yeah … the renovations are such a big factor.

Varun: [11:34] So I'll, I'll give you my example. I have done a renovation as a end buyer.

Joanna: [11:38] Mm-hmm.

Varun: [11:39] And if I have to look back and think about how much I spent on that renovation as an end buyer with a contract, working with a contractor that specialize, specializes in working with buyers- Mm-hmm … or homeowners, versus contractors that I use today, I probably spent twice the amount of money I would have spent as an investor.

Christian: [11:59] Mm-hmm.

Varun: [11:59] Because the contractor pool that works with homeowners versus the work, that work with investors is very different, and they almost never overlap. Yeah. And the prices are very different. Homeowners end up paying a higher dollar value because that contractor also is a lot more sophisticated. Mm-hmm. They do a lot of the heavy lifting. They manage permitting. Investors wear a lot of different hats, because this is our full-time job. Mm-hmm. For a homeowner, I'm guessing they have a regular job, and they are trying to renovate the home. So they need someone to be a project manager for them in addition to a contractor. Mm-hmm. That's why the cost is very different. So that, that- Yeah … that's a big reason of expertise coming into the picture when someone is trying to renovate a home.

Christian: [12:40] I'll also add onto this, the reason that, um, a regular end user, even if they could get a hard money loan, that they generally lose money when they do get them if they're trying to fix up a house is because you need to get that job done as fast as possible. Mm-hmm. Speed is huge, so you need to know how to layer all the different trades. So you got the flooring guy, and the tile guy, and the cabinet guy, and the countertop guy, and the plumber, and the electrician, the roofer, the siding, the painter, the drywaller. All these different things have to be lined up perfectly in order to get the job done as quick as possible.

Varun: [13:18] Yeah.

Christian: [13:19] And you're trying to get it done as quick as possible because you're paying 12, 13, 14% on that hard money loan. So you don't wanna be sitting on that for two years. You don't even wanna be sitting on that for one year if you can help it.

Varun: [13:32] Right.

Christian: [13:32] Hopefully you're not even sitting on it for nine months. Like, depending on how long the permits take to get and how long the work needs to get done, like you're going as quick as you can. And an experienced flipper, they understand exactly by the day, sometimes even like during the day, how to schedule everyone. Because they know exactly how long that one thing needs to take to get done, and if they can fit the next person in right after 'em that same day, they will. Otherwise, they gotta wait the next day, and they're just literally playing Tetris all day, piecing together- Yeah … this entire remodel.

Joanna: [14:09] Okay. Um, so- What about the idea that investors are buying a huge percentage of the houses? Mm-hmm. Is that actually happening?

Christian: [14:22] So nationally, well, I'll say for Seattle, no. Nationally, still no. So, um, nationally about 16 to 17% of all purchases are investors. Now, this does not mean they're all hedge funds. Mm. This means that there's mom-and-pop investors as well. So people that just want, like, I have numerous friends, I'm sure you know people as well, I know you know people, that are just, they own one or two homes as rentals.

Varun: [14:51] Mm-hmm. Yeah.

Christian: [14:52] That's including them. So 16 to 17% nationally. In Seattle, um, it's more like 4 to 5%, just because it, most properties don't pencil as investment properties here.

Joanna: [15:07] Mm-hmm.

Christian: [15:08] So, uh, nationally, going back to that, only, um, actually less than 2% of all purchases are from large institutional buyers. So I know Trump said, um, that he's gonna st- not allow institutional buyers, meaning hedge funds and all that stuff, buy rental homes anymore. And it made a- That

Joanna: [15:31] means

Christian: [15:31] nothing … it made a huge headline, and people were like, "Yeah." And then the stat, like someone did the research and goes, "This is, like, literally 1.9%- Mm-hmm … of all purchases." Yeah. This is not gonna make a dent.

Varun: [15:42] Yeah, it's not a needle mover, it's- At all … a headline grabber.

Christian: [15:45] Exactly.

Varun: [15:45] Um- Yeah the, the, the other point that Christian made, like, the reason it especially doesn't work in Seattle or Portland or California-

Christian: [15:54] Mm-hmm … Varun: pretty much where the housing prices are higher, is because of the interest rates, right? Yeah. Mm-hmm. The interest rates are so high. This is very simple math, right? You go on Redfin, find a home, assume 5% down, Redfin or Zillow or whatever site you use will give you how much you need to pay as mortgage payment. Yeah. Can you get-

Varun: [16:12] It has the

Christian: [16:13] mortgage estimate right there.

Varun: [16:14] Right. Yeah. And can you get rent to cover the mortgage? In Seattle, 99.9% of the time the answer's no.

Christian: [16:21] Mm-hmm.

Varun: [16:21] And so investors are not buying homes unless they're putting 50, 60% cash down, which most investors don't want to tie up so much of their- Yep m- Right … in cash in one property. Yeah. Yeah.

Joanna: [16:35] Okay. Well, um, okay, next question is what about the houses that are just a little bit outdated? Um, you know, I have a lot of buyers that everybody thinks they wanna do a little fixing.

Christian: [16:52] Mm-hmm.

Joanna: [16:52] Um, you know, and they're like, "I'll take just a house that's a little bit outdated." Yeah. And we can do that, no problem- Yeah … right? Are the investors buying those?

Christian: [17:03] No, because the reason why is when you go to sell a house, it costs generally around 9%, 8 to 9% to sell the house. You're not going to increase the home value by more than 9% on a slight cosmetic fixer And if you are, you got a steal on the house that no one else ever saw.

Joanna: [17:30] I was just about to say- Right … I feel like when it is, that's that's- Super extremely rare … most of the homes- Yeah … in the Seattle area.

Christian: [17:38] Yeah.

Joanna: [17:39] They all need a little fixing. Mm-hmm. Um, and so they are still getting, you know, top-notch, top price-

Christian: [17:46] Yeah … Joanna: for those. Yeah. So yes, that's where, unless you're going to the outskirts to maybe, you know, um- Even there, they're not- Oh super happy. Yeah. In most

Joanna: [17:56] places- It's true. It's true … it wouldn't work.

Christian: [17:57] Um,

Varun: [17:58] uh, so-

Joanna: [17:59] To get, to regain and actually get- Actually make money, right? And actually make money on it, no. To

Christian: [18:03] make more than a 9% increase- You wouldn't … which is what it's gonna cost you to sell, plus you have taxes on top of that- Mm-hmm not just the sales cost. Yeah. But you also have taxes on the gain that you get on that, so it's-

Varun: [18:16] It's taxes, it's holding costs, it's insurance. Yeah. Insurance for investors is higher. Yeah. So it, it's a lot of things that add up for cosmetic fixers to not pencil out in majority of the cases. Mm-hmm. Um, one thing, I, I am looking at, uh, properties that are on market and off market, and I'm looking at pictures. The moment I see something that looks very livable, can be financed conventionally, I just pass on it. I don't even look at the numbers because I know it's probably priced close to what market value is. Mm-hmm. I… There, and there is no room to force appreciation.

Christian: [18:49] Yeah.

Varun: [18:49] Um, let's, let's look at the numbers, right? I have an example here.

Christian: [18:53] Okay.

Varun: [18:53] Assume purchase price of 850K, which is very fair for Seattle. Yeah. Mm-hmm. 200 in rehab cost. That's- A lot of rehab, so- Yeah … that's a medium fixer.

Christian: [19:02] Yep.

Varun: [19:03] After repair value is $1.1 million. Mm-hmm. And a six-month timeline. This is just normal, assuming nothing goes sideways. You stay on budget, you stay on timeline. You have-

Christian: [19:13] Mm-hmm … no issues, huh?

Varun: [19:15] Right.

Christian: [19:15] Yeah.

Varun: [19:16] And even in that case- That usually happens. … you sell it at for 1.1, you would be losing $77,000 in- Yeah … the six-month time period.

Christian: [19:24] Yeah.

Varun: [19:25] And the cash required to actually buy that deal is $264,000 for an investor. That assumes your down payment, your holding cost, insurance, all the other out-of-pocket costs. And so to invest 264 for six months and lose 77, that doesn't work. That math doesn't work for investors. Yeah.

Christian: [19:43] Mm-hmm.

Varun: [19:43] And so pe- people think about just the gross numbers, but what you need to look at is the sales cost, the commissions, the excise tax, the holding cost, um, all the other pieces that, uh, take away from the gross profit to get down to the net number.

Christian: [20:02] Mm-hmm.

Varun: [20:02] Sometimes it, on the gross number it might look that it's profitable, but investors might end up losing money on a cosmetic fixer like this. So this is a good example where- A- investors are, that shows that investors are not buying your cosmetic fixers, sometimes not even the medium fixers- Yeah because in certain neighborhoods, even the medium fixers are priced close to market value. Mm-hmm. And, and buyers are pr- potentially taking those on. Yeah.

Joanna: [20:27] Quick question. Do you think that, 'cause I know you guys both go to investor, uh, meetups and stuff like that- Mm-hmm … and there's sometimes a lot of new faces that you see. Yeah. Mm-hmm. Do you think a lot of those people get scared off once they see actual numbers? Because it's actually not as easy to do this as what people get it in their heads that it is.

Christian: [20:52] As the late night infomercial tells you? Yeah.

Joanna: [20:53] Yeah.

Christian: [20:57] HGTV, HGTV shows you to. Or like, like, yeah. And practically like- Million Dollar Zombie Flip that I was on doesn't, it's not as easy as it looks like on TV either.

Joanna: [21:01] No, and that's the thing. I feel like- … there's so many people, you know, there's so many like, there's a lot of predatory gurus out there. Yeah. Oh, yeah, yeah. They're like, "You can do this super easy, no problem." Yeah. Da, da, da, da, da. But then it's like, you know, as someone who would like to be an investor at some point, um, seeing this-

Christian: [21:20] Mm-hmm … Joanna: from this, from my angle, getting to work with these guys all the time- Yeah, you get to see it behind the scenes.

Joanna: [21:25] Yes. And I bought my house to do a long flip. Mm-hmm. And I'm already like, "Whoa." Um, it's a lot. Yeah. So I can't even imagine fast-forwarding it on the scale that you guys do it, meaning, like, just timeframes. Mm-hmm. Um, it's a lot. Yeah. And, uh, I think, yeah, it's just, it's interesting to me s- talking through this a bit more, like we are right now, um, just understanding the work that goes into being an investor isn't, you know, uh, so pretty-

Christian: [22:00] Yeah Well-

Joanna: [22:00] as people make it seem all the time … Speaker: it's, it's a lot of work It's a lot of cash It's a risk. It's a lot of risk … Speaker: and it's a ton of risk. Because over the six, nine, 12, 18 months, whatever it takes you to flip the house- Mm-hmm … Speaker: the market can change.

Varun: [22:15] Yeah.

Joanna: [22:16] Yeah.

Christian: [22:16] Interest rates can go up. Buyers could just decide they're not buying.

Joanna: [22:20] Natural disasters.

Christian: [22:22] Natural disaster can happen.

Joanna: [22:23] I'm sorry, but so many different things can happen.

Christian: [22:25] All these different things can happen, and you're in this with hard money that is expensive, and you can easily get screwed.

Joanna: [22:33] Mm-hmm.

Christian: [22:34] Um, and I've heard from a mentor of ours, he says, "If you don't lose money on 1 out of every 10 deals that you did, you're not taking on big enough risks with your deals."

Joanna: [22:46] Hmm.

Christian: [22:46] I'm trying to go lose on 0 out of 10, but-

Varun: [22:49] Yeah. But yeah, if you do it long enough, it's all about averages, right? Yeah. It will catch up to you, and as an investor, you'll end up losing money on one or two deals- Mm-hmm … but the goal is you have enough projects going on where you overall come out on top. It's just like managing any other company.

Joanna: [23:06] Mm-hmm.

Varun: [23:06] You know? Right? The companies has ups and downs, but their bottom line, they're trying to manage their bottom line within their portfolio.

Christian: [23:11] Mm-hmm.

Joanna: [23:12] Right.

Varun: [23:12] To answer your question, which was do some investors get scared when they look at the actual numbers in the process? Yes.

Christian: [23:18] Yeah, 100%.

Varun: [23:19] And other investors then take on mentors or partner on deals, start off slow, and learn the ropes while they're working with someone who's a lot more experienced. Mm. I'm doing that right now as well. I am partnering on a bunch of my deals. Although you

Joanna: [23:33] did jump in and just go for it, which that's-

Varun: [23:36] Yeah, but, uh-

Joanna: [23:37] very cool … Varun: I- But- I had good people in my corner … yeah But yes. Yes. Yeah.

Varun: [23:40] Exactly. So that helps, right? Yes. Uh, but I, I started slow as well, where I have a partner who's is very experienced, has a ton more projects under his belt, and he is showing me the ropes so that I don't have to- Make the same mistakes.

Christian: [23:55] Yep.

Joanna: [23:55] Mm-hmm.

Varun: [23:56] And that's how a lot of investors, smart investors, are starting out. Mm. Some investors are really kind of good about, they have good instincts, and they jump in, and they're able to figure it out, project one or two, they're good to go, and then they scale. Mm. But those are rare.

Christian: [24:10] I'd say that's very rare. Yeah. Yeah, yeah.

Joanna: [24:12] Okay. Well, thank you. Mm-hmm. Um, so sometimes we do see investors bidding up smaller houses, and why does that happen?

Christian: [24:24] So that's normally happening because the value- Mm … is actually in the land.

Joanna: [24:28] Mm.

Christian: [24:29] And why that didn't get bid up maybe a year or two or five earlier is because, most of the time, it's because of the zoning changed, meaning the city changed the zoning because they want more density. Why do they want more density? Because they don't want urban sprawl, 'cause when you have urban sprawl, traffic gets even worse. So they're trying to cram more people into a small space, and the only way you can do that is by increasing the density, changing the zoning laws. So if you see a little, tiny house, um, I actually met with clients last night. Late last night, I went to their house at 8:00 PM. We're sitting on the couch, or they're on the couch, I'm in a chair, um, playing with their dog, by the way.

Joanna: [25:10] We're all

Christian: [25:11] sitting

Joanna: [25:11] on the couch together, yeah.

Christian: [25:12] Yeah, not all sitting on the couch together. Um. And, uh, and they're buying a six-year-old house, and they were looking at the Street View for some reason while we were chatting. And they're like, "What? Look at this," and they show me the Street View, and it's this, this little, teeny, tiny house. It's probably a two bed, one bath, 1950-something house. And they're like, "Well, that's funny." Um, but it makes sense because the zoning change to what is there now, and again, this was built 60 years ago. Did they

Joanna: [25:41] tear it down?

Christian: [25:42] Tore it down- Okay … and built a much bigger single-family house in the same place- Mm … just 'cause of the neighborhood. But a lot of times, it's not just one single-family house going there, 'cause that's not the highest and best use. Often, you're building a single-family and then maybe an ADU or a DADU, or you're building numerous units on that same lot. We've talked about the One Seattle plan numerous times. Yeah. Mm-hmm. Um, if you haven't heard about that, definitely check out that episode, One Seattle. Um- This, in the city of Seattle now, you can build up to four units on every single parcel. And if you're within a half, half mile? Quarter mile?

Varun: [26:21] Uh, quarter mile.

Christian: [26:21] Quarter mile. I always say half, and I don't know why. Quarter mile of a, a high use transit station- Yeah … whatever that means, which I don't know if they've even defined that fully.

Varun: [26:31] It's, uh, either a, a rapid bus stop or a light rail. A light

Christian: [26:35] rail.

Varun: [26:35] Yeah.

Christian: [26:36] Okay. So if you're in w- a quarter mile of that, you can do six units, um, or you can do six units if a certain number of them are-

Varun: [26:43] Two are affordable housing,

Christian: [26:44] yeah two are affordable housing. So what used to be one house can now be potentially six. I almost did six wrong on camera. Six.

Joanna: [26:53] Six. Whatever, yeah.

Christian: [26:55] Yeah.

Varun: [26:55] Yeah. But, but to your point, uh, Joanna, I, I, I understand the frustration that the buyers might have, where they end up in bidding wars when they're trying to bid up on a small house on a large piece of land, but that's also, uh, part of the kind of push from the city- Mm-hmm is to increase the total number of homes available. More housing eventually reduces housing costs. Yeah. Right? These are- Now, uh, just to put things in perspective, right? If you're buying a million dollar home, uh, in a neighborhood where all the other homes are, let's say, one and a half, two million dollars, these are larger single family homes. If you tear that one home down and build four, these are not gonna be four one and a half, two million dollar homes. Mm-hmm. These are g- these are going to be four probably 800 to 900,000 homes, which means more families that were priced out of that neighborhood can actually afford to live in that neighborhood now. Mm-hmm. Because these new units coming online are at a lower cost than any other single family that existed from the previous zoning. In

Christian: [27:56] that neighborhood. Yeah.

Varun: [27:56] Mm-hmm. That's how I would think about affordable housing with some context around it.

Christian: [28:00] Mm-hmm.

Varun: [28:01] A- a- and that's kinda what the city's pushing for.

Christian: [28:03] And I wanna point out, 800,000, 900,000 is not necessarily affordable. We understand that. That's just the market. Like- Mm-hmm … we're not the ones that set that market, we're just trying to play by the rules that that is what it is, so.

Varun: [28:17] Yeah, and- Yeah … in some neighborhoods it's one 700,000, $800,000 home t- getting torn down. Mm-hmm. And six $650,000 homes coming in.

Christian: [28:27] Yeah.

Varun: [28:27] Again, it's affordable for that particular neighborhood, that market, that zip code. Mm-hmm. Right? Mm-hmm. So it has to be in some context, but that's the whole point, is more housing will eventually reduce to more- … affordable housing as well. Mm-hmm.

Christian: [28:41] Yeah, and I also wanna point out that investors, as you have probably understood from all this, they're buying housing that a lot of times isn't even really livable or isn't suitable to be lived in. Um, something that is a major problem. Like, you walked into one, and you immediately walked out- Mm-hmm … in Magnolia. Um-

Joanna: [29:01] Oh, there's been a couple of those.

Christian: [29:02] Yeah. But that, that happens, where you're showing a regular buyer, and online it looks like it should be good, and you walk in, and you're like, "Oh, my God." "This smells horrible. S- literally something died in here."

Joanna: [29:16] The… Yes.

Christian: [29:16] Yeah. And you don't wanna know what it is sometimes. And, uh-

Joanna: [29:21] Human.

Christian: [29:24] In some cases, yes. Uh. Um, and so- You're taking on a problem as an investor that no one else really wants to take on. So you're dealing with problems that are pretty complex and risky and take a lot of time and effort. Um, and so yeah, I just wanted to kind of point that out. Mm-hmm. And often you're now taking that one problem house that no one wants to live in or deal with, and you're making it something that something or somebody does want to live in.

Joanna: [29:52] That particular house- Mm-hmm … is now a lovely home that was taken, uh, bought by an investor, flipped.

Christian: [30:00] Mm-hmm.

Joanna: [30:00] Varun knew this investor, introduced me. Um, house is gorgeous, and yes, it was bought, and I'm assuming they're having just the best life there now, um- Yeah … 'cause it was a great house.

Varun: [30:11] Um- And a lot of the times the neighbors are also happy because these houses- Yes. Yeah … have a lot of deferred maintenance- Mm-hmm which lead to issues like sometimes as simple as vegetation growing onto the sidewalks- Mm-hmm … making the sidewalks unusable. Mm-hmm. Or getting unwanted attention from All sorts of people, and that causes break-ins or more- Yes … crime in that neighborhood. Too, yeah. So it, it caused a lot of issues.

Christian: [30:35] Rodents, like all sorts of different things.

Varun: [30:38] Right. Yeah. So fixing up a house sometimes also helps that neighborhood a lot- Yes … because that's usually the eye- eyesore in that particular- Mm-hmm … street or in that neighborhood. Yes.

Christian: [30:48] I'm sure you've had this happen, but when you're actually at the house, you know, watching them do the work, 'cause neither of us are swinging the hammer, but y- and a neighbor comes over and they're like, "Are you guys the one, are you the owner?" And we're like, "Yeah." And they're like, "Well, thank you for doing this." Yeah,

Varun: [31:03] that's happened a couple of times.

Christian: [31:04] Yeah. Yes. It happens, and it's, it's always, like we hear so much, like negativity in, on social media especially, maybe not so much in real life, but we do hear it every once in a while, and I think that's probably why I wanted to talk about this so much, and probably you as well. In real life, we're actually getting thanked by the neighborhood for taking a house that was an eyesore and a nuisance, and bringing it back to life.

Joanna: [31:32] Mm-hmm.

Christian: [31:32] Or just getting rid of it all together and bringing more affordable units on for other people to live, and numerous people to live there. Um, so it's not, I don't know, I, I don't feel guilty, and I think a lot of people think investors feel guilty, but they don't care because they're making money, and I don't feel that way at all. Like I'm, I feel like I'm actually helping. So, um, for those haters out there, you're not hurting me.

Joanna: [32:02] They just are looking for their break, man. Yeah. Um, but no, I'm glad we did this, uh, podcast and you guys answered a lot of, not only my buyers' questions, but as Christian knows, I had some questions- Mm-hmm … in my heart- Yes that I needed to get out. Um- Well,

Christian: [32:18] our, our conversation about this is what- Yeah … brought this about.

Joanna: [32:21] It sure

Christian: [32:22] did. Yeah. And you were coming at it from the same point of view that all the stuff online was saying, and I understood- Mm-hmm … it, and I logically walked you through, just like we hopefully did well in this podcast.

Joanna: [32:33] I hope so, yeah.

Christian: [32:34] And now you understand. It's not investors that are buying up something that looks- Yeah … really, really good and just needs some new carpet and-

Joanna: [32:42] I do wanna say- … paint … so if you are on social media and you are, you know, looking at certain, um, what are they called?

Christian: [32:53] Accounts

Joanna: [32:54] Yeah Like that Certain accounts or like, um Mm-hmm Influencers as far- Mm-hmm You know, everybody has their niche. Um, but there's a lot of very, you know, they try to get you upset-

Christian: [33:04] Yeah … Joanna: about things, you know? It's very divisive Riled. Riled up.

Joanna: [33:08] So just, you know, that's one of the other reasons why I really wanted to do this because shocker, I was looking at one of those, and it got me riled up. Mm-hmm. And I came right to Christian with that. Mm-hmm.

Christian: [33:21] Yeah.

Joanna: [33:21] So, um, yeah, I think it's great that we did this. I think it's more complicated than, you know… It's, there's a lot of gray instead of it just- Yeah … being black and white, and I think it's good to think about all the sides before you make up your mind about- Yeah … "This is happening, and this is why I can't get a house." There's probably lots of reasons why.

Varun: [33:40] Investors do play a part in the housing market. Like, they're part of the housing market. At some point, the house you live in, someone has to have… They, they built it, right? Someone built that house.

Joanna: [33:50] Mm-hmm.

Varun: [33:50] And that was potentially an investor, not a homeowner who built the house and- Mm-hmm out of the goodness of their heart sold it to you, no. So there is an investor somewhere involved in every house that was built- Yeah … one way or the other. So that, something that people need to understand is yes, investors are part of a healthy housing market. Yeah. Without investors, it would be a lot more challenging, because you would ha- just have older homes getting deferred maintenance and no one coming in to fix that up. Mm-hmm. Mm-hmm. Um, the one other thing we didn't talk about is a lot of the times investors are also investing in upgrading the city systems.

Christian: [34:23] Mm-hmm.

Varun: [34:24] A lot of the times-

Christian: [34:25] Yes … Varun: sewer lines, water lines get- Mm-hmm … upgraded when new housing gets added to a block or to that neighborhood- Mm-hmm … Varun: and city forces the investor to upgrade half a block or three houses at a time, whatever it might be. Mm-hmm. But slowly, all these systems get upgraded on the backs of investors. I'm not saying the city doesn't do anything. They do a lot of the heavy lifting. Yeah. But these smaller things get tacked onto certain projects where the city can tack it on. Mm-hmm.

Varun: [34:54] And if there is margin, investors will do it, because it also helps resale value of the- Yeah homes or properties. Or add

Christian: [35:00] sidewalks or curb and gutter. I was about to say, sidewalks. Yeah.

Joanna: [35:02] Huge.

Christian: [35:03] Yeah. Yeah. So that's definitely happening. Um, I mean, at the end of the day, the Seattle housing market is super complex. Yes. There's a lot of factors, um, driving up prices. Uh, population growth- Yeah … supply and demand. Um, we just don't have a lot of land. Uh, I mean, Seattle is, there's water on two sides. We can only go north and south. Mm-hmm. Um-

Joanna: [35:27] Or up.

Christian: [35:28] Or up, yeah. We… Uh, the construction costs keep going up. Oh, man,

Varun: [35:33] yeah.

Christian: [35:34] Um, tariffs, like, all these different things. The city changing the zoning laws, for good and bad based on who, what your opinion is. Um- There's a lot of factors, and investors are able to kind of piece together all of these factors. They're willing to take on the risk that it is, and pay the financial price, and the time cost to solve all the problems to bring a home that, most of the time, is not something that would sell on the market, um, and to a normal end user at least. Some, some houses are on the market, but they're just, a, a homeowner can't buy it, like we talked about. They're willing to take that risk and do all that. Um-

Joanna: [36:20] I think it shows a healthy community. Mm-hmm. I think it shows that if somebody's willing to invest in it, then the community is there. Yeah. That makes sense. That means- Mm-hmm … that you belong to something that people are willing to put money into, right? And they wanna live there. And as long as that keeps circulating, like, I just think that that's something healthy and positive to look at.

Varun: [36:45] That's a great way to-

Christian: [36:46] Yep. That's a great point. Summarize it. Yep. Yep. It's like those people, I don't know if you get these things on Instagram or Facebook or wherever, where people are, like, cleaning up their neighborhood. Yeah. And they're filming themselves doing that, and it's like, "I don't get anything out of this, but I just want my neighborhood to look nicer." Obviously, investors are trying to make money, and that's why they're doing it, but they are helping the neighborhood in the process. In the

Joanna: [37:07] process. Yeah. Yeah, so. Yeah, and I think that's beautiful. I think now, more than ever, I think community- Mm-hmm … is very important in making sure that it's taken care of. Yeah. So if we can look at it more like that-

Christian: [37:17] Yeah … Joanna: put a good, positive spin on it, yes, there's money being made, but it's also helping the community as a whole. Mm-hmm.

Varun: [37:23] And one thing I kind of have realized, there's no way you can make everyone happy. Yeah. But then there are some things that you have to do as an investor. Um, and there will be someone who is upset. Someone is upset that- An investor is buying a house, or they're adding density and they don't want density. They, one or the other reason. Mm-hmm. And so be it, right? Like- Yeah … you can't please everyone, so-

Christian: [37:47] Yep … Varun: that's a fact of life. Yep. Mm-hmm. Well, I hope this episode helped to kinda show you behind the curtain of an investor. Um, if you were thinking that, you know, every investor or all the investors are buying all the houses, all the good ones at least, um, hopefully you understand that's not really true. Specifically in Seattle, it's really not true. Um, like we said, 4 to 5% total houses sold, so 1 in 20, um, are being bought by an investor, and that could be a mom and pop, just one-off, two-off house that they're gonna rent out, um, or it could be a house that a lot of times just needs so much work that no one else could even, would even wanna touch it. So, um, that's it for this episode of the Awesome in Seattle podcast. Uh, please like and subscribe and share it with your friends. If you know anyone that, you know, has brought up this topic, please share it with them so that they can, uh, at least hear our side of it, and hopefully understand where we're coming from, and happy to have a discussion with anyone. So

Joanna: [38:50] yeah. Mm-hmm.

Christian: [38:51] That's it for this episode. We'll see you next time. Bye.

Joanna: [38:53] Bye.

Christian: [38:54] Thanks.