A long-term client approached me recently for a referral to someone to help him build out his real estate investment portfolio. I immediately put him in touch with my friend and colleague, Uwe Gluhr. A local business leader and brilliant real estate investment advisor, Uwe is the business manager and co-owner of Personal Property Management with Julie Brown and Leisha Dumas. PPM, located in Southwest Washington, specializes in managing single-family homes and smaller apartment complexes located in Southwest Washington, with many of Uwe’s owner-clients accessing his advice for furthering their own real estate investments.
Uwe has always advocated real estate investing as a lucrative and viable option for a diversified portfolio and I’ve seen the growth in Vancouver create a lot of potential investment value, so I decided to pick Uwe’s brain and share his top tips for real estate investing in Vancouver, Washington and surrounding areas.
Why invest in real estate?
Uwe explains, “Overall, real estate is a proven asset class that should belong in everyone’s portfolio. When you compare the overall returns against the S&P 500 you’ll see it offers a proven return on investment.
There are many ways to invest in real estate such as Real Estate Investment Trusts, commercial buildings, apartment buildings, and my personal favorite: single-family homes.”
[What is a Real Estate Investment Trust? REITs are companies that own, operate, or finances real estate for the purpose of producing income. They operate like a mutual fund, giving investors dividend-based income and returns. Learn more about REITs here.]
“For the purpose of this conversation, let’s compare multi-family units such as apartments to single-family homes. In the current market, I find that single-family homes make the most compelling investments (for reasons I’ll detail below) with one important caveat: you must buy them at the right cap rate.”
[What is cap rate? Capitalization rate, commonly known as ‘cap rate’, is a tool for evaluating the value and return on a real estate investment. To determine cap rate: calculate the yearly gross potential income of the investment property. Then, subtract all expenses associated with ownership and maintenance of the property from the gross income. Next, divide the net income by the property’s purchase price. Learn more about cap rate here.]
Investing in Single-Family Homes vs Apartments:
“Currently, apartment buildings are trading at around the same cap rates as single-family homes. If you look at what has been built since about 2010 you’ll see that historically the market has favored apartments. As a result, there is a lot of apartment supply coming available.
However, from a renter’s perspective, especially families with children, single-family homes offer a lifestyle that is totally different than and is often regarded as preferable to apartment living. For the investor, this can be seen as a big positive because single-family homes tend to bring those high quality, family-oriented tenants who are looking for something that lives and feels like a home (and are going to treat the property as such).”
Real Estate Investing in the Vancouver, Washington area:
Location, Location, Location:
“Investors looking to purchase real estate in the Vancouver area will be wise to focus on neighborhoods with good schools and are situated less than 30 minutes from an international airport (or an airport that has Southwest Airlines). Ideal areas for real estate investment also have high projected job growth and easy access to good healthcare.
In the Vancouver, Washington area I would recommend looking to invest in the area up and down I-5, primarily on the west side and all the way up through Ridgefield or near the Salmon Creek Hospital. Specifically, the Skyview and Ridgefield High School areas are great for investments right now.
Also, consider investing close-in to Highway 14 and into Washougal. Farther out east, the Camas and Union High School areas are promising in the current market.
Forecasting out about 10 years, I would target real estate investments as close to downtown Vancouver, Washington as possible. This area gives people easier access to downtown Portland, Oregon (and Vancouver proper). As urbanization, population growth and congestion will continue to boom in Clark County these central areas will continue to grow accordingly.
Regarding the actual house, I favor investing in single-story, 3 bedroom, 2 bathroom homes with attached 2 car garages.”
Focus on Immediate ROI:
“I always tell people to invest for positive cash flow first and look for appreciation second. When in doubt, learn how to calculate the cap rate and make sure that your cap rate is greater than your 30-year fixed rate.
Investors should always try to target cap rates at around 5.5% or higher. As interest rates rise, be sure to adjust the cap rate threshold upward accordingly.”
Stay Positively Leveraged:
“If you are using a loan to buy your real estate investments always make sure you are positively leveraged. Don’t forget to calculate the necessary property management costs, vacancy loss, and maintenance costs into your cap rate.”
Build a Team:
“Assemble your team of professionals. At a minimum, you’ll want to find a realtor you trust and feel comfortable communicating with, a responsive mortgage broker, an insurance agent, an inspector, and a property manager.
Having each of these key players in place before you start investing in real estate will help ensure you get into the right investment(s) and that you’re in the best position possible for the long term. Do your homework when building a team of professionals and you’ll be better off for it. Like most things in life, you are going to get out of these relationships what you put in.”
If you’d like to reach out to Uwe, you can email him via the Personal Property Management website. And if you’d like to discuss the loan process for an investment property in Portland, Oregon or in the Vancouver, Washington area, I’d love to hear from you.