However, now I am so thrilled to be able to articulate WHY.  I took a class (a couple, actually), in investing – how it works, what numbers to crunch, etc.

Let’s do a scenario that shows how you can experience a 15% return on investment, aka ROI, when investing in Tri-Cities real estate.

The property is purchased for $130,000, with 20% down.  On a 30-year fixed rate mortgage with an interest rate of 5%, the monthly mortgage payment is $558.29.  Add taxes and insurance and HOA  fees, the owner pays out an additional $180.00 per month.

The property rents out for $1200/mo.  This is actually a real possibility, since our rental market is so tight, and our subject property is in south Richland, located literally minutes away from stores, houses of worship, freeway interchanges, and school with high test scores.

One thing we need to figure out for our equation, is the vacancy rate.  In our market, vacancy is highly unlikely, but we’ll pretend one month of the year no one will be in the property.  So, income ($14,400 – twelve months of rent) minus vacancy ($1200 that one month no one is there)  minus expenses ($180.00 x 12, those monthly expenses for a full year) equals Net Operating Income (NOI).

Expressed another way…

$14,400 (Income)

- $1,200 (Vacancy)

-$2160 (Expenses)

____________

$11,040 (NOI)

Now, NOI minus Annual Debt Service, which is the monthly payment multiplied by twelve, ($6700 in this case) equals $4,340, which is the Pre-Tax Cash Flow.

OR -

$11.040 (NOI)

-$6700 (Annual Debt Service 558.33 x 12)

____________

$4,340  (Pre-Tax Cash Flow)

Finally, to get the ROI, we divide the Pre-Tax Cash Flow by the Down Payment pus Other Costs of Acquisition (($26,000 down payment, $3,000 in closing costs =$29,000) and we get 15%

4,340 ÷ 29,000 = .15…15%

A 15% return on investment is FANTASTIC!  With savings accounts, stocks, bonds, etc.  you are lucky to get a single digit rate of return.  So 15% is enormously profitable!

Any questions about investing in real estate??  Give me a call.  I love using my financial calculator now!

(Stock image via Shutterstock. Used with permission.)

The Walk Score is supposed to indicate the desirability of a city or a neighborhood.  The higher a walk score, the less likely a person is to use his or her car to run errands, which helps the environment.  More walking equals a trimmer you (they claim that people who live in more walkable neighborhoods weigh seven pounds less than those who live amidst suburban sprawl). In addition, if you’re out walking around your community, the more apt you are to be involved IN that community, making it a place where you have a vested interest in keeping it clean and wholesome.

The scores in each of the major cities of the Tri-Cities, are pretty poor, I’m sorry to report; with 100 being the top score …Kennewick – 45, Richland – 43, and Pasco – 45.  Richland is the only one which really surprises me because the city was originally designed to BE eminently walkable.  When the U.S. government took over ownership of the city and designed the streets and built the homes and created the commercial areas, the city was laid out so any person without a car could easily run their daily errands.  However, the city has long outgrown its original “downtown” area and now stretches throughout almost thirty-eight square miles!

Kennewick and Pasco both began as small towns, begun as most American small towns are – with a railroad serving as the city’s commercial center, and shops and residences lining a nearby main street (and a 1st, and a 2nd, etc.).  If both of those cities had spiraled out from that center location and continued on a grid pattern with shops and houses scattered throughout, they’d both have higher Walk Scores.  But Kennewick now covers 24.3 square miles, and Pasco covers 30.2 square miles.  It’s pretty difficult to keep up a grid pattern over that amount of space, over years of construction and trends in demographics.

All the cities have neighborhoods within each city, which will boast a higher or lower score.  My personal residence rates a 17 (is THAT why I’m still overweight??), but the office here in Kennewick is rated as “Somewhat Walkable” at 68.  You can type in the address you’re curious about and get a very specific rating.

This year that house was house #2, Infinity Home’s veritable palace in Pasco.  It has travertine tile, honed in the foyer and kitchen, polished in the master bath.  Master on the main, with a bathroom larger than my current master bedroom and bath combined! The fantastic media room  with a bar/snack area which comes off of the upper landing’s pool table area was definitely my favorite feature.  The life I could lead in this place – can we say “casual elegance”?  Oh, yes, we can!

Out on the patio there was a fireplace and flat screen TV complete with surround sound.  I really can’t rave about this house enough.  3.868 square feet and $669,000.  And did I mention the water feature in the front?

Take a look for yourself…

3212 Sorento Pasco, WA 99301

$669,000 2 story Tuscan Villa designed to entertain inside& out. 4 bdrms 4.5 ba. Exquisite hand crafted door leads to an impressive entry, 3800 Sq ft of casual elegance. Classic gathering room, volume ceilings & Large central fireplace, state of the art kitchen ,European appliances custom cabinets.Master suite includes an overflow tub, separate vanities, heated floors & a waterfall shower . Upstairs is pure play, w game room, wet bar and movie theatre and 2 more bedrooms. An outdoor kitchen, LR w/ fireplace

We’ll be holding open over 250 houses, which is more than half our inventory. Our closest competitive agency doesn’t even have that many houses listed to hold open.

This week, as sort of a teaser event, tonight, Wednesday and Thursday, we’ll be holding open a portion of our houses in each city – Pasco tonight, Richland tomorrow and Thursday is Kennewick‘s day in the spotlight.

If you’re in Pasco on Sunday, drop by and see 6210 Landsdowne Ct. If you can’t make it, drop by on the web -

http://6210landsdowne.com/

Think this is a great idea, but you’re not in the market for a new home yet? Fear not, there’s another one scheduled for the fall!

As the city manager, Gary Crutchfield said,

It’s a good opportunity to address the relatively small problem that we have…

Pasco was the only one of the Tri-Cities to receive money from the program designed to help communities struggling with high foreclosure rates.  That’s probably because it was ranked highest among the Tri-Cities by LISC, which stands for Local Initiatives Support Corporation. They “developed scores for cities and counties based on requirements for the national program”.  Here’s the breakdown -

RICHLAND, 1.1 %

KENNEWICK  1.54%

PASCO 1.77%

Compare that to the entire state of Washington where  “1.42 percent of loans are in foreclosure, including 2.19 percent in Pierce County, 2.69 percent in Tacoma, 2.44 percent in Yakima and 1.52 percent in Spokane, according to LISC.”

So, compared to the entire state, both Pasco and Kennewick have a higher percent of foreclosures, but they’re certainly less than in other areas of Washington, and the nation (close to 3%), as well.

As the city manager, Gary Crutchfield said,

It’s a good opportunity to address the relatively small problem that we have…

Pasco was the only one of the Tri-Cities to receive money from the program designed to help communities struggling with high foreclosure rates.  That’s probably because it was ranked highest among the Tri-Cities by LISC, which stands for Local Initiatives Support Corporation. They “developed scores for cities and counties based on requirements for the national program”.  Here’s the breakdown -

RICHLAND, 1.1 %

KENNEWICK  1.54%

PASCO 1.77%

Compare that to the entire state of Washington where  “1.42 percent of loans are in foreclosure, including 2.19 percent in Pierce County, 2.69 percent in Tacoma, 2.44 percent in Yakima and 1.52 percent in Spokane, according to LISC.”

So, compared to the entire state, both Pasco and Kennewick have a higher percent of foreclosures, but they’re certainly less than in other areas of Washington, and the nation (close to 3%), as well.

Because even if Obama wins, it would be a great ironic twist, don’t you think?

There are 11 lots available at the site, 1/2 acre each, so that means the Pres. can relax on over five quality Franklin County acres.  There’s no better place to reconnect with the people who made this country great than here in the Tri-Cities.

Plus, it’s just a couple miles from Rd. 68′s booming commercial development, and a few miles from the airport.  Everything the President could possibly need is just minutes away.  Boy, this looks better and better all the time.

That’s just one part of the story, though.  Maybe some of those people are renting and not buying because the absorption rates tell a different story.

The absorption rate is a number real estate agents and brokers use to determine the health of a market.  The number tells us how long it would take for the existing inventory of homes to sell if no new ones came on the market.  Under 3 months indicates a seller’s market, from 4-6 months, it’s pretty balanced, 7+ months, hang in there, it’s gonna take a while, and the buyers can often call the shots.

In Pasco, a house selling for our area’s average price ($181,700, according to the Tri-City Association of Realtors) would be in the absorption rate of 8.59 months.  Euuw!  You could conceive and give birth to a baby by the time you sell your house.  Side note for the gentlemen - the 9 months of pregnancy, FEEELS like 15 to the pregnant person. 

My point is that’s an awfully long time for a house to sit on the market, and in the fastest growing area in Washington, what’s the deal?  You’d think they’d be snapped up, especially in that price range.  In Kennewick and Richland, the houses in that price range have an absorption rate of 3.2 and 3.82 months, respectively.

Here is the scoop – Pasco has more homes available in that price range, so supply is high, even if demand keeps pace.  Kennewick and Richland don’t have that many houses in that price range, so when one comes up, it’s gone within a couple months.

So, if you’re a $175,000 – $199,999 buyer looking for a deal, try Pasco first.

And, Pasco sellers, if you’ve been trying to sell your house at $180,000 for the last few months, reduce your price to $174,900.  That puts you in an entirely different absorption rate (4.8 months) and you might get that house sold more quickly.

My favorite quote from the Tri-City Herald’s story is from Dean Schau, our local doom-and-gloom economist (yes, I know that’s how economists are, it’s still not warranted).  He said, “…when all is said and done, it surprises the Hell out of me…five percent for Pasco? That’s incredible.” (Watch your language, Dean!  It’s a family newspaper/blog!)

And, more good news for the economy in general and the housing market in particular; not a single one of Washington’s zip codes appear in the list of Top 500 Foreclosure areas. 

Gee, sounds like Tri-Cities is a pretty good place to live.  Does that sound smug?  My apologies if it does. 

Back in the days of sub-agency (everyone worked for the seller and no one represented the buyer’s interests in a real estate transaction), all real estate was very much a buyer beware proposition.  Now, however, the buyer has the right to representation by an agent who is working on that buyer’s behalf.

The buyer pays for this representation when they purchase the house.  Their money, which goes to the seller, is then used to pay the brokerage and its agent who listed the house and the brokerage and agent that brought the buyer.  The cost of representation is all part and parcel of the purchase price of the home.  Therefore, doesn’t it make sense that the buyer of the property….the person spending a HUGE chunk of money, should have someone representing them in that transaction, escpecially since they don’t have to pay extra to get it?

In today’s Tri-City Herald we learned about some people taken for a ride by a developer. This developer does not work with Realtors.  It kills me that these people didn’t seek the advice of a Realtor.  It kills me that they thought they were in good hands with someone who was clearly not acting in their best interest.

I’m not saying every single developer who doesn’t work with Realtors and licensed agents is out to take every penny a person owns.  I just want people to remember ol’ Mike Brady’s words of wisdom; caveat emptor…let the buyer beware.