On the show today we have one of the smartest people that we’ve talked to in the Seattle real estate market, our friend, Adrian Chu!
Notes from the show
The Vantastic Life is…
– in Destin Florida
Here are the show notes with Adrian Chu
Joe loves Florida and is headed to New Orleans.
Julie has been rocking the snowboarding with the girls.
Let’s jump in because we have one of our round table meetings today.
On the call is Adrian Chu!
Adrian is the managing broker at Horizon real estate, and a local investor. The founder of Chu Design.
The one issue that Julie has with Adrian is that he’s a Husky and Julie is a Coug.
Born and raised in Seattle. Always interested in different types of investments. Stocks and CNBC. There was even opportunities where you could call stock analysts, and he did that in 3rd or 4th grade.
In middle school he became interested in real estate and came across a text book for the real estate brokers license and read that because he knew he was going to get into real estate at some point.
Were your parents into real estate?
Yes, they would go look at properties and I’d go along.
I also did Running Start in high school to get 2 years of college credits.
In college I did electrical engineering, then finished college.
The logical next move was to get into the tech industry, and be able to get a mortgage by having a job.
I’m grateful for all of the opportunities that I’ve had.
So you wanted to buy a primary residence?
Yes, it was all planned out early on.
I bought a condo in north Seattle that I lived in. That was 2012.
In retrospect condos were not the best way to go, but that’s how I started.
Looking back I didn’t leverage as much as I should have.
You are now a broker. Where you planning to invest for yourself the whole time?
Yes, the broker was just to help supplement the investor path.
In 2011 and 2012 the market wasn’t so great, and people were skeptical.
Then my friends started getting interested, and that’s when I started doing more brokerage stuff. I was doing it for my friends.
I think part of that was the market.
Right now I see friends get into being a broker and they can get ramped up right away, but it was harder when I got started.
How did you layer on the mortgage originator license.
Yeah, I actually wish I would have got that license earlier.
What are some tips that you can share?
If you’re working a W2 job… don’t quit that job. It could be a backup plan, and help you to get a mortgage.
You should wait to become a full time investor.
Even once you are rolling you still might want to keep your full time job.
You’ve been an investor for a long time. What mistakes did you make along the way?
Selling properties too early, but hindsight is 20/20.
At the start I wasn’t doing enough volume to fix and flip. You make some money, but you get taxed a lot as well.
At the time I didn’t really think about that stuff.
I should have made building a portfolio a priority earlier.
What part do you like doing best?
I like everything! It’s all fun! I have more fun in real estate than in my previous career.
Analyzing project, going to SIC events, looking at loans… I love it all!
With the shift in the market… how have you pivoted?
Adapting to the market… I’ve shifted to doing more buy and holds.
Maybe you’re better of doing a buy and hold or a BURR strategy.
Is it harder to find those right now?
Seattle is getting hit hard, but the surrounding counties are still doing very well!
There’s no point in buying a house that doesn’t have great cash flow.
I look for sub $400k that has a good balance of cash flow and appreciation.
Shift your focus to what’s still working.
What’s going on with your rental property listings?
Mostly friends and family are interested in this. And the objective is to maintain those relationships. So, when they decide to sell later they have me in mind.
What’s your role with brokering to builders and development deals?
This has worked hand in hand with the off market marketing that I do. We are just looking to offer solutions to the sellers.
It’s great to have your real estate license and to be an investor, just as Julie you advise!
It blows my mind that people are not going after this like crazy.
So, you’re managing broker at Horizon real estate… do you do any wholesaling or do you broker them?
I broker them. Every deal works differently, but I think it’s easier. I’d rather be the broker than putting something under contract.
I don’t want to put things under contract that I can’t close on. It makes people feel skeptical. I identify the buyer before I enter into a contract.
I’ve noticed that you’ve stepped up your marketing over the last year.
Wholesaling and brokering are fees, one way or the other.
The MLS has made a path for brokers to do off market deals. It’s no longer gray.
My number 1 goal is to do everything by the book! We aren’t cowboys or cowgirls. We operate within the rules.
What are you focusing on these day? Buzzwords!
ADU’s… are they feasible to build in Seattle?
Interesting topic in Seattle! It’s a way for the city to create more housing supply.
Assessors dwelling unit (ADU) – think basement
DADU (detached accessory dwelling unit) – think backyard cottage
One of the two homes must be owner occupied.
How can investors take advantage of this.?
You could build it and then sell it to another buyer.
Definitely when you’re looking for dirt! We have a housing supply issue, so maybe the rules will end up changing.
Do you think there are people out there doing these mother in laws without permits, and is that bad?
Generally this doesn’t become an issue. I think it’s more relevant to the backyard cottage.
What if you have a mother in law… and you’re using that as a rental property. How much of the income can you use to get a mortgage?
They will give you the appraised rental value. If you are collecting two types of rent… you might have trouble with the refinancing.
Let’s talk about the small cottage in the back.
Those are super interesting! You have to pull the utilities to the back. You still have one kitchen and one bathroom. The unit cost ends of going up.
The more complicated thing is that if you try to build something yourself it can be hard to get a loan for something like this.
I think that you better stay there because for appraisal reasons you want to get the full credit.
This is something to keep your eyes on!
What can you tell us about opportunity zones?
They are something that has been brought into the law. You can use your capital gains short term and long term.. you can defer the gains until 2026. You must have an opportunity fund to use within an opportunity zone.
Every state has a published zone that someone thought that was an area that needed upgrading.
You must double the value of the opportunity improvement.
Let’s say you buy land that is $200k with a $300k improvement… You must put another $300k into it.
If you fit into the qualifications you can get the gains tax free. But you still need to make sure that this makes sense.
Let’s say you sell something and it going into an opportunity zone fund… are the time frames longer than 1031?
Yes, there is a grace period that is longer than 1031, but we’d have to google what it is exactly.
This works out great if you do a lot of flips or speculation builds.
What’s an MHA re-zone?
There’s been a lot of discussion in Seattle. A long multi year effort. Seattle has a housing shortage, and part of the plan is to up-zone urban villages.
The city decides to re-zone off of a map.
If you try to benefit… there’s a fee that you have to pay.. depending on the neighborhood when you get permits. Or you have to offer a certain number of units as affordable housing.
Do you sense that builders have any pause?
The builders are still just building and not looking at the re-zone. They don’t speculate on zoning changes.
Are any of your projects getting effected by the shift?
Builders aren’t willing to pay as much for the land.
Sellers get a lot of post cards. This means that the offers don’t meet their expectations (even at the top of the market).
It’s hard to find sellers right now for the multi zone properties.
We do know more about light rail…
If you were focusing on marketing… are you choosing areas that focus on any of these things?
It starts off where I’ve been doing my projects and listings. I should be more systematic about my direct mail.
In terms of light rail… I got a sound transit pamphlet, and it’s cool that they are working on getting the rail up, but it’s going to take some time.
What are the hottest areas in Seattle?
Tukwila, White Center, Burien… these areas are resilient, but Seattle is dropping.
It’s interesting that right now we are at a point where we have flat areas, and Seattle has dropped a lot.
The median price points have been hit pretty hard. I’m still looking at things.
The next plan for light rail is up north, and a lot of builders are looking in Shoreline. The city tried to up-zone where the light rail is headed.
But the areas homes have things that say the lot cannot be subdivided (CCNR’s). The city is saying you can do it, but there’s confusion.
These are big neighborhoods and you have to get everyone onboard.
If you think these are areas within the up-zone, make sure you look deeper.
Tell us… you have a Facebook group or two?
Go from a 9-5 to financial independence with real estate. I’m trying to focus. Jan at WARE is a really great Facebook group!
Adrian is a wealth of knowledge! And it’s alway good to get the opinion from someone like Adrain. If you need help with lending, or whatever.
How can people reach you?
You can google my contact info… Adrian Chu