A First-Time Landlord
Launches His Investment
by Jane Hodges
It's Memorial Day weekend and Jeff Jones, a 32-year-old Microsoft executive in Seattle, has time for coffee at his neighborhood Starbucks before he heads to the house he bought in April. He needs to decide what to do about the pervasive wood paneling the former owner tacked up in every room and return the handmade wooden hearts he pulled off the house's exterior to the former owner's family. He also needs to get landscapers' estimates on the cost to remove a tree blocking his view of Lake Washington.
Given his age, it might be easy to assume this is Mr. Jones's first home. But he bought the 1909 bungalow in a South Seattle neighborhood as an investment. His friends don't understand why he's taking on the work of repairing, renting and managing a property as an investment vehicle. Even Mr. Jones admits it wasn't in his plans until recently.
"I was never interested in real-estate investing or landlording," Mr. Jones says. "The turning point for me was that real estate would let me try and diversify my investments, most of which were in equities."
The strategy is not unusual. Throughout the U.S., many investors have reasoned that it makes sense to diversify by adding real estate to their portfolios. Some, like Mr. Jones, already own a primary residence and are familiar with the ins and outs of purchasing property. But when it comes to being a landlord -- remodeling the house to appeal to renters, setting the rental price, managing the property remotely -- he's still learning.
Rental property is growing in popularity. The National Association of Realtors, which tracks ownership of second homes in a biannual survey, reported in its most recent survey (2002) that 37% of all second homeowners use their properties for investment purposes rather than as personal retreats, up from 20% in 1999.
Though Mr. Jones and his former wife rented out a home they owned in Seattle after they had moved to Atlanta, family members helped to manage the property and he didn't consider it an investment purchase. It wasn't until 2003, shortly after returning to his native Northwest, that Mr. Jones decided to look for an investment property.
Originally, he wanted a weekend getaway. But he realized that his lifestyle and work schedule wouldn't allow him to spend much time there -- and renting it out only occasionally wouldn't cover his ownership expenses.
"I started thinking through it," Mr. Jones says. "I could have someone else paying my mortgage every month."
Mr. Jones is the first to admit he's no expert on real estate or being a landlord. But he's open to the risks involved and has invited RealEstateJournal.com to track his activities during the next 12 months as he learns by doing. As of late April, he had cleared the first hurdle: selecting and buying a property.
The house he chose is in a South Seattle neighborhood called "Lakeridge," located on the southern tip of Lake Washington, which divides Seattle from the affluent suburbs known as the "East Side." Thousands of commuters cross the lake by one of two highway bridges each day, and neighborhoods close to those bridges have become desirable and expensive.
It's also possible to drive around the lake's perimeter on curving two-lane residential streets that pass through modest neighborhoods. Because of the lake's large north-south span, home prices are more affordable on its northern and southern ends.
It's on Taft Street at the southern end of the lake that Mr. Jones believes he has located a gem: A structurally sound house with lake views, but one that has layers of pastel paint and a small army of garden figurines dotting the front lawn.
He must consider how much cosmetic work to do to the house, which he describes as sunny but "cabin-like" on the inside. While some renters might find the wood paneling and fireplace cozy, Mr. Jones says he wants a more neutral look that will appeal to renters. He's already hired painters to convert the blue and purple exterior to a more neutral color scheme -- tan with white trim -- and he's planning to tackle some interior work on his own, including changing light fixtures, interior painting and some paneling removal.
For now, Mr. Jones remains undaunted. He's confident he's found the right house and that his investment will pay off in 30 years.
"Here I am in the first month," he says. "And I'm not in panic mode yet."
-- Ms. Hodges is a free-lance writer in Seattle.
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