Back in the boom from 2004 to 2007, investors bought homes to flip—aiming to make money off quick resales to other buyers. In the last two years, according to commercial real estate firm Kidder Mathews, purchase prices have remained low and rental vacancy rates have shrunk from 7 percent to less than 5 percent. No wonder investors like 34-year-old Vancouverite B. Tam are shopping the Seattle market for homes to operate as cash-flowing rentals.

Competition is coming—a wave of new apartment construction will plant as many as 11,000 new units onto the Seattle market in 2013, according to Kidder Mathews—but so are jobs: as many as 60,000 new positions during 2012 and 2013.

Given those projections and Canadian currency exchange rates slightly in his favor, Tam is willing to pay cash for a one-bedroom condo priced from $260,000 to $340,000 in a modern building and in a walkable downtown area of Seattle. His search has taken him into buildings within the classic borders of downtown as well as to Belltown and South Lake Union—where newer construction tends to offer views and amenities. Depending on the purchase price and size of the apartment, Tam expects he can ask $1,700 to $2,300 a month as a landlord.

“Downtown is a strategic choice,” Tam says. He likens Seattle to Vancouver, cities where residents live, work, and walk about an urban core. “There will be competition from other landlords, but the demand is lining up to exceed what new inventory is coming.”

Investors and first-time buyers are vying for properties in his price range: Tam has bid a few times in recent months, but the place that most impressed him—a $255,000 one-bedroom at 2200 Westlake—received eight rival bids. Even though he made an aggressive offer, Tam was outbid—but continues searching. He knows that a certain kind of renter will pay a premium to rent a condo—which will likely be bigger than the small—footprint apartments under construction.

Tam’s agent Jeff Reynolds, a broker with Windermere Yarrow Bay who specializes in condos, says that finding an affordable downtown condo in Seattle is a challenge regardless of who’s buying. With no new condo construction under way, inventory has halved in the past year. As of late April only 28 downtown Seattle properties under $400,000 were listed, and, of the 19 under $300,000, many, he says, have “hair” on them: detracting factors like special assessments for maintenance or legal fees charged to residents over and above homeowner dues.

Over on the Eastside, Reynolds says, Bellevue Towers is doing a brisk business selling—often to all-cash buyers, many of whom are Chinese investors or second-home seekers heading south after confronting high prices on pieds-a-terre in Vancouver. “To them, $700,000 is a bargain,” Reynolds says. For the investment buyer who snags an urban condo, there’s the promise of recouping its substantial cost with rent.

2011 Median Condo Prices
Belltown: $274,500 
Cascade / Eastlake: $410,000

2012 Median Rent
Belltown / Downtown / South Lake Union: 
$1,571

Price Change Since 2007
+2.7%