Recession Proof, High Cash Flow Rentals in Washington D.C.

In this edition of “Meet the Investors,” I’m in Washington, D.C., with an incredible BiggerPockets member, Joseph Asamoah. He has a story that’s unlike any other that we’re going to tell in this entire series.

Like Joe, I’m a BRRRR investor. However, he does it differently. Joe BRRRRs $500,000+ houses—something I didn’t think was possible! But he does it.

In the video below, you’ll meet Joe and we’ll tour one of his latest properties. And in this post, we’ll discuss all the numbers. You won’t believe them—but they’re true.

Let’s get to it.

Meet the Investor: Joseph Asamoah

Hi, everybody! I’m Joseph Asamoah. Some people call me Dr. Joe.

Welcome to Washington, D.C.! Today I’ll do a really deep dive into what I call “big-city BRRRRing with a Section 8 twist.”

So, who am I? I was born in Ghana. And when I was five years old, we moved over to England. I lived in England until about 32 years ago when I came to the U.S.—with $100 in my pocket and two suitcases, knowing one person.

How I Got Into Real Estate Investing

The gist of it was that I worked a regular job like most people do. My boss, when I arrived in the U.S., was fired after a few weeks. And so I met up with him for lunch and he said, “No big deal. This is America. These things happen. But whatever you do, Joe, make sure you have a plan B. What happened to me could happen to you.”

It just so happened this guy had 10 houses. To me, I couldn’t fathom how anybody can have more than one house. But he had 10.

He explained, “Yeah, it’s no big deal. I’ve got this residual income coming through, and so I’m OK.”

He said I should check this real estate stuff out: “If you do that, what you want to do, you want to buy the houses and make sure you keep them. Don’t sell them, because in the end, they will go up in value. And you’ll be very, very thankful for that.”

Anyway, the gist of it was that I decided to pursue my real estate dreams based on this story that this guy told me.

And lo and behold, I bought my first house, which was a complete and utter disaster. Everything that could have gone wrong went wrong. (I’m not going to bore you with all the details that I learned from that experience.)

I decided to move on. I bought my second house; then I bought another one, my third house. Fast forward to 2003. My rental income from my properties was equal with the money I was making at that time. Since my plan B was in place, I was able to leave the corporate world.

Through my 30 years of real estate investing, I’ve been through four real estate cycles. I’ve been through the good times and the bad times four times. This is probably going to be the fifth one with COVID!

So, I’ve got a pretty good idea how these real estate cycles work.

My Real Estate Investing Strategy

What I do is a business model that works regardless of the real estate cycle. Good times, bad times. It really doesn’t matter. It’s guaranteed income. The money is coming in regardless if people lose their jobs or whatever—it doesn’t matter. And that’s what we’re going to talk about today.

I’ve been a member of BiggerPockets since 2014. I heard about it through some forum, and I went to the website and checked it out. I thought, there’s good content, good information, and a lot of good feedback was taking place.

I joined as a Pro member several years ago. It was a game-changer. And I was invited to be on the podcast, episode 356, to discuss my rental properties in Washington, D.C.

A lot of people want to do the BRRRR strategy. But if you’re in an expensive market (like we are in Washington, D.C.) where the cost of acquisition is so high and the cost of labor is high for the rehabs, it’s very difficult to cash flow if you want to rent it. You can get appreciation. However, the rent that you get versus what you have to pay out, it really is a mismatch.

To make it work is very, very difficult. So, what I figured out was a way you can get both cash flow and appreciation, which is really—as far as I’m concerned—the nirvana of real estate investing.

You’ve got an asset that’s going to appreciate in value. It can support itself, and over time, it will increase. You also get cash flow, as well. So, I figured that out.

And that’s what the BiggerPockets Podcast allowed me to share with a wider audience. And for whatever reason, it really bloomed and got great feedback, great comments, and a lot of positive reviews. And from there, I’ve written quite a few articles, and I do a live stream video every other Friday at 3 p.m. on BiggerPockets Facebook.

It’s a great community. A great place to learn, to get an education, to get content. It’s a great place to interact with people of your level—whether high level or a lower level. It’s just a great community. You really need to be a part of it and stay part of it, as well.

My Latest Real Estate Deal

In the video above, we tour a recent deal of mine in the middle of the rehab. I talk about the rehab plan.

The money is in the number of bedrooms. Before, this had zero bedrooms in the basement. We created three bedrooms in the basement (and a bathroom). It’s got a shower, a tub and so forth.

On the second floor is the next set of three bedrooms. There’s the master bedroom suite. And then there are another two bedrooms with a common bathroom. It’s got a washer and dryer and a skylight up here, too.

It’s a beautiful house. And it wasn’t like this when I bought it. But we’ve transformed it from an ugly duckling into a beautiful swan.

This is a dream come true for a Section 8 voucher holder. Never in their wildest dreams do they think they’ll get a chance to live in a gentrifying neighborhood, a house that’s HGTV quality grade, and rent from a great landlord—the greatest landlord in the world.

That’s all part of the big-city BRRRR strategy.

You’re probably wondering… Yeah, that all sounds good. But what’s the real deal here? What do the numbers look like?

The Numbers Behind the Deal

Purchased: $525,000
Old Layout: 3 bedroom, 1 bath
How I Found This House: Wholesaler
Rehab: $225,000
Acquisition + Renovation: $750,000
ARV: $850,000
Refinance: 87% LTV, 3.2% interest, 25-year amortization
All-In: $750K
Borrowing: $739K
Principal + Interest: $3,600
Taxes + Insurance: $700
Monthly Rent: $6,200
Cash Flow After Misc. Expenses: $1,500

Of course, there are a lot of other numbers—closing costs, insurance, property taxes, utilities, all those things. But let’s just keep it simple for these purposes.

And yes, you read that right. This little 1,600-square-feet rowhouse is going for $850,000 in this market. Isn’t that crazy? It just is, what it is in these high-priced markets. If you live in one, you know.

With the BRRRR strategy, once the rehab is all done, we’re going to refinance. The appraisal will come in around $850K. I was able to find a local lender, a commercial lender who really, really likes what I’m doing. They’re very supportive of my business model in terms of affordable housing, in terms of diversification and things like that. They’ve agreed to refinance all my properties up to 88% loan to value, which is very unusual for a commercial bank at very, very good interest rates.

The last one I did with them, we got 3.2% interest rates on a 7-year loan amortized over 25 years.

So, if the bank loans up to 87% percent LTV, they’re going to borrow me $739,000. OK, I’m in it for $750K, and I’m borrowing $739K. At $739K, the PI—that’s principal and interest, assuming at 3.2% interest amortized over 25 years—comes up to be $3,600 a month.

Then, I’m just going to assume $700 a month for taxes and insurance. Add those to $3,600, so $3,600 plus $700 is $4,300. Wow—$4,300 a month for PITI?!

You probably think, “There’s no way you can cash flow like that.”

OK, let’s talk about what this thing will rent for. Believe it or not, with the Section 8 strategy, this six-bedroom house in Washington, D.C., will rent for…

Drumroll… $6,200. Yes, $6,200.

Either you’re having a heart attack, or you think I’m lying to you. There’s no way they’re going to pay that kind of money. No way.

I’m telling you, $6,200. You can go to the Section 8 website and see for yourself.

My expenses are $4,300 a month PITI. That gives a delta of $1,900. Obviously, you’re going to factor something in for miscellaneous repairs and so on. But I’m looking for maybe $1,500 a month.

My vacancy cost, which would be the monthly amount for the most expensive car, is essentially zero. The tenant that’s going to be living here, her or his portion is going to be relatively low even though the rent is $6,200. The tenant’s portion is going to be maybe $300-500. The Housing Authority pays the delta.

That’s why it’s really a recession-resistant strategy. It doesn’t matter if the tenant loses their job. All they’ve got to do is go to the Housing Authority and that rent will go down and the Housing Authority’s portion goes up.

Plus, I have a tenant who’s going to love this house. They’re going to be so thankful that I gave them a chance to live in a beautiful house, in a beautiful location, in a beautiful neighborhood, close to shopping, recreation, transportation, schools, everything—all the amenities that most tenants looking for.

I have what I call a “tier-one tenant,” who is going to be here forever. They have no intention of leaving. I regularly have five-, 10-, 15-, 20-year tenants. I expect that the family that moves into this property will probably be here for at least 10 years, possibly 15 years.

And during that time, because of this gentrifying neighborhood, the value is going to be increased to more than the $850,000 it is today.

Advice for Other Real Estate Investors

Here’s my advice to those who want to do what I do.

Build an Excellent Team

Doing this project is a major renovation. But essentially, what I realized is that you cannot do this without a team. That’s the bottom line. This is not a one-man show. This is not just Joe. I cannot do this as an island.

You need to surround yourself with a great team. OK, so who is part of that team?

Wholesalers: I told you how I found this spot. So, you need a good core group of deal-finders. Whether it’s your wholesalers real estate agents, brokers, scouts, bird dogs, whatever it is, you need people who can find you these deals

Lenders: The next most important part of your team is financing. I told you I got financing through banks and private investors. Financing is the key. It’s the grease that keeps this machine going.

Contractors: We did a major renovation in the property in the video. Over $200,000—from a three-bedroom to a six-bedroom. I can’t do this. I don’t hang drywall. I don’t do plumbing. I’ve got to surround myself with great contractors. You’ve got to nurture that relationship, which is what I do. I use the same contractors again and again. We’ve developed a very, very great relationship.

Housing Authority: I do Section 8. I see them as part of my team. You’ve got to have relationships with those folks. It’s a bureaucracy, so if you know people, if you have people on the inside, they can really, really help you navigate some of the things that you have to go through.

Tenants: Really, at the end of the day, the biggest asset (in addition to the house) is the relationship with the tenant. They’re the ones who are generating profits for you. They bring in cash flow. They’re the ones who are staying in your home for five, 10, 15, 20 years, allowing you to realize the appreciation and the wealth vehicle that this asset is.

Actionable Tips for New Investors

Let’s wrap up with some action items.

Set Goals

The first thing is, if you’re interested in what we’re doing, do work on yourself. Identify your goals: Are you into appreciation, or are you into cash flow? Are you looking for short-term money or long-term money? Things like that.

Educate Yourself

Next, take time to educate yourself. Learn and then pick an area of focus. I do the big-city BRRRR strategy. It works for me.

If you’re interested in other strategies, whether that is wholesaling, rehabbing, any of those different strategies, pick an area, OK? Because you can’t be doing all these different things. You’ll end up chasing rainbows, I call it—meaning you end up doing nothing. So pick an area of focus.

Find a Mentor

Then, probably the most important thing is to identify a mentor—someone in the local area, who is doing exactly what it is that you are trying to do. And not just doing it, but successfully doing it. That’s the difference. Yeah, people do it. But not a whole lot of people are successfully doing it.

Maintain Momentum

After that, get on with it. Get onto your next deal.

Your first deal, to make it happen, pulling the trigger is not going to be easy. You’re going to make mistakes. But, you know, financial independence is not going to be made by reading the book. At some point, you’re going to have to pull the trigger.

You’ve got to have the confidence. Surround yourself with good people, surround yourself with a mentor. You can make it happen. You can do it.

Hopefully, I’ll give you some encouragement. And I look forward to working with you. I look forward to helping you. If I can help you, reach out to me on BiggerPockets and on Instagram. I’ll be more than happy to help if I can!

What do you think about Dr. Joe’s strategy? Would you consider investing in a big, high-priced city?

Share your thoughts with a comment below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.