Investing in DC Area on Limited Budget - Pipe dream?

Question

Hello BP community,

I am looking to pursue real estate investment more seriously and am hoping for some advice regarding investing in the DC area market versus Baltimore.  My primary residence is a coop in DC (Woodley Park) purchased in 2016 and I have a rental property in Upper Fells Point Baltimore which I’ve been renting out since 2020.

I would prefer to invest in DC area (mainly considering Maryland burbs surrounding DC) due to proximity & stability, but I am wondering if it’s even possible to do effectively on my limited budget (100-200k). Should I give up hope on DC area and target Baltimore? I'm trying to settle on a target market before I flesh out the rest of my investment plan. People say DC is a great equity growth/ appreciation play but cash flow is tough. Is it even possible to cash flow with my price range? Also, I’ve noticed some condos in my price range in Silver Spring; are condos a bad play in this area (other than general issues of lack of control etc)?

Some basic facts/assumptions:

• -Not looking to be a big time investor; would be happy with acquiring ~6 more properties to meet my goals (which is namely building enough cash for early retirement 20+ years from now); a stretch goal would be 13 properties total.
• -Most likely not willing to house hack since I love my primary residence and it is a coop, making it somewhat of a hassle to rent out if I leave for a year at a time
• -I plan to hire a property manager
• -I am interested in a combination of cash flow & appreciation approach (truthfully haven’t thought out my strategy out all the way); would be nice to have some extra cash in short/mid term but again mainly care about being able to retire comfortably 20+ years from now
• -I generally prefer slow & steady growth over high risk/high reward approach, although willing to take on moderate amount of risk

Would appreciate any advice and input! Thanks in advance.

Russell Brazil · Answer

Welcome to BP @Alyssa Yumi Nelson . If you mean you have $100-$200k to invest, then that is plenty of money. If you mean that is your price point...that is a tough price point to accomplish in DC.  Probably closes to that would be in Gaithersburg/Germantown condos in the $225k range.

You can be in the Baltimore market at the $200k range. More cash flow in Baltimore, but less equity growth. Id probably recommend the neighborhoods there of Fells Point, Canton, Federal Hill, Charles Village, Hampden, Waverly.

Tim Jacob · Answer

I would recommend staying within driving distance.  I think the high side of your budget could get you something turnkey in an area of Baltimore that you could get someone to lease for you and manage yourself or not have many problems with property management based on the area.  I really recommend getting something in an A or B grade areas of town and not any less to avoid the headaches.

Alyssa Yumi Nelson · Answer

I think I'm leaning towards Baltimore since it's affordable and still drivable. @Joe Norman @Tim Jacob do you all know any good PMs in Bmore?

@Aj Parikh I will message you, I have considered Detroit since I have ties there, but it's a high risk market that is block by block and would be tough for out of state. Haven't considered other parts of Midwest though.

Alyssa Yumi Nelson · Answer

Thanks to both of you for your input. I only have around 30-50k in cash that I'm willing to part with so the total price I'm aiming for is 100-200k. Technically have around 200k in home equity but I'm wary of the HELOC approach.  I'll check out Frederick, Gaithersburg/Germanton. I haven't ruled out Bmore yet but would be nice to have a shorter distance to drive. I'm doing my research now, so I'm ready to pounce if(when??) prices start declining given the interest rate situation.

Drew Sygit · Answer

@Alyssa Yumi Nelson second post about OOS investing and we've addressed the block-by-block challenge of investing in Detroit by focusing on neighborhoods:

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

Drew Sygit · Answer

@Alyssa Yumi Nelson have you considered doing STR on other bedrooms in your primary to raise more cash to invest?

The extra income could also cover a HELOC payment on funds for investing.

Short term pain for long term gain!

Joe Norman · Answer

Yes, I'll shoot you a PM!

Adam Bartling · Answer

@Alyssa Yumi Nelson  As an alternative what kind of law could you get passed for the government to buy only from your company???   JOKES..

There are some townhomes south of DC, we used to be stationed there for a few months , might be in price range.

How much equity do you have in the other property?  Cash out to purchase another?

Or look for a flip and then go back with more $ ?

Aj Parikh · Answer

Hi Alyssa, If you have decided to go further away from your local market, have you tried exploring out of state investing? I am also from Northern Virginia and I primarily invest in Cleveland with turnkey providers and my team that I have built. If that is a strategy you want to explore, I would love to connect.

Joe Norman · Answer

I'm not an expert in the DC Metro, but $30-50k doesn't sounds like enough to invest. That should be enough to put down on a turnkey townhouse in a decent Baltimore neighborhood though. Good luck!

Investing in DC Area on Limited Budget - Pipe dream?

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