How would you start out given my current situation?

[Andrew L.]

Location: Washington, DC (Nearby Tyson's Corner due to work location)

Status: Single. No debt. Sitting on a pile of savings. 

Goals: 1) Move out of the, 2) generate steady rental income even if I move out of the place a few years later.

With the savings that I have, strategy-wise, I can think of purchasing a 2bd, 2ba condos or a townhouse (Albeit further from my preferred location) and rent out one of the rooms. Alternatively, I could buy two small condos (1bd, 1ba) and rent out one units. 

The thing that gets me is the condo HOA fee. After HOA and taxes, there is very little in return, certainly not enough to cover my personal expenses let along replacing job income (Ultimate goal). I wonder how the experts on this board get around this problem? Or a better approach that I am not aware of?

[Russell Brazil]

Quote from @Andrew L.:

Quote from @Russell Brazil:

@Andrew L. it depends what area you want/need to live in.

The best purchase you can go with is a multifamily in DC. After that a rowhouse in DC especially if it has the ability to have an ADU. Condos in the city are beaten down in price currently, and you can get some good buys on them...but condos typically will not appreciate as much as other assets.

Id also focus on learning how to think 4 dimensionally instead of 2 dimensionally. What that means is focusing on how the asset performs over the course of time and not merely focusing on the here and now. If you buy something in a location with high rent growth, a property that doesnt make much money, or even loses money today if you are highly leveraged could be a cash cow with the passage of time. I have multiple properties in the area that were merely break even when I purchased that cash flow thousands of dollars a month each today.

Given the current high rate, I'd prefer not to take out a mortgage, or very little of it. Hence why a multifamily is pretty much out of question for me. I assume the reason the properties turned from a breakeven to a cash cow is due to loan payoff?

Frankly real estate is not a worthwhile investment without being leveraged. At a standard 4-1 leveraged position (20% down, 80% loan) you will typically end up with an internal rate of return of around 20%. Unleveraged, you would be look at an IRR that trails the stock market.

The reason properties turn into cash cows with time is because of rent growth.