Baltimore Buy and Hold Strategy

[Thomas Abbott]

Hey BP,

I've got a new investor strategy question relating to buy and hold properties in Baltimore.

It's looking like I'll be moving to Baltimore for work within the next couple months. In seeking out housing options I decided that I would like to live in the Federal Hill area (which tends to be one of the higher priced neighborhoods). In looking at the numbers, I can buy a 3BR SFR for roughly $275,000, live in one of the rooms and rent out the other two for a total income of about $1800/month (before expenses). All in all it seemed like a great way to start in real estate investing until I began reading about some of the deals investors are getting in other areas of Baltimore.

I have seen and read posts where Baltimore investors have acquired properties for $40,000 to $80,000 and then rent them out for about $1000/ month (rough numbers).

In your opinion, would it be a smarter financial decision to use my saved money to either:

1. Buy in Federal Hill to "househack" while learning buy and hold first hand?

or

2. Rent in Federal Hill and use my saved money to invest in lower priced properties with a way higher cap rate?

Thanks in advance for the advice!

[Andy Gross]

My advice is to avoid moving to Fed Hill. Houses are small, parking sucks, and the bar scene will spillover into you backyard. You are going to have a tough time finding value in that pet of town and your rent is going to be high. You could house hack in Fed Hill, but you run the risk of being roommates with a bunch of frat boys. That, and you'll be lucky to hit the numbers you speak of. If you move in a couple of years, you'll have a house that will rent easily, but it might not cash flow.

Unless that's something you want. Most people I know live in Fed Hill until they are in their mid twenties and then move somewhere else. Riverside (southeast of Fed Hill) or Locust Point might be attractive options. It's fun neighborhood. 

If you truly want to leverage your house buying powers into investing, look at the area between Penn Station and Johns Hopkins for small multis.