First time investor needing advice - am I being shortsighted?

Question

My situation is a little tricky but I am seeking thoughts from anyone willing to offer them!

I am a federal government employee who lives and works overseas. My goal has been to purchase a home in the DC/MD/VA area in the spring 2023 time frame because that's when I hope to return back to the area for 2-3 years. The idea would be to find a property that would allow me to house hack. The DC market is becoming more and more expensive and areas that used to be affordable are pricing folks out...you all know how that goes in many cities across the U.S. Nevertheless, this has been the goal.

Recently though, I have been wondering whether or not I am wasting time/money by not getting into real estate and going for an investment property. It is a goal of mine, I know I want to do it, but fear and the general reservations are holding me back. I am originally from the New Haven, CT area, still have family here, and there seem to be interesting opportunities to invest in 2 family homes that may be able to produce modest cash flow. I have been seriously thinking about putting some of my money in such a property but of course it would eat away at the resources I had been saving for a DC property. At the same time, I still have two years to make up what I invest in New Haven but it may price me out of a house-hackable property that I had in mind.

I guess I'd love to know what folks would do in my position. I have a sizable nest egg at this point and can easily put down 10-20 percent on a great multi-family in New Haven but are my aspirations to get in the game as soon as possible damaging my potential to be successful in the DC market, too? Should I prioritize the time value of purchasing a home over waiting? Would it make more sense to begin the process in DC instead of an area that I don't plan to live in?

If you read this far - thanks so much - I know that I wrote a novel and posed plenty of questions but could really use some wise advice from the community.

Cassidy Burns · Answer

@Eric Salgado yes buy now, live in it while you are in the area and once you move overseas for the 2 years, turn it into a rental. You can always move back in once you are state side. Hire a property manager while overseas and continue to build equity in the asset. Just make sure you buy the RIGHT asset

Matthew Brill · Answer

I am an analytic person so I always look to the numbers first. If you have your cash now where is it sitting, what return is it getting you, and what is your comfort level with it? I would start looking for a multifamily now and compare the ROI and your perceived risk to that of what your money is doing now. If that's a sizable delta then I'd go for the multifamily now. 2 years could be a significant opportunity cost and also time that you could save up more money (and only need a 3.5% down payment on a house hack).

Russell Brazil · Answer

Time is the greatest ally of the real estate investor.Not only are prices likely to be higher in 2023 than they are today, but interest rates are also likely to be higher.

Eric Salgado · Answer

Hi @Cassidy Burns - thanks for sharing your thoughts. I just want to clarify, do you mean buy now in DC (condo or single family) or line it up for when I'm coming back state side? The thing is I'm about to head overseas for 2 years for work and will plan to get a domestic assignment for Spring/Summer 2023. Either way, those are great nuggets of advice. I appreciate the time.

Joaquin Camarasa · Answer

Two years is a long time. I think your main decision for you is when you want to get in the game. if you wanted to invest now I would tell you to invest in New Heaven. In the DMV area, unless you want to go the condo route you will most likely need more than 20k over appraised price to close. This means 3% downpayment + 3% closing costs + more than 20k cash in order to make it.If you know the New Heaven market and you could cashflow. I'd say go for it.

Cassidy Burns · Answer

@Eric Salgado I think you are in a great position. The most valuable asset in the DC / DMV market is the ability to be flexible and move. When you buy a primary residence it is not an asset until you start generating income off of it, if you are just living in the house it "technically" is a liability. So My advice: Buy a primary residence in DC using 3-3.5% primary residence financing. House hack it . Friend, brother, sister, or a person from Facebook, get someone in the other room of that 2 bedroom condo or the single family house and have them start paying down your mortgage and reducing your monthly expenses. Once you have to relocate, turn it into a long term rental and let time do its job.You can do this strategy and purchase a 2-3 bedroom condo or single family (these assets are extremely competitive right now) in DC with $12,000-$20,000 down. Just have to get creative to get into the game and this is the best strategy that I know of in the DMV Real estate market. Good luck!

Andres Bernal · Answer

Hey man,I would buy in new haven first then save the cash flow and with that cash flow, use an fha in DC whenever you move back. Nobody know what would happen in three years. What you know could be your best tool. Putting a 20% on a primary residence it’s not a good use when you can get loans for less than that.

Eric Salgado · Answer

Hi @Noah Chappell - thanks so much for the encouragement. I definitely agree with you regarding the value of investing in both. A good mentor of mine who I posed the same question too said to me that she's a huge proponent of "doing this AND that..." as in New Haven AND Washington DC. I have been way more aggressively looking in New Haven so let's see if I can find that first deal. Thanks again.

Noah Chappell · Answer

@Eric Salgado if it were me, I'd take a leap into New Haven now. A lot can change in 3 years, and often times plans don't materialize exactly as you plan. I'm of the opinion that if you don't make an effort to just in now, you likely never will. There will be challenges wherever you invest, and addressing them sooner than later will be to your advantage. Learning the skill of long distance investing will be invaluable. Also, there's something to be said for diversifying between work force housing in a lower priced market (New Haven), and a more desirable property/ neighborhood in a growth market (DC). Of course the time value of money and power of compounding cannot be overstated in RE.. time truly is your best ally.

Samuel Whelan · Answer

@Eric Salgado the easiest way to avoid the 25% down payment normally is with owner-occupancy in one of the units, which I know isn't an option for you currently, but its hard to just say a specific way for you because every borrower is drastically different. Local lenders instead of big banks will sometimes offer lower down payments as they have more control over the programs they offer, although that would likely come with a higher rate. I know that might seem vague, and it is. The most important thing to note is that every borrower is different, your financial story will play a major roll in the financial options given to you.