Possible to Cash Flow in Northern Virginia or Washington DC??

Question

Hello, I just recently moved into the NOVA area and was able to purchase a primary residence using an FHA loan that I am looking to house hack by renting out my basement/spare room. I have money left over that I would like to invest here locally but I am most interested in investing for cashflow at this stage so I can scale quicker and become a full-time investor. The problem that I'm running into (as most of you have probably guessed/experienced) is the crazy high home prices around here! Is there anyway of purchasing a property for cashflow in this area?? The only thing I could think of would be to find a partner(s) to invest in a small multi-family because I think those cashflow best. Any ideas??

Adrienne Green · Answer

Hi @Mitchell McKinney! Welcome to the world of real estate investing. Quick note about multi-families: they're non-existent in the DMV region. So that plan isn't going to happen locally.

I have purchased cash flow positive investment in the region by getting condos with reasonable condo association fees. They have been decent investments for me.

I also now invest out of the area, as the returns are better in other areas. As Russell notes NOVA is a safe investment area, but I want higher return (and more approachable purchase prices). I actually moved from NOVA to Chattanooga, TN and now help out of town investors (including many from NOVA) invest here. Reach out if you'd like to talk!

Russell Brazil · Answer

Yield, in any investment vehicle is a function of risk or perceived risk.  The riskier the asset, the higher the yields.

In general, the DC area is amongst the lowest risk markets in the entire country, so with that yields (at least on initial purchase) are quite low in the area.  Typical yields are 0.5% (when thinking in terms of the 1% or 2% rules) in the area.  However, a factor of the low risk is that we have particularly high rent growth in the area. So if you are able to think about how the asset performs over time, as opposed to focusing on the here and now, then yes it is very much possible to have exceptionally large cash flows here. I have one rental for instance that I bought in 2009. At the time my rent was $1900, today that properties rent is $3200 12 years later. And thats not even in DC proper where rent growth is even higher.

Lorin Mones · Answer

Hi @Mitchell McKinney! I agree with both @Russell Brazil and @Adrienne Green. I own a couple of rental properties in DC and I house hack my home, also in DC. In my opinion, you have a lot of options depending on what financing/cash you have available to you. One thing to think about is that SFH will always appreciate and will also be easier to resell. Everyone talks about how few multi-family are in DC. I think there are plenty if you look in the right places. Like Southeast/Anacostia where you can find some more affordable multi-family units and if you are up for it, DC voucher holders can be great tenants with little risk, as the programs guarantee the rent and its above market rate, tenant screening is key.

One thing to note, brrrr's are great if you can find the right one, in the right area. I would also look very closely at the numbers. It might just be my opinion but, you will pay a lot more than you think for a GC or even a good handyman in DC. With the building boom all around the area, it can be really tough to put together a reliable team that will get the job done for a reasonable price in a reasonable timeframe. These guys have so much work they take on extra jobs so it can take them a while to finish up.

Lastly, again, depending on your budget out of state investing can make a ton of sense. In some cases, you can even do it without a property manager. Spending a couple of weekends in TN, WV, OH can be a great weekend away to go see some great properties and you can write the who trip off your taxes. As Adrienne wrote, you can find something more affordable with a great return. Having a great investment-minded agent is key. I hope this helps!

Leo Watts · Answer

Hey Mitchell,

I think it helps to define where exactly you’re looking, how much cash you have, and how much you can qualify for, and what type of returns you are hoping for. The super low interest rates are helping with the cash flow equation.

In regards to Multifamilies, every RF1 zoned town house can be converted by right into a 2 unit flat. Meaning large swaths of the single family housing stock in DC proper are undercover duplexes if you know how to navigate the code.

Beyond RF1 zones, in most other single family homes, ADUs can be built (into the structure or constructed separately) by right. There are certain owner occupant requirements there, but those may be in flux in the medium term.

You are realistically looking at the 500-million range, which may be more than you want to bite off.

Kevin Hunter · Answer

@Mitchell McKinney, congrats on the purchase.  You will find, IMO, you will never regret this decision.  NoVA is a fairly insulated area during market turns, and the military market in the area will keep your place rented full time.  Go back and listen to @Russell Brazil podcast where he discusses investing in A Class areas.  That will reinsure you as well.

Good luck!

Jason Piccolo · Answer

Hi @Mitchell McKinney, congrats on your purchase. I agree with the others  that say house hacking is the way to go to get your foot in the door in the DC market. Also, if you have extra investment money you should look into being an limited partner in some of these multifamily deals in the Southeast, TX and Florida. I have found some good operators that pay around 7-9% monthly cash on cash and with a capital event, (refinance or sale) usually in 5 years you can earn around 25% on exit.  They usually take 25k-50k capital investments and the tax advantages are really nice as well due to the bonus depreciation.

Russell Brazil · Answer

Depends on what you mean by cheap enough. BRRRR will work best in DC proper, not so much in NoVa or Montgomery County. A typical purchase price on a property it would work on is $550-600k with $150k renovation.

And $600k is the areas median home price, so its possible with an average priced property, just depends if you consider that cheap enough.

Mitchell McKinney · Answer

@Leo Watts Thanks for the response! Yes, unfortunately, $500M is still very much out of my budget 😂 I am looking to invest closer to $50k

Adrienne Green · Answer

@Lorin Mones makes a great point about the cost of a contractor in the DMV! It's not cheap.

I also love that Lorin house hacks! That is a strategy that I'd say is a solid winning play in the region.

Mitchell McKinney · Answer

@Jason Piccolo Thanks, Jason! I am looking to be more in an active role in investing so that I can learn the ins and outs of it all. That is why I like the idea of BRRRR investing.

Possible to Cash Flow in Northern Virginia or Washington DC??

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