DMV Real Estate Market is Hot! Especially NOVA, where now?

Question

Hey BP,

As most have heard, the real estate market is extremely hot in the DMV, especially in the Northern VA single family house sector.  Prices escalating, multiple offers on every property (5-85) (yep one had 85 offers), and all contingencies are being waived.  That is being driven by lower interest rates and crazy low inventory levels.

So where should investors purchase next? Does this mean we should crumble and wait 1-5-10 years for the next bubble? I personally don't believe so.  I think you just need to readjust and adapt.  Find the assets that buyers aren't necessarily jumping at now due to COVID brain (DC condos) .

So I'm interested , where are the real investors still investing in DC? And how are you funding the deals? Creative financing? Hard money ? Or utilizing primary residence financing and house hacking (my personal favorite )

Leo Watts · Answer

@Russell Brazil

As it relates to the D vs M vs V, Virginia is definitely emerging as a huge job creator. The statistics seem to bear it out. It’s easier to do business generally, with lower overall tax burden and generally fewer regulations. I think those are some of the macro trends pushing up the economy. WashPo did an interesting piece on Virginia emerging as the big job leader in the region: https://www.washingtonpost.com/local/maryland-news/northern-virginias-economic-growth-risks-leaving-maryland-suburbs-behind/2020/01/04/9c6e7126-1cf5-11ea-b4c1-fd0d91b60d9e_story.html

The last couple good lots that I’ve seen in McLean (inside the beltway) have sold before they hit the market or in a day. They’re all trading about 100-200k higher than a year ago. And a lot of sellers want 100k more than current market value right now, otherwise they’re content to hold on for another year convinced the property will be worth 100-200k more than now. Parts of the market are starting to lose connection with reality, but I guess reality depends on your perspective.

Russell Brazil · Answer

Just rent it out. Rent will be a little weak during covid, but will be back to normal when the world gets back to normal. I paid cash. Ill do a cash out refinance in 5 or 6 months at likely an appraised value thats higher than market value. I estimate Ill end up leaving about $100k left in the property which is less than the $140k or so Id have into it if Id just have put 25% down instead.

Leo Watts · Answer

@Cassidy Burns

Interested to hear what people have to say about the money to be made investing in condos right now.

Cassidy Burns · Answer

@Russell Brazil and I have brainstormed many of times about this hahah, and we have very similar strategies and beliefs.  Time is your biggest asset, DMV is one of the more insulated markets, and I don't foresee prices in certain asset classes to ever drop, buy value.

@Leo Watts , lot buying and developing is a TOTALLY different investment vehicle, and honestly to me isn't truly investing.  The buying, building, and selling of land is developing (J O B) not investing.

Russell Brazil · Answer

I picked up a 2 BR condo for myself recently in DC. You can buy a condo in 2021 at a 2017 price, maybe even a 2016 price.

It is illustrative that condo prices can be much more volatilile than other assets. Much easier for them to rise and fall quicker compared to the more resilient single family or rowhouse sector.

Im also considering picking up a commercial condo with some of these prices being knocked down to in some cases a decade ago pricing.

NoVa is definitely the hottest part of the market. The lowest amount of offers in NoVa on the stuff Im writing on was 20 offers.  I really cant quite figure out why NoVa is so much hotter than Maryland and DC where Im seeing more in the 10-15 offer range while Im seeing closer to 30 offer range on most things in Virginia.

Cassidy Burns · Answer

@David Fernandez. Agreed, I too am a long term investor.  Looking at least 5 years into the future, mostly 30.  But that being said, I still don’t think buyers should be “over escalating “ to buy properties that there aren’t comps for.  IT’s also amazing to me the type of Cash people have to cover the escalation over appraisal.  I tell all of my clients, concentrate on value, knowing the rents is how you win in this market.

David Fernandez · Answer

@Cassidy Burns, the SFH and TH market is crazy here in NOVA. One property my clients were interested in had 127 offers... I have a listing now (Coming Soon), and agents are calling me asking to submit offers before it goes active, $100k over asking, no contingencies, sight unseen.

As for investments, I still find some THs that cash flow well when renting by the room. A bit more work than a regular 12-month lease, but not too time consuming which appropriate policies and procedures. It takes 2-3 years for the regular lease rent amount to catch up with year 1 rent by the room rent amount

When analyzing only year 1, it’s hard to see anything making sense in our market, but if your time horizon is long enough, this market outperforms many when combining cash flow and appreciation.

Ika Sargeant · Answer

@Cassidy Burns you are asking a question that I have been thinking of these last two months. What areas of real estate can I move into? The single home market in general has gone into overdrive because of the shortage of inventory/rates/covid. I have also been surprised by how quickly the single home prices are rising in our area in general. I want to sell a home using the 1031 but I have hit a wall finding good cash flowing properties I can buy. So I am looking at my options; What markets could yield good return? Should I go away from NOVA? If I am pivoting from single homes, should I try condos? I am aware that some area condos rentals are softening but also watching if the rentals will spill over into condo sales. I do however think there are properties you can still pick up but you have to do a lot of leg work.

Cassidy Burns · Answer

@Leo Watts it depends on how you are purchasing it.  If you are purchasing it with 20-25% down then I think you should go the duplex route, NOI is going to be higher, cash flow will be higher.  BUT, if you are using 3-5% down primary residence financing and then eventually turning it into a rental, you have to analyze it differently in this market.  You simply cannot but a"cash flowing" asset with 95-97% leverage, can't do it.  So if you are trying to get into an asset for very low cash down, making sure your in the green / break even without the factors you would use to analyze the rental if you were putting 25% down (maintenance, CAP EX, management, etc.

Leo Watts · Answer

What’s your strategy with the condo @Russell Brazil? What did you like about the deal?

DMV Real Estate Market is Hot! Especially NOVA, where now?

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