DC/MD/VA Market - Just Trying to Get In!

[Vinay Sanapala]

Howdy, ya'll! Thank you in advance for your wisdom (knowledge and experience)!

Wanted to read your thoughts and advice on the DC/MD/VA region's housing market for someone (me) trying to get into a local multifamily house hack (2-4 units). At the time of this writing (early Feb 2022), this market still seems a bit hot with any type of dwelling (except condos), and this is with interest rates expecting to go up in March.

The goal is to get in, then focus on stacking or repeating as a possibility based on that first deal, team, and tenant situation(s), where the world is in a year.

Some more details:

-Single. Have up to $100K saved. Stable paycheck is about $4K/month after-tax. DTI will be very low and credit score is very high. Currently can work from home. Been in the area since 2005 and am nearby to other family.

-No other debt after selling current on the market 1Bed/1Bath condo in Arlington, VA that I've had for 2.5 years. (Currently rental rates will not cover mortgage and HOA. HOA does not allow for less than 6-month leases.)

-Actively reading BP site content, watching YouTube videos (BP and others), read Multifamily Millionaire, read Recession-proof Real Estate Investing, and read Rental Property Investing, and read/watched numerous other articles/posts.

-Pre-qualified by a lender I've worked with before for the FHA 3.5% down, 2.5% interest rate (likely will go up soon), up to $1.5 mil (likely will go down) as long as rents and my income cover PITI. This would be for a subsidized turnkey, since no make-ready costs are associated -I do not think it is wise to do this...unless it's some Georgetown 4-plex property (even that seem like falling in love with properties instead of numbers).

-I have a Redfin realtor helping with VA (and selling my current condo), and another Redfin realtor helping out with DC and MD. MLS alerts are delivered daily at 6am for any multifamily properties. Learned a bit over the years about what to look for and questions to ask about the foundation, metering, electrical/HVAC/water system, floors/walls/ceiling, windows/doors, roofing, and tenants.

-Prior experience as a landlord for others (thrice, I took care of the landlord duties on behalf of the owner in exchange for cheaper rent).

-My tax accountant gave some tips on tracking all expenses. I'm thinking about engaging a real estate accountant for a more seasoned opinion, and a real estate attorney to think further ahead.

-I run numbers almost daily on properties the past two months to get some practice and compare to the numbers my real estate agent provides to see how close I am to his. Been fairly similar. Alas, it seems like I'd be cashflow negative (let alone getting $75 or more per door, per month without a management company) even after renting out all units in a year. Plus, should appreciation be a concern in an up-interest or down market?

At the one-year mark, the goal is to stack to commercial (8 unit) or get another 2-4-unt somewhere (remote is hopefully an option at this point).

What is your top bits of advice you can give someone trying to get in, in this region?

If there are further questions or clarification needed, I'll surely reply.

[Russell Brazil]

Multifamily is rare in the DC area. Only about 200 per year sell on average. Many of the properties listed as multifamily are in fact not legal ones. Conversly many legal multifamilies are incorrectly listed as single families. Both these mistakes are due to the fact that there are 45,000 agents in MD 10,000 in DC and 70,000 in Virginia....but with only 200 multis 0er year selling....that means 99.99% of the agents have never dealt with the sale or purchase of this type of asset. So its an asset class ripe for mistakes by people who think they know what they are doing, but dont.

A mislisted multi is a $100,000 mistake to the seller that they will never even know happened.....and it can be an easy $100,000 equity gain by an astute buyer on the opposite side of that transaction. Additionally....buying an illegal multi and paying the value as if its legal, is $100,000 mistake to the buyer and that gain to the seller.

Sometimes these mistakes are so grossly amazing, Ive even purchased them and resold them a few months later at the correct values.