Invest in King Farm of Rockville?

Question

I am a beginner in real estate investment. I don't  know what exactly I should do, being quite confused about the whole thing of real estate investment. You see, housing prices are already very high in Rockville Maryland, does it really have any potential to appreciate? And you see, when I buy and sell, there is a 6% of commission to pay each time. That's a heck of a lot of money, and of course there is also the property tax. So, how are people still making money in real estate? I don't get it.

Now back to King Farm of Rockville. Lots of town homes are being built there. Prices are from 650K. Location is not bad and the community have free shuttles between King Farm and the shady grove metro. My plan is to buy and rent it out. What do you see if I own a town house here 10 years from now?  Is this a good place for me to start? What do you think?

Account Closed · Answer

Sounds like you are trying to buy paying retail - you may want to find deals you can do directly with sellers.

If prices are too high in your area - go somewhere else - try Baltimore - if you are good at negotiating you can get rich here in my home town.

If you are not making a profit when buying - you are not an investor.

David Davidson · Answer

My intention is to park my money and wait for appreciation if at all that happens. I want to pay out the property in a couple of years. No, Baltimore is not an option. I live in Rockville, and would rather not drive 50 miles to manage the property.

Russell Brazil · Answer

I also just realized you send it wasn't built yet. I'd be very careful purchasing directly from a builder without an agent representing you. Time and time again I see novices do this and get screwed...but come out of it thinking they got a good deal. You just don't have access to see what seller subsidies or upgrades a builder provides without mls access, or familiarity with doing a bunch of deals with the builder.

David Davidson · Answer

Thanks Russell, it's nice get a valued response like this one of yours for us beginners in the market.

I am looking at one site (not built yet) in the north of King Farm next to Sheraton. I have negotiated a price with the seller, but have not decided. It is a little close to I-270, so a little bit noisy, not sure how much impact it's gonna have on the value of the house in the long run.  Also schools are not the best in this area. Yes, I heard about the private water utility cost. $700 is acceptable.

Russell Brazil · Answer

Yes Rockville will keep appreciating over a long enough time line. We could hit blips during recessions, but it is and will continue to be an area of high demand.

When you purchase a property though it's important to note that you do not pay any commissions. The seller pays those.

I tell most people that if they hold for 2 years they will break even, or lose a small amount, if you hold for 5 years you should make some money, if you hold for 10 years you should make very nice money.

Back to King Farm....I think there are areas in Rockville that will offer better price/rent ratios. Also as you may or may not be aware there is a private water utility cost in King Farm. I think it's about  $700 a year in general.

You would probably get a better price/rent ratios in the northern part of the development versus the southern part where it goes to Gaithersburg schools as opposed to Rockville schools. The price drop is dramatic, but the rent decrease is almost non existant.

Account Closed · Answer

If you just want to wait and park your money - there are better option to do so. Why wait for appreciation - it may never come and your parked money will still be parked earning nothing.

It is your money and my opinion - good luck.

David Davidson · Answer

I am trying to find out the actual sale price of sold townhouses in the same development at King Farm. Such as 904 King Farm Blvd, 902 King Farm Blvd, 900 King Farm Blvd, 1458 Piccard Dr, 1456 Piccard Dr, 1454 Piccard Dr. They all have a sign saying SOLD. But I can only find the land price from the Montgomery County Property website. If you guys can find out such info, it will be of great help.

Richard Mollel · Answer

Hi,

As a beginner investor, I am surprised why you would start off with such an expensive area of the DC region, where outright, the total mortgage will not be covered by the rent? For investments, I usually assume the entire purchase price has a financing cost, even if the intention is put a huge down payment. For homes in the 650k+ range, a reasonable rent should be 6.5K/month (1% rule) while the reality is not more than 3.5k/month. You will definitely be subsiding this investment with a cash infusion for some time to come. So, if your intention is to "park" some money, I would say go ahead. But if you are looking to grow your investment, I would not recommend buying in this area as you definitely are only banking on property appreciation which may or may not materialize. The best investments have either cash flow or fast equity accumulation via shorter amortization (e.g. 15YR loans).

Property appreciation should be considered as icing on the cake.

Invest in King Farm of Rockville?

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