New Investor Q: buy and hold cash flow in DC?

Question

Hi all,

I'm a new real estate investor living in DC, and I'm considering buying a home with rental income potential - using a buy and hold strategy to live in in for at least a year and rent out part then all of it. I don't have the cash reserves to invest in a rehab-ready unit, but can put more than 4% down, depending.

However, the market seems so hot right now that I'm wondering if it's a good idea. Most 3 bed/2 bath houses or condos in NW (Petworth, Brightwood/Takoma, Ft. Totten) near a metro are going for $550K minimum, only some have basements to rent out. I want to stay in DC, so would be paying increasing rent anyway. What are your thoughts  on buying a property as primary residence and rent to tenants or Air BnB? Do you have maximum price or other criteria? What do you think the housing appreciation prices will do in the next few years?

Thanks!Piper

Andrew McCartin · Answer

@Russell Brazil Came across this old thread and would love to know your thoughts on if or how much the neighborhoods you mentioned are still on the rise. Brookland, Eckington and Ivy City seemed to have changed a LOT in the past 3 years. What neighborhoods would you say make this list in 2020?

Thomas S. · Answer

Homes in the price range you are talking about are not suitable as rentals. Unless your rents are in the 4-5000 range they will be negative cash flow.

Russell Brazil · Answer

Brightwood, Shephard Park, Carver-Langston, Deanwood, Benning Rd

Teresa F. · Answer

Hi Piper!  @Russell Brazil is absolutely correct.  It won't be easy but under the terms you are suggesting, you may want to think about a four-plex.  Right now four-plexes are even hotter than houses 500-700k in the NE neighborhoods and they are under contract after receiving multiple offers within days.  However, if you are  lucky enough to grab one, you can make it cashflow.

Best,  Teresa

Russell Brazil · Answer

DC is always a sellers market. Prices will continue their upwards trend. Gentrifying neighborhoods like Petworth continued upward even during the housing collapse.

To find a property with a basement unit you are probably looking at 600k plus in most areas.

With a low down payment you are not likely to be cash flow positive on it when you turn it into a rental....but you need to realize a low down payment loan is not meant to be an investment, it's a means of getting owner occupants into properties.

Teresa F. · Answer

Hi.  I was talking about a four plex.  A small four unit apartment.  You would buy all four units.  Live in one and rent the other three.  Hope that helps, Teresa

Russell Brazil · Answer

I think Petworth will continue to rise but there are other neighborhoods I expect to outpace it. Riggs Park, Northern Brookland, SW on the west side of the river, Eckington, Ivy City, Brightwood.

In the most general of rules, neighborhoods that are genteyfYing where the rehabbed properties are priced a descent amount below the conventional loan limits plus 3.5%...so roughly a good deal below $650k...should outpace other areas. Many of the neighborhoods I mentioned have rehabbed hokes in the $500's.

Piper Mullins · Answer

Thank you everyone, that's helpful advice.

@Russell Brazil, some DC areas have seen more stable prices that rise with inflation but don't see as much appreciation (i.e. west of Conn Ave). If I bought a place in Petworth for $650K, is that price most at the peak of the  market already? In your opinion, what are the likely appreciation rates in different neighborhoods?

@Teresa F., are you suggesting to buy the whole four-plex as a multi-family deal, or I buy one-two units in such a building?  I actually just toured a four-plex in NW that was just renovated as a flip, and am considering purchasing two of the units out of four with a partner....we wouldn't stand to make cash flow but could at least stabilize living costs and potentially buy the other two units later - do you think that would ever be a smart investment?

@M Marie M., great info, thank you. I don't think DC has any more incentives to buy houses. Do you rent out to short-term leases over Craigslist?

Thanks!

Piper

M Marie M. · Answer

@Dan Robinson is correct about basement apartments around here. That's around the price some friends are renting their 2 bedroom basement apartment below their primary home.

There are a variety of things people do in DC. There's getting a 3 bedroom and getting roommates. Some people dig out their basements and get a legal apartment below them.... a painfully slow process from what I've observed. There are those unknowingly/knowingly, who do have illegal basement apartments, so find out what makes a basement illegal. I've had/have neighbors who have done airbnb, but airbnb does take a nice cut, so consider short term (30days to less than a year) and advertising on Craigslist for people who need a furnished place for a short time (and screen like your life depends on it).

I'm not sure if the District of Columbia still has all the great first time homebuyer programs that were around when I bought my home a zillion years ago. My fav was the $5K I could take off on my income taxes, followed by the tax abatement that due to a low salary (just outta grad school) I didn't pay property taxes for 4 years. I was able to get away with a small downpayment (loan through the Housing Finance Agency) however, these things are usually for people who are staying put and those programs where there when DC wasn't as popular as it is now.

Dan Robinson · Answer

I happen to think basement rentals are a great idea if you need a place to live anyway. A lot of neighborhoods a legitimate (permitted) basement apartment will get you $1500+.

New Investor Q: buy and hold cash flow in DC?

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