Investing in Real Estate in DC ~ 2024
I’ve had a lot of calls lately for people looking to invest in property in the DC Area. Word is out – the market here is strong and remains strong even through economic downturns. Even the interest rates nearing 8% haven’t stifled the market in DC. It’s been flush with buyers consistently throughout the past year – for me at least.
Investing in DC Area Property – What Should I Know?
What do you need to prepare for if you want to invest here? First thing is to not get too far ahead of yourself. I have had a lot of people contact me who want to invest here, but then they either disappear or decide not to pursue an investment – which is why I’m making this video. Let’s talk about some prep work you want to do prior to starting the process.
First, you need to research the area, get to know it well and zone in on the neighborhoods you want. The DC metro area, also called the DMV, includes the actual city, suburbs, and urban areas as well. I have a lot of information on my YouTube channel and I encourage you to check them out. When people come to me wanting to invest but have no idea where, I honestly can’t help them much. This is something you need to figure out, it’s not a decision I can make for you.
Second, develop an idea of the profile of renter you want. When I say “develop a profile” I mean who are you generally hoping to provide a home for. Are you looking for a single professional? That may mean you want to look at 1 bedroom condos that are close to retail and entertainment areas as well as public transportation. If you are thinking you would rather have a dual income couple or roommates, then perhaps a two bedroom with parking would be better.
Maybe you want a larger home because you think the investment is better so you’re thinking a family is more the profile of the tenant you would like to have. Or maybe you plan to move in one day with your own family. Understanding your own ideas of being a landlord and what that means for the type of tenant you prefer, coupled with any preference you have for one home type or another will serve you well on this journey.
If you want my opinion on this, let’s do an example. Say that you wanted to spend $800,000. You may be better off buying two places in two different areas for $400K each. If you buy a home for $800,000 and it’s two parents and kids living there, the amount of rent you get per square foot will be less than you would on a one bedroom. But again, there may be a reason you want to go with a house to include that you may live there one day or that the school district is excellent and you know you will always have a tenant.
One note – creating a tenant profile does not mean you can violate any Fair Housing Laws. There are many protected classes, both federally protected as well as state and jurisdiction-wide and you need to be familiar with those. You cannot make a blanket statement like, “I won’t rent to orange people with kids.” That’s not allowed.
Third, you want to connect with an investor-friendly lender as soon as possible. Lending standards changed quite a bit during Covid and that “second home” interest rate that used to be a half percentage point higher than the owner-occupied / primary residence investment rate is a thing of the past. No more can you call something a pied-a-terre or second home and get a better interest rate than investors. Now, no matter the use of the property, if it’s not your primary residence you are likely paying the investor interest rate. And this is much higher than the rates you see posted which assume owner-occupancy.
You might be asking yourself if the rates are high right now and even higher for investors, why bother buying at all? Because you can still get some good deals now on property, that’s why. If the interest rates go down, the prices will rise and a buyer who needs to buy a home for their family will be more desperate than you are. They will want to lock that lower rate right away and once there’s competition for you as an investor, the investment doesn’t look like so great of a deal anymore. Buying when there aren’t as many buyers in the market is always a good idea.
Investing in DC Area Property: Where Are the Up-and-Coming Areas?
Another question people often ask is about what areas are “up and coming.” Repeat after me: There is no such thing anymore as up and coming in the DC Area. It’s highly dense here and saturated with people and houses. Everything has been built over again and again, and now you see houses that are torn down now and replaced with larger new homes. While there are always new construction projects in the works, there is not a ton of neighborhood change anymore.
Just get the whole idea of “up and coming” out of your mind. Even when there were some of these areas in transition, they don’t necessarily translate to a good investment. There is likely to be a decent level of crime, subpar schools and a lack of shops and other neighborhood amenities. If you’re an absentee landlord, how are you going to ensure your property and your tenants remain safe? People have a low tolerance for living in transitional neighborhoods as tenants. They will endure it if they own the property but typically not for renting.
Investing in DC Area Property – Where Should I Buy?
Another question people often ask is which is the best place to invest – DC, Maryland or Virginia. Again, this boils down to what you want and the profile of the property and your ideal type of tenant. Virginia has more corporate headquarters there and generally more businesses than Maryland which isn’t considered as business-friendly. But someone renting in Maryland will do so for the schools and access to public transportation via the metro.
In Northern Virginia, the newly built silver line metro has expanded public transport service throughout the area and that, combined with the business activity makes Virginia a strong place to have an investment property. Prices though are higher in Virginia, so that has to be factored in to your decision.
My best advice is to buy in the best area possible no matter if you are buying to live there or to rent it out. Real Estate is ALWAYS about location.