Washington DC/Maryland/Virginia Multifamily Housing Hack

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Washington DC/Maryland/Virginia Multifamily Housing Hack

Joshua Smith
Investor · Denver, CO · Member since 2013 · 49 posts · 20 votes

Hi everyone - I am a DC resident who has some experience in multifamily investing. 

I would like to find a duplex, triplex or four-plex in the DMV area, so that I can "house hack"/stay in one of the units and rent the others out. 

Are DC/Montgomery County/Fairfax/Loudon counties decent for this strategy? There seem to be many expensive multifamilies and part of me wishes I lived in a more affordable, appreciating 18-hour-style city. Any advice?

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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At least once a week I am contacted by a potential client that wants to buy a multifamily. They are always so disappointed when I show them the few that are on the market. If you are intent on living in a multi, there are some, but not a lot. They are almost non-existent on the Virginia side of the border. On the MD side of the border you can find some in Takoma Park over by Flower Ave....but Takoma Park has VERY restrictive rent control. Much worse than DC's.  In DC you can find some down in Trinidad, Brentwood, Ivy City. You may find a few here and there throughout the city...but like @Ned Carey said that there is such a low supply of them, you have a simple supply and demand issue. With low supply you have high demand, and thus higher prices.   I wrote a blog about our lack of MFH's. It is on my member log if you want to read it.

The other thing that has been affecting the supply that we once had is that developers are taking the multi's that exist and turning them into condos.  On the investment side, it is a great strategy as that is how you can maximize your value on them.

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  • Carson Sweezy
    Rental Property Investor · Fairfax, VA · Member since 2014 · 328 posts · 101 votes
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    Tough to find multifamilies in Fairfax/Loudoun because of zoning restrictions, and many other larger economic factors. The jurisdictions have done this in large party to keep property values so high. 

    You will find some in DC but few and far between. Have you considered buying a rental property, and effectively house hacking it by renting the full unit out and offsetting your living expenses?

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  • Ned CareyPro Member
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    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
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    There is a shortage of small muti family properties in The greater DC area. The ones that are out there, tend to be expensive. 

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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    At least once a week I am contacted by a potential client that wants to buy a multifamily. They are always so disappointed when I show them the few that are on the market. If you are intent on living in a multi, there are some, but not a lot. They are almost non-existent on the Virginia side of the border. On the MD side of the border you can find some in Takoma Park over by Flower Ave....but Takoma Park has VERY restrictive rent control. Much worse than DC's.  In DC you can find some down in Trinidad, Brentwood, Ivy City. You may find a few here and there throughout the city...but like @Ned Carey said that there is such a low supply of them, you have a simple supply and demand issue. With low supply you have high demand, and thus higher prices.   I wrote a blog about our lack of MFH's. It is on my member log if you want to read it.

    The other thing that has been affecting the supply that we once had is that developers are taking the multi's that exist and turning them into condos.  On the investment side, it is a great strategy as that is how you can maximize your value on them.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
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  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
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    @Joshua Smith, one thing to keep in mind when looking for an FHA owner-occupied triplex or fourplex is that 85% (75% in some states, not sure about D.C.) of the sum of the market rents on all units (including the one you will be occupying) need to cover your monthly payment (principal, interest, taxes, insurance, and mortgage insurance). This is known as the self-sufficiency rule. It only applies to 3- and 4-unit properties (not SFRs or duplex) bought using FHA financing. I put together a spreadsheet here to help potential house hackers quickly analyze whether or not a property qualifies. There are other FHA requirements concerning which you should contact your local lender, but determining whether or not a triplex or fourplex meets the self-sufficiency rule is a good place to start as this rule will immediately eliminate many properties from your search, especially in expensive markets like mine.

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  • Joshua Smith
    OP
    Investor · Denver, CO · Member since 2013 · 49 posts · 20 votes
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    Thanks guys - that was very helpful. Pretty much confirmed what I suspected. Yes, @Carson Swezy I could try to find a cashflowing apartment in DC or SFR in VA to offset rental expenses; but, what I really like about multifamilies is that there is less vacancy risk (it's not all or nothing). But I'm willing to entertain some good deals for SFRs. Any suggestions for where to start and where the "path of progress" might be moving around the DMV? Is the Dulles metro play tapped out by now?

    I am considering a number of other markets such as Austin, Kansas City and Indianapolis. The econ research I've done so far seems to point to appreciation in those markets in the next few years and cash flowing multifamilies seem to be much more affordable. 

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  • Jeff Brower
    Real Estate Agent · Willoughby, OH · Member since 2014 · 560 posts · 690 votes
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    @Logan Allec do these rules still apply if you don't have any landlord experience? I thought the rule changed years ago where you couldn't use potential rents unless you had two years showing on your taxes. I know it really depends on the lender but I am talking in general for fannie mae basic requirements. Thanks!

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  • Carson Sweezy
    Rental Property Investor · Fairfax, VA · Member since 2014 · 328 posts · 101 votes
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    Joshua Smith Deals are tough to find in the Dulles corridor, though they do pop up from time to time in our analysis. My broker created this pretty cool tool that identities properties that are undervalued in the market. We see them in Prince William in Virginia, and Prince George, Charles, and St. mary's counties in Maryland. What that allows investors to do is then go in and identify which are the best deals based on the info we have provided. Of course you could try mass mailings, or hooking up with a wholesaler as well. Feel free to reach out if you have any questions.
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  • John Fabros
    Real Estate Agent · Washington, DC · Member since 2015 · 87 posts · 49 votes
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    @JoshuaSmith I started investing in Jacksonville FL when I lived there, where multifamily (2-4) cap rates above 10% were quite easy to find. That's certainly not the case here in DC, but every so often I see something interesting come on to the market. Certainly in SE there are lots of properties that actually look quite good on paper, but my willingness to live on that side of the river was just too low. Currently under contract for a four-unit I'll owner occupy near Trinidad with a current cap of 10.2% (think I can get it up to 12) but stuck in the TOPA process. They certainly don't make it easy to buy multifamily here and I'm considering just buying a nice condo or house for appreciation if the deal falls through.

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @John Fabros:

      Currently under contract for a four-unit I'll owner occupy near Trinidad with a current cap of 10.2% (think I can get it up to 12) 

     How will you accomplish that?

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  • John Fabros
    Real Estate Agent · Washington, DC · Member since 2015 · 87 posts · 49 votes
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    I think I could do some small improvements and significantly improve the gross rent.

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  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
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    @Jeff Brower, my post was not referring to including rents in income. It was referring to the FHA self-sufficiency rule.

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  • Jeff Brower
    Real Estate Agent · Willoughby, OH · Member since 2014 · 560 posts · 690 votes
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    my apologies! @Logan Allec

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  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
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    No worries, @Jeff Brower.  These two concepts are easily confused due to the similar percentages.

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