Getting started - creative MFH, SFH, or look outside DC?

12 Replies

Hey folks,

I'm doing research and gearing up to make my first foray into real-estate investing, and I was looking for some guidance.

My goal is to make the purchase in Q1 2019. I will be able to put around $50k down at that point.

My ideal would be house-hacking with a 2, 3, or 4-plex in the DC/MD/VA area. This'd be good for me financing-wise (I could take advantage of an FHA loan), and also practically (I'm looking to move in the next year or so). That said, MFHs are rare in this area, and usually pretty expensive.

I could try squaring that circle by mailing/cold-calling existing MFH owners, taking on a rehab, or buying a DC/Alexandria townhouse and converting it. Alternatively, I could shift my focus to buying SFHs (not as favorable in terms of financing, but should still be tenable). I'm also looking at Richmond VA, as there seems like there are some cashflow opportunities there, and I have friends in Richmond that could help me suss out the neighborhoods. It's ~2hrs away, so I'm not sure whether hiring a mgmt company is the correct choice in that scenario or not.

Cashflow would be nice, obviously, but that's not my main goal. Right now, I'm looking to build experience and relationships, get more comfortable with the industry, and essentially set myself up as best I can for purchase #2 a year or two down the line.

I'm eager to get your feedback. Are my MFH strategies plausible? If not, would Richmond be a better choice than SFH in the DMV? Anything else I'm overlooking/should be aware of?

Really appreciate it - cheers!

Richmond is better for MFH, and the appreciation/gentrification there is really good. Competition for these properties is also getting more, um, competitive? If you want to stick to the DC/MD/VA area, you might want to consider house hacking a SFH and Airbnbing an extra level/room/basement/crawlspace/fallout shelter-- like you said multis are few and far between here, but you might be able to find some in areas that show up as that beautiful deep navy blue on the Trulia crime map.

I live in northern VA but do all my investing outside the area. I originally thought buying in Richmond was smart because it seemed like the closest place where the numbers made sense and I could always get down there to quell an insurrection if need be-- in honesty the only time I braved the soul-crushing purgatory of I-95 down to Richmond was when I went to look at listings with my realtor. I bought a place, did some rehab with a solid contractor, and now my property manager sends me checks. Like any smart investor, I cash those checks, stuff the money into a pillowcase, and guard it like Gollum. What I mean to say is, if you buy right and get a good manager, the hope is that there won't be any reason for you to visit it in person.

Thanks for the thoughtful reply!

Sounds like delegating the rehab and management was really successful for you. Maybe I'll try that - my only concern then is I don't get the chance to learn by rehabbing the home with the contractor and asking them questions (unless I wanted to make multiple weekend trips down). We'll see - lots of good stuff to think about.

@Scott Holmes , out of curiosity, what is the inventory like these days for small multi-family (2-4 units) in the Richmond market, and what is the typical price range for acquiring such property in standard B-Class neighborhoods? 

I currently own a few properties in Washington DC, but am starting to consider other markets for my next purchase. I grew up in the northern VA area and Richmond would make sense for a variety of reasons.

If you only have $50k to put down I would buy a property with as many bedrooms as possible and live in one bedroom and rent out the others and hopefully live for free and maybe even get paid to live there. You will gain experience being a landlord by renting out the rooms and dealing with tenant drama, home repairs, etc.

Then in a year or so fully rent out that first property and repeat the process.

If you don't want to actually live with the other roommates then I would look at an area like Hyattsville, MD and parts of Silver Spring, MD where a lot of houses are two level houses and often times with a second kitchen in the basement. You could live in one level and rent out the other level. I currently do this in DC by living in the basement unit and renting out the upstairs, but I doubt you could make this work in DC with only $50k down (you'd have to take out a $750k loan which you probably won't qualify for) But the price points in Prince George's County are around $250k-350k so you probably could make it work there.

The numbers definitely work better in Richmond than in the DC metro area but if you are looking for experience then I would buy and live in your first property and self manage it to get the full landlord experience and take advantage of owner occupied financing.

Good luck!

@Dara Kharabi I hear baltimore is being built up and is ideal for flips, I have yet to have my wife do some searching on the MLS but she's talked to other investors and has been given the heads up about the market out there. We've talked about doing a flip in that area but haven't decided on it yet. Not sure if this is something you'd consider doing as well. Other realtors before my wife became one told us that it is almost impossible to find any MFH's in the MD/DC area because everyone wants them.

@Michael Garofalo Unfortunately I'm not the best source of info regarding B-class neighborhoods... as for inventory, I can only relate that in my experience, the MLS seems to have dried up for small multis-- I'm sure they're out there, just not nearly as plentiful as they were last year. Might behoove you to give a good real estate agent your criteria and have them set up a day's worth of tours.

@Charan K. Will message you.

Because there are not too many multifamilies in the area, I'm currently looking to buy a 2 level single family house and build a second kitchen on the second floor, just like @Ron Gallagher recommended, but not in the basement, in the second floor. Living in a basement sucks, and rent is lower as a result, and turnover higher. A friend of mine bought a 2 level house in college park and put in a very nice kitchen in the second floor. As far as the legality of putting in another kitchen, i have to do more research, but I believe its the stove that makes it a second kitchen. You see a lot of second kitchens on the MLS with the stove taken out, which I'm assuming is to make it legal. Then it can just be considered a 'wet bar.' All speculation though, I have to look it up. Anyone know?

The tricky part is walling off the upstairs and the downstairs, which is hard to do with some home layouts.

I believe you are correct that in College Park you can only have one stove, but put a ceramic cooktop or $10 hot plate and a microwave with convection oven or toaster oven in the basement "wet bar" and viola! Stove replacement.

I live in the basement and I like it, but I hate light when I am trying to sleep in, so basements are fine with me, except for last night when my upstairs housemate was putting a bed frame together at midnight and I thought he had set up a bowling alley. I live in the basement because usually the basement level is the "lesser" of the two levels so you can maximize the rental income of the property by renting out the "nicer" level for more money.

You are also right that walling of the upstairs and the downstairs can be tricky, but some front entrances are set up in a way where the stairs to go downstairs are right there when you walk in the front door, so you put up some walls that you will take down when you go to resell it as a single family home and create a little foyer and then you have separate entrances. A split level foyer (as much as I hate that style) is almost ideal for this.

Careful walling off "units" in a SFH in the City of College Park unless you're owner occupant and renting part of your house. Even then I wouldn't do it. There are annual inspections for the rental permit for non-owner occupied rentals and walled off units are a no-go.

Can't find a small multifamily to BRRRR? Create your own by adding an accessory dwelling to a single-family house, as detailed in this BP thread from California:
https://www.biggerpockets.com/forums/61/topics/732543-here-is-my-adu-variation-to-brrrr-its-called-bra2xrr

DC, Arlington, and Montgomery County have all updated their zoning laws in recent years to broadly permit ADUs within or behind owner-occupied houses. Fairfax County is also updating its zoning, although it's likely to stick to some odd rules (like only allowing renters who are 55+). Read about updated regulations here:
https://ggwash.org/tag/accessory-dwellings

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