Rental property vs. Selling (after a year) in Alexandria, VA

10 Replies

I have started to look at properties in Alexandria, VA because I want to be closer to work. I was originally thinking of renting, but after listening to BP podcasts I thought it would be better to just buy a house and rehab it to get some experience in real estate and the rehab process.

My idea is to rehab it (doing a 203k) and live in it for a year or more and either turn it into a rental or do a 1031 (thinking that the rehab will increase the equity in the home). Because of the location, I feel that the area will grow and the pricing of houses will go up making my house more desirable. I saw a house that was listed at 0.5 million (although, it is not really comparable since it's bigger, i.e., a house 4b/3.5).

Looking at some estimated numbers it does not appear to be a good rental property.

Some of the numbers I looked at are as follows: 

House: 2b/1b 816 sq. ft.; Lot 3650 sq. ft.

Asking price: $345K

Possible offer price: $250-300k

Rehab cost: $60k (estimated, not sure of any issues but looks as if it needs some work from the outside)

AVR: $412k+ (estimating based on realtor.com)

Rent: $1800 (not including utilities)

Annual Taxes: $4,734

Another thing is that the realtor said the buying process was complicated. I have not talked to her in detail about it yet, but it makes me a little suspicious. 

My thought is that after rehabbing and living in the house for a year worst cast I can sell the house or do a 1031. Wanted to get some others opinions. Thanks!

You will be very hard pressed to successfully use a 203k loan in Alexandria.

Also it is unlikely a property at that price point in Alexandria is mispriced by $100k. Possible sure, but unlikely.

Sorry @Julius F. , If you move into that property after completion it is not eligible for a 1031 exchange.  You cannot 1031 your primary residence.  And the law is pretty fluid on what the requirements would be to take advantage of the primary residence exclusion.  Right now you'd have to live in it for two years.  If the tax reform bill passes you'll need to reside in it for five years before it is eligible.

@Julius F. Why 1031?  You can sell a primary residence and take $250K out tax free and $500K if you are married.  A 203K loan can work in Alexandria during the slow season, but when the season picks up, there generally is too much competition (multiple offers) to work in a 203K rehab into the purchase.  I live in Alexandria and know the market well.  PM me with the property address and I can run some quick comps. 

Last time I checked with one of my lenders, you just have to live in the home for 6 months before you sell.  If a 203K loan isn't possible, there are several other options post closing.  Good Luck!

Originally posted by : @Dan Bernstein

You can sell a primary residence and take $250K out tax free and $500K if you are married.  

That is only the (current) case if it is your primary residence and you lived in the home for at least two of the five years immediately preceding the sale. 

@Russell Brazil Why is it hard to do a 203k loan in Alexandrai?

I was not suggesting that the house is mispriced, only that the numbers seem to work better at that price for a rental. This is my first analysis of a property.

@Dave Foster Thanks I appreciate the letting me know. I'll have to do some more reading to get a better understanding of a 1031 and the requirements.

Originally posted by @Julius F. :

@Russell Brazil Why is it hard to do a 203k loan in Alexandrai?

I was not suggesting that the house is mispriced, only that the numbers seem to work better at that price for a rental. This is my first analysis of a property.

 Alexandria is generally a competitive area and a 203k is at the bottom of ways to close a deal. This is generally the order of preference.

Cash

Hard Money

Conventional High Down Payment

Conventional Low Down Payment

FHA

VA

203k.

And the properties that you are going to want to use a 203k on, are likely going to be competing against cash offers for. So if someone has cash and can close in 5-10 days as opposed to a 203k loan, which is typically going to be about 60 days and can get longer....which one would you take?

Using a 203k is going to be easier to actually use in less competitive parts of the market like say Anne Arundel or Stafford counties.  

@Dan Bernstein I am looking more long term and keeping my options open and I thought a 1031 would be a good choice. Since I am starting small, I would like for the possibility to have my investments snowball and invest  in bigger investments in the future. Thanks for the advice though. I'll PM you.

@Russell Brazil Thanks for the explanation. That makes a lot of sense. 203k are at the bottom of the barrel. If I was a seller I would go with the fastest option. Thanks again!

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