Why so many foreclosures in Gaithersburg/Germantown/Rockville?

Question

I am interested in investing in the Montgomery County area and have noticed many condos that were selling for $200k 5-10 years ago are now either in foreclosure or selling for well below that - maybe around $95k.  Does anyone have any insight into the reasoning for this?  This seems to be a bigger dip than most other markets experienced.

Russell Brazil · Answer

@J Scott typically when talking about school ratings the only two lists that can be taken to be close to accurate is the Newsweek list and the US News & World Report list.  Also part of understanding the school rankings for MoCo as well as Fairfax county is understanding how in some of the communities they draw the school district line so that certain poorer areas filter into the better schools.  This can be seen in the neighborhood of KenGar in Kensington MD feeding into Walt Whitman high school, one of the top 30 or so high schools in the country.   So you have this small area of $150k shanty type homes sending their kids to a high school with kids from multimillion dollar homes.  This typically brings down the test scores at some of these highly coveted schools.

Generally though the dividing line for the good schools (as well as the affluent areas) is Rock Creek park.  The west side of Rock Creek park typically has your higher incomes and better schools (Walt Whitman, Richard Montgomery, Poolesville, Bethesda-Chevy Chase) while those school and communities that lie east of Rock Creek park have the poorer schools (Wheaton, Kennedy).  This is speaking in very general rules as there are both good and bad schools on each side of that line, I am just speaking in general.

The affluence divide of Rock Creek does extend all the way down into DC as well, though the eastern side of the park has been up and coming in DC the past decade with Petworth and Columbia Heights turning into desirable neighborhoods.

J Scott · Answer

As with anything education related, you can generally find data that supports anything/everything.  I'm not arguing that MC is highly funded and overall has great schools, but things have changed a lot since I lived there...

This is where I got my rankings, which likely measures different data than US News:

http://www.schooldigger.com/go/MD/schoolrank.aspx?...

Here is a good Washington Post article (opinion piece) that I was discussing a few months ago with MC public school teacher who I know:

http://www.washingtonpost.com/opinions/the-great-m...

Here is a less politically correct, but more data-centric overview:

http://greatergreaterwashington.org/post/19285/de-...

And here is a report directly from MCPS that addresses the disparity of schools in the county:

http://www.montgomerycountymd.gov/OLO/Resources/Fi...

More importantly, those I've spoken to believe that the trend isn't ending...

Andrew K. · Answer

I respectfully have to disagree with you, @jscott. 7 out of the top  10 high schools are located in Montgomery county including the overall  #1 (Which has been for awhile) Walt Whitman.

http://www.usnews.com/education/best-high-schools/...

While  I can't speak specifically to areas much outside the southern part of  the county, which is where my specialty is (Bethesda, Chevy Chase,  Kensington, etc,) that specific sub market I would argue is quite  strong. The building activity in Bethesda alone is staggering. Some  neighborhoods you can stand on a street and look both ways and see 3 or 4  houses under construction (infill developments) and most are already  pre-sold before they finish completion.

Now, obviously the OP and  you were discussing areas up a little further in the county, and as you  mentioned they are quite different than the areas I am talking about,  but I think the biggest difference comes from people tired of the  commute into DC from areas further out. A lot of people are looking to  move much closer to, and even back into, the city. That's why areas like  PG are booming at the moment due to the affordability and accessibility  to DC.

I also think @Shayne Brescia nailed it on the head about the delayed release of these foreclosure properties

J Scott · Answer

I was just having a conversation with a business partner of mine about Montgomery County and some of the demographic and educational shifts over the past few years.  MC used to have some of the best schools in the state and the strongest real estate market trends; these days, they don't have a single high school in the top 20 in the state and the real estate market has stagnated relatively to other wealthy counties in the area.

While I'm not presuming this is the sole reason for what you're seeing, it's interesting to note that MC is undergoing some changes.  In addition, the county is VERY large, and what you'll see in the south/east portions of the county (Rockville and areas near DC) is going to be a good bit different than what you'll see in the north/west parts of the county (Gaithersburg and areas closer to Frederick).

Btw, I lived in MC for a long time back in the 90s (Gaithersburg/Germantown) and love the area for buy and hold real estate, but I'm not convinced that the market is going to appreciate above national trends over the next several years.

Nathan Emmert · Answer

Where are you getting 95% funding on a NOO condo?

MOST properties look pretty good CoC at a 5% down payment so I'm not sure that's a great metric to use... most people are 20 - 35% down.

Frankly I don't like Condos because I don't like things I can't control... I can't control HOAs and have heard about too many of them running amok.

Shayne Brescia · Answer

These properties are the tail end of the housing crisis.  Because MD delayed foreclosures for so long, some of these condos were probably hung up until now.

Brett McCurdy · Answer

If your talking about the Northern areas of Rockville along with Gaithersburg and Germantown I would also guess this is as simple as a supply/demand aspect.  Drive around the area (I live in aspen hill so I am up that ways A LOT) and you will see the amount of new condos being built up there.  There is still a ton of land to develop on around that area whereas if you come down to Bethesda, Kensington, Chevy chase, closer to DC you will see this is much different.  If you are looking for appreciation yield in this category in those areas it might be tough.

Matthew Paul · Answer

Montgomery county is one of the highest income areas of the entire COUNTRY , its very expensive , They condos were selling high in the boom times , because people would pay that price , Now the prices have come back to earth or at least closer to earth . what others have said about the condo fees are very true . I dont get over that way too often , but the traffic is bad , the cost of living is much higher , I live 30 miles from there in Annapolis area

Aaron A. · Answer

Hi Nicole - nice to meet you!  After extensive searching it looks like condos fall into one of two categories.  For this area, there are some with moderate condo fees ($50-$200/month) that cover garbage, water, landscaping, pool/tennis courts (if there is one).  There are others that have high condo fees ($300-$600/month) that have lower price points and include all the above and also cover electricity and gas.  It seems to me that the high condo fees discourage investors.  If the condo may sit empty for a month or two, high condo fees can be a killer.  However, I am finding that using rent comps from the area and a 5% down payment, the cash on cash return is around 50-60%, which seems great.

Nicole A. · Answer

How long have they been on the market? I feel like condos are typically better for homeowners than landlords because the monthly condo fees always seem to be quite high....in many cases, high enough to kill any possible cash flow. Maybe good for a flip, but depends if people are buying in there.