No Cashflow Northern VA

[Johnathan Le]

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

[Andrew Postell]

@Johnathan Le if you are going to occupy this property as your primary home I would encourage you to examine it from that stance first.  Meaning, does it provide me a good commute time?  Is it safe for me and my family?  Are the school zones ok?  Do I like the neighborhood?  Am I comfortable with the payment while I live here?  And I'm sure there's TONS of other personal reasons to choose a home than even those that I mentioned.  The reason I'm saying it like this is that when I purchase my own primary home I have a lower down payment...which helps me "afford" a home easier.  But since I'm borrowing 95% of the property value (or more) my mortgage payment will ALWAYS be higher than that of an investment property.  Most of the time we are using 20% or 25% down for an investment property. Since I borrow less...my mortgage payment is lower.  My primary home I borrow more...so my mortgage payment is higher - always.  You will always struggle to "cashflow" with primary homes because of this.  But if that primary home provides me OTHER benefits (like those "personal reasons to buy a home" that I referenced above) then ok, now it's worth it because of X reason.  And AFTER I use that property to fulfill those "personal needs to buy a home" then I will move out and use it for a rental.  You can certainly rotate it every year if you want to...but you will never cashflow in that scenario - even if rates decrease.  You will still have an equity play in the property.  And there are certainly tax benefits to living in the property for 2 years...and then renting for 2 years...and then selling.  So, perfectly sound strategies out there that justify doing this.  But the expectation should be that you won't cash flow.

I hope all of that makes sense. 

Oh, I also wrote a post on this the topic of "cash flow" (but more of investment properties) that you can read HERE if you would like.  Thanks!

[Ben Firstenberg]

I could be wrong, but by Northern VA, I assume you mean the DC area?

If so, I'm not surprised. Real estate in DC is sometimes just as competitive as New York or Chicago. Due to the government presence, your investment is incredibly secure compared to other cities and as a result, cap rates and cash flow will be lower. 

My advice would be to pursue a rent by the room model. Maybe something like FurnishedFinders. That's the "only" option, really, in these super competitive markets. It's what we do here in Atlanta too. After you've owned it for a few years, maybe paid down the mortgage, maybe rates come down... then you can refi and maybe make it work as an LTR.

Furthermore, your price point may be too high. I know it's a competitive market, but with the numbers you gave I calculate a purchase price of around $550k for a 1 bedroom? I have no idea what a typical 1 bedroom sells for in that area, but $550k for a 1 bed won't work as an investment anywhere outside of Manhattan

[Russell Brazil]

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

Your problem is your leverage being at 95% down. You should expect any property that highly leveraged will be cash flow negative. 

[Jack Seiden]

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

[Justin Hammerle]

@Johnathan Le - Your debt service is just a component of what its going to cost to carry that condo; if your rent won't cover that alone it really wouldn't qualify as a rental property. If this is the only option in your area in comparison to a SFH or MFH, adding some value while your living there and ultimately selling the condo once you move on is likely the best option. Once you've sold it you can use the funds towards better cash flowing options.

[Brandon L.]

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

I just checked out everything in that area for sale and for rent. I would estimate your rent around 1600-2300 to be conservative. It really depends on the condition of the property. To get those higher rental rates it’s going to need to be top notch on the inside to compete with what is available. 

You could move your radius out a bit and find more affordable properties with equal amenities and convenience. 

As for the financing I would try to use the least amount of money out of your pocket as possible, and attempt to get closing costs from the seller. It’s possible with a little more patience. 

[Johnathan Le]

Quote from @Brandon L.:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

I just checked out everything in that area for sale and for rent. I would estimate your rent around 1600-2300 to be conservative. It really depends on the condition of the property. To get those higher rental rates it’s going to need to be top notch on the inside to compete with what is available. 

You could move your radius out a bit and find more affordable properties with equal amenities and convenience. 

As for the financing I would try to use the least amount of money out of your pocket as possible, and attempt to get closing costs from the seller. It’s possible with a little more patience. 

 For this particular unit, because it has a den, I saw that it rented for ~2700

[Johnathan Le]

Quote from @Ben Firstenberg:

I could be wrong, but by Northern VA, I assume you mean the DC area?

If so, I'm not surprised. Real estate in DC is sometimes just as competitive as New York or Chicago. Due to the government presence, your investment is incredibly secure compared to other cities and as a result, cap rates and cash flow will be lower. 

My advice would be to pursue a rent by the room model. Maybe something like FurnishedFinders. That's the "only" option, really, in these super competitive markets. It's what we do here in Atlanta too. After you've owned it for a few years, maybe paid down the mortgage, maybe rates come down... then you can refi and maybe make it work as an LTR.

Furthermore, your price point may be too high. I know it's a competitive market, but with the numbers you gave I calculate a purchase price of around $550k for a 1 bedroom? I have no idea what a typical 1 bedroom sells for in that area, but $550k for a 1 bed won't work as an investment anywhere outside of Manhattan

 Yes, I mean DC/Nova area. This is a one bedroom with a den, so a rent by the room would be difficult.

[Johnathan Le]

Quote from @Andrew Postell:

@Johnathan Le if you are going to occupy this property as your primary home I would encourage you to examine it from that stance first.  Meaning, does it provide me a good commute time?  Is it safe for me and my family?  Are the school zones ok?  Do I like the neighborhood?  Am I comfortable with the payment while I live here?  And I'm sure there's TONS of other personal reasons to choose a home than even those that I mentioned.  The reason I'm saying it like this is that when I purchase my own primary home I have a lower down payment...which helps me "afford" a home easier.  But since I'm borrowing 95% of the property value (or more) my mortgage payment will ALWAYS be higher than that of an investment property.  Most of the time we are using 20% or 25% down for an investment property. Since I borrow less...my mortgage payment is lower.  My primary home I borrow more...so my mortgage payment is higher - always.  You will always struggle to "cashflow" with primary homes because of this.  But if that primary home provides me OTHER benefits (like those "personal reasons to buy a home" that I referenced above) then ok, now it's worth it because of X reason.  And AFTER I use that property to fulfill those "personal needs to buy a home" then I will move out and use it for a rental.  You can certainly rotate it every year if you want to...but you will never cashflow in that scenario - even if rates decrease.  You will still have an equity play in the property.  And there are certainly tax benefits to living in the property for 2 years...and then renting for 2 years...and then selling.  So, perfectly sound strategies out there that justify doing this.  But the expectation should be that you won't cash flow.

I hope all of that makes sense. 

Oh, I also wrote a post on this the topic of "cash flow" (but more of investment properties) that you can read HERE if you would like.  Thanks!

 Yes, this makes sense. I have been wanting to house hack, but if I want to cashflow, I understand that it might be feasible at the moment.

[Johnathan Le]

Quote from @Justin Hammerle:

@Johnathan Le - Your debt service is just a component of what its going to cost to carry that condo; if your rent won't cover that alone it really wouldn't qualify as a rental property. If this is the only option in your area in comparison to a SFH or MFH, adding some value while your living there and ultimately selling the condo once you move on is likely the best option. Once you've sold it you can use the funds towards better cash flowing options.

Thanks so much Justin, I will keep looking

[Johnathan Le]

Quote from @Jack Seiden:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

 Yes, it is a place that I would like to live, and it is only negative 500-700 cashflow. The payment would be about $3500 if I put down 20% and the rent would be about $2700

[Johnathan Le]

Quote from @Russell Brazil:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

Your problem is your leverage being at 95% down. You should expect any property that highly leveraged will be cash flow negative. 

 If I were to put 20% down, it would still be a bit negative possibly $700. Is negative cashflow something that should always be avoided?

[Andrew Postell]

@Johnathan Le keep in mind that nothing is cashflowing right now.  That's the correct expectation to have. 

[Russell Brazil]

Quote from @Johnathan Le:

Quote from @Russell Brazil:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

Your problem is your leverage being at 95% down. You should expect any property that highly leveraged will be cash flow negative. 

 If I were to put 20% down, it would still be a bit negative possibly $700. Is negative cashflow something that should always be avoided?

With current interest rates youll nees to be about 47% down to break even in the DC area.

[Johnathan Le]

Quote from @Jack Seiden:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

Also, when you say $500-700 negative cash flow, are you taking into consideration cap ex and repairs or is that just PITI?

[Sara Frank]

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 How much are the condo fees? That can sometimes be the difference between the 500-700 negative cash flow and breaking even. Although I know it's not feasible to get into a single family home in the same price range. At best you might break even if you increase your down payment, but it's very rare to find a cash flowing condo when you're highly leveraged, even before rates went up. 

[Brandon Wagner]

Option 1:  Numbers I keep seeing these days are about 35% to 40% down to get positive cashflow. For most investors that isn't feasible, but if you can do it that'll work.

Option 2: and my personal recommendation would be to try to get a little bit larger of a home as a primary residence. Townhome, or single family.  If you have to go further out from the DC area if you need lower price points.  You can house hack and rent out other rooms to others.  The goal is to find a property where after tenants are paying you some money you get your portion of the mortgage less than what you would be paying to rent the same place.  

Condo's generally don't appreciate as well as townhomes and single families, and often the HOA, taxes and insurance dues increase as much as rents so your cashflow doesn't end up a lot better over time either.

Option 3: you wait on the sidelines for rates to come down or prices to drop.  But you don't have any control over those matters personally so who knows what will happen.  Also, prices would have to drop 50% or so or rates would have to drop by 4% or so in order for cashflow to appear in the area again.  Neither of those sound very likely to me. Also if either of these happen the market will get much more competitive again.

[Jack Seiden]

Quote from @Johnathan Le:

Quote from @Jack Seiden:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

Also, when you say $500-700 negative cash flow, are you taking into consideration cap ex and repairs or is that just PITI?

Tbh it really depends on the property/area, in general on a condo I wouldn’t want to be proably more than $500 or so including vacancy and repair (through keep in mind your repair costs are gonna be quite low on a condo because you are only responsible for your unit) just because as many other people have mentioned there’s growing hoa fees (though this is really dependent on building, some can be relatively stable others can skyrocket) relatively limited rent growth, and relatively limited price growth. However it would really depend on the location/unit for all the  numbers running it’s really gonna come down to some sense of feel. Again is this an investment or just a place you want to live and plan to stay for at least a few years (are you likely to outgrow a 1bd condo soon?) are you getting a deal on the purchase price? I showed a condo in admo a few weeks ago, It was built in 2016 with a decent hoa, and I suspect at the time with a little negotiation we could have gotten in the mid-high 300’s which was basically a price that you would have paid nearly a decade ago, I thought that possibly justified my client eating a little more of a loss vs renting than if he was paying top dollar for the asset. Tldr without knowing the exact asset/your personal situation it would be hard for me to give you an exact number, but I generally wouldn’t overspend by much on condo because tbh renting is a pretty good value right now especially on apartments.

[Ryan Thomson]

@Johnathan Le 

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

[Johnathan Le]

Quote from @Sara Frank:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 How much are the condo fees? That can sometimes be the difference between the 500-700 negative cash flow and breaking even. Although I know it's not feasible to get into a single family home in the same price range. At best you might break even if you increase your down payment, but it's very rare to find a cash flowing condo when you're highly leveraged, even before rates went up. 

 Thanks Sara! Yeah, the condo fees were ~500.

Yes, i would have to put a larger down payment.

Also, I have been following your instagram for a few years now!

[Johnathan Le]

Quote from @Ryan Thomson:

@Johnathan Le 

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

 Thank you so much Ryan, Really appreciate it!

[Johnathan Le]

Quote from @Jack Seiden:

Quote from @Johnathan Le:

Quote from @Jack Seiden:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

Also, when you say $500-700 negative cash flow, are you taking into consideration cap ex and repairs or is that just PITI?

Tbh it really depends on the property/area, in general on a condo I wouldn’t want to be proably more than $500 or so including vacancy and repair (through keep in mind your repair costs are gonna be quite low on a condo because you are only responsible for your unit) just because as many other people have mentioned there’s growing hoa fees (though this is really dependent on building, some can be relatively stable others can skyrocket) relatively limited rent growth, and relatively limited price growth. However it would really depend on the location/unit for all the  numbers running it’s really gonna come down to some sense of feel. Again is this an investment or just a place you want to live and plan to stay for at least a few years (are you likely to outgrow a 1bd condo soon?) are you getting a deal on the purchase price? I showed a condo in admo a few weeks ago, It was built in 2016 with a decent hoa, and I suspect at the time with a little negotiation we could have gotten in the mid-high 300’s which was basically a price that you would have paid nearly a decade ago, I thought that possibly justified my client eating a little more of a loss vs renting than if he was paying top dollar for the asset. Tldr without knowing the exact asset/your personal situation it would be hard for me to give you an exact number, but I generally wouldn’t overspend by much on condo because tbh renting is a pretty good value right now especially on apartments.

 At the moment it wouldn't be a deal

[Johnathan Le]

Quote from @Andrew Postell:

@Johnathan Le keep in mind that nothing is cashflowing right now.  That's the correct expectation to have. 

 Yes, I will reset my expectations

[Johnathan Le]

Quote from @Russell Brazil:

Quote from @Johnathan Le:

Quote from @Russell Brazil:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

Your problem is your leverage being at 95% down. You should expect any property that highly leveraged will be cash flow negative. 

 If I were to put 20% down, it would still be a bit negative possibly $700. Is negative cashflow something that should always be avoided?

With current interest rates youll nees to be about 47% down to break even in the DC area.

 Thank you, Russell! Really appreciate it!

[Sara Frank]

Quote from @Johnathan Le:

Quote from @Sara Frank:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 How much are the condo fees? That can sometimes be the difference between the 500-700 negative cash flow and breaking even. Although I know it's not feasible to get into a single family home in the same price range. At best you might break even if you increase your down payment, but it's very rare to find a cash flowing condo when you're highly leveraged, even before rates went up. 

 Thanks Sara! Yeah, the condo fees were ~500.

Yes, i would have to put a larger down payment.

Also, I have been following your instagram for a few years now!

 Omg thats awesome!! Love to hear it