All Forum Posts by: Cassidy Burns

Hey @Jared Rohlfs , welcome! And you are correct the 1 & 2% rules are not available in this market, this is a high IRR, higher anticipated appreciation market.

In terms of "finding deals" I think the key is concentrating on "value" .   

-Current rental value (know the rents up front before you buy it)

-Long Term Potential Value (what is the projected appreciation, DMV is historically 2.7% appreciation over the last 20 years)

-Location Value: Will people want to live in this location for the long term, remember you will own this for 30 years, not just the 1st year

-IRR Value: Equity pay down, tax deprecation, potential appreciation

One question I'd concentrate on is : What is the opportunity cost of waiting for the PERFECT deal? 

Good luck!

Hi @Frances Marquez , @Russell Brazil is 100% correct. The 3-4 unit sector doesn't support the 3.5% down FHA model not because of price points, but because of FHA rental limits. Particular price points HAVE to have a certain amount of rental income for the building and honestly it is very unrealistic. They did this because people, like all of us here on Biggerpockets try to use the FHA lending program to build a rental portfolio, so this was their way to stopping it.

The Duplex in DC is the best investment vehicle in my opinion and the easiest to qualify for if you have an income over $100,000, anything less and you will have trouble qualifying for the price points of Duplex.  

I started my real estate investing career by buying a 3 bed/ 3 bath condo in an up and coming area and rented out the bedrooms.  This allowed me to mitigate my living expenses, get into an asset for $17,500 (3.5% down) , and increase my savings for the next property.  This is what I always suggest to first time investors, STRICTLY because its realistic and fairly easy to execute.  

I really like 3-4 bedroom townhomes in North Arlington and Alexandria right now as well for this strategy.

@Tim Jacob I couldn't agree more. I think IRR is your best metric, especially in the higher end markets, AND it depends on how you are purchasing the asset. There are a few ways to "invest" in the DMV:

1.) You buy a typical "investment property" This is where you are putting 20-40 % down , renting it immediately .  This takes a lot of cash, especially in Washington DC.  This is where you should be analyzing Cash on Cash Return and Cash flow metrics.

2.) Buying primary residence, using primary residence financing and turning into a rental property after living there. This is where most DMV investors lose me . You are purchasing an asset with 3-3.% down and in come cases 0% (VA and doctor loan). YOU CANNOT ANALYZE THIS LIKE A TYPICAL RENTAL PROPERTY, the numbers simply do not work. You can't take Brandon Turners 5% for vacancy, 5% for CAP EX, 5% for maintenance and repairs, 8% management , and expect to have any cash flow, or even be break even. You are buying something with 3% equity and then expect it to cash flow "saving" 23% of the income already???? Just doesn't work. For this strategy you need to use the IRR of the property. Equity pay down, tax depreciation, POTENTIAL appreciation long term . And remember you put 3-35.5% down

So I think when you are analyzing DC vs. Baltimore as @Russell Brazil said, its all about " Yield in any investment vehicle is a function of risk" and what your long term goals are.  If you want $10,000 in monthly cash flow, what strategy is going to get you there the fastest and the easiest? 

Good luck!

Hey buddy @Jordan Chronopoulos , you know my thoughts on this!

Remember, this isn't your forever home.  You are young, you have time, buy in the location that is going to produce the most "value" to you.  Both lifestyle values and investment value.  Rely on the numbers, I personally believe DC is still going to be the strongest market rental wise.  I know you don't like DC as much, but live in the unit for 1 year and then turn it into a rental, you were able to get into that asset for 3-3.5% down in a secure market. Concentrate on location.

Good luck

Hey BP,

Wanted to share a client success story for individuals that think its hard / impossible to purchase rentals in the expensive coastal markets.  

Client purchased a 2 bed/ 2 bath condo in Washington DC (Brookland Subdivision ) early 2019 for $535,000 w/ all closing costs covered.   She wanted to bring 10% down ($53,500) to keep her monthly payment where she wanted while she was living there.  She lived in it for 8 months and then was offered her dream job in Miami FL (her hometown) .  She took the job, moved to Miami, let her friends live in the condo for a while at cost , and now today we just signed a 12 month lease for a long term tenant.

Mortgage: $2,650/month (PITI + Condo Fee)

Rent: $2,750/month + $50 pet fee = $2,800 total

She is "cash flowing" $150/month and has a friend taking care of any maintenance.  

Because she knew the rents going in, even though life took a turn for her, she was able to keep the asset, break even and make a little cash flow (yes I know this isn't factoring maintenance/ expenses) and continue to enjoy the appreciation and equity pay down of the DC market.

Because this is a BRAND NEW construction condo, her maintenance and expenses are expected to be extremely low.

Is this a homerun? NO

But since she new the rents going into the purchase, it is a manageable asset that she will hold for the long term.

Cheers,

Thank you @Jerrod Hill , good luck!

HI BP,

Would love to see a thread on what markets house flippers are still sourcing and buying deals?  Have you modified your criteria? 

Myself personally is concentrating more on all-in margins more than ever.  What margin are you buying your deals?

Happy investing

Hey @Leo Watts, 

Since its a duplex, they were able to take 75% of the projected rents of the basement unit to help with her qualification . $1,900 x 75% = $1,425 would count towards her DTI.

Mortgage: $5,398 - $1,425 = Meaning she only had to qualify for a mortgage of $3,973/month.  

House hacks in the $600,000 range are possible, but in most parts of the city, $600,000 assets will not cash flow when you move out, strictly because that $600,000 price point is in neighborhoods where rents don't support a mortgage at debt of 96.5-97%

Cheaper isn't always better 

Good Morning BP,

It seems a lot of Northern VA / Washington DC newer investors (and some experienced investors) are having trouble with pin pointing which strategy to attack. BRRRR is one that always comes up. In this higher priced and competitive market the BRRRR strategy is very hard to execute unless you have HUGE AMOUNTS of cash readily available. The house hacking strategy is what I'm recommending to a lot of my clients and personally doing myself to get started in real estate investing in Washington DC / Northern VA. I hope this is helpful!

I have a client who just purchased a Duplex in Capitol Hill Washington DC , one of the most sought after neighborhoods. She used FHA 3.5% down Financing. Lets jump into the numbers:

-Purchase Price: $1,005,000

-Seller Credit: $34,000 (covers all closing costs)

-Net Purchase Price: $971,000

-Appraised Value: $1,010,000

-$39,000 equity profit from purchase to appraised value

-TOTAL CASH NEEDED: $35,175

She bought a $1,010,000 Asset for less than $36,000.  This is great, but what happens when the monthly payments have to be made? 

-Mortgage: $5,398

-Lower Level Long Term Rents: $1,900/month

-Lower Level AirBnB Quote: $2,400/month (she's doing this option at first)

-Monthly Responsibility: $3,498 (she lives in 3 bed/ 2 baht single family house w/ garage parking and a roof deck for $3,500)

**Now if you want to accelerate the house hack, you could rent out the 2 rooms upstairs for $1,400-$1,500/month and live for $500-$600 in Washington DC

Once she moves out : 

-Upper Level Rent: $3,800/month

-Lower Level Rent: $1,900/month

Total Rent: $5,700/month

Total Cash Flow: $5,700- $5,398 = $302/month cash flow before expenses

Yes you will have expenses, but in my opinion, to get in a cash flowing asset in Washington DC, for $36,000 down is incredible.

Intial Equity: $39,000

Down Payment: $35,175

Cash Flow Once Moved Out: $302/month

Great opportunity for appreciation in a great location

Hope this helps! Happy investing. 

Welcome to the DMV!  Lots of value is still being found and purchased, just have to be careful with your numbers.  

Good luck!