Smart D.C. Real Estate Rental Investments
We’ve all been told that when it comes to savings and investing for retirement that it’s important to diversify, which is why you may have started considering investing your retirement savings towards rental investments. If this is what you’re looking for then this article is for you! If you’re thinking about going full reality show and flipping a house for massive profit in just a few months, which is a risky proposition that requires a lot of technical know-how, this article isn’t for you!
The best way to use an investment property to generate revenue is to purchase a property that can be immediately rented, and it’s in your best interest to choose a rental investment property in one of the Washington D.C.’s neighborhoods where the rental incomes have historically remained steady and property values have steadily increased.
What do we mean by that? Let’s take a look at Georgetown where prices have been steadily climbing for the past half-decade. A two bedroom/ two bath apartment with 1,100 square feet in Georgetown can go for more than $3,800 per month, while that same two bedroom/ two bath apartment 30-year note on a two bedroom/two bath apartment with 1,100 square feet in Georgetown will cost $700,000 to buy. As long as you can put down at least 11% (or $77,000), you will be paying less than $3,800 per month in mortgage (source: Zillow’s Mortgage Calculator). With rents increasing every few months, buying a rental property that may be a net negative in early years could easily become a net positive by next summer as prices continue to increase.
This means even if you have no interest in rental investments, it will be worthwhile to have a mortgage payment that is lower than the surrounding neighborhoods rental prices. In highly desired neighborhoods, which are the neighborhoods discussed in this post, properties can appreciate nearly 50% in less than two years!
So, now we’ve got some direction on how to project returns on your investment, it’s important to remember that buying outside of the desired geography can be detrimental. The 5 D.C. neighborhood real estate investment areas that are the best choices today are:
- Penn Quarter/Downtown
- Foggy Bottom
- Chevy Chase
- Dupont Circle
The sheer variety of employment options and the fast pace and convenience of the area encourages many younger adults to Washington D.C.’s downtown neighborhood. It’s not uncommon for prospective renters to be college students, exchange students, and young professionals who are just starting their careers.
Most of these individuals are excited about living in the city but don’t anticipate living there for more than a few years. This means they’re more inclined to rent as opposed to purchasing a home. It’s not unusual for these young renters to want a decent sized living area that allows them to have one or two roommates. Students at George Washington University pay nearly $10,000 for two semesters of on-campus housing with a shared room, so you’ll always have a fresh supply of students looking for slightly cheaper housing.
Georgetown has the distinction of having one of the highest numbers of college-educated adults in the country. Recent studies revealed that the 89.8% of the neighborhood’s residents have received at least their bachelor’s degree. The average real estate transaction in Georgetown is $1,149,084 and neighborhood residents who rent property in the area pay an average of $2,868 each month for rent.
Nearly all Georgetown residents are gainfully employed in lucrative white-collar careers and intend to live in the area for some time. Exceptions are college students who attend Georgetown University and also have jobs in the area, and individuals who are only working in the city on a temporary basis. Students at Georgetown will spend nearly $10,000 for eight months of on-campus housing with a roommate and a shared bathroom, so it’s easy to entice them off-campus if you’ve got a property that will profit from $1000 per month per renter.
Additionally, many rental property owners have contracts with businesses and corporations that are in need of reliable housing for workers who were relocated to the area. Remember when purchasing a house to ask if there are currently any businesses funneling renters to the previous owner so you can have a pre-built renter pipeline.
Its proximity to downtown Washington D.C. and George Washington University makes the Foggy Bottom neighborhood ideal for college students and older professionals. Both of these groups are unlikely to stay in the area for long without buying, and so make up a great base for a high number of renters.
While most of the rental opportunities currently available in Foggy Bottom are condos and apartment buildings, there are also several nice homes that would be an excellent choice for anyone interested in converting them into a rental investment.
Chevy Chase D.C.
Chevy Chase is one of the quirkier Washington D.C. neighborhoods. It’s also a place people love to live. One online survey revealed that Chevy Chase is the fourth most sought-after neighborhood in the entire United States. It has a close-knit, small-town kind of feel with lots of amenities that appeal to residents of all ages.
In 2012, the median price of Chevy Chase houses being put on the real estate market was approximately $842,500. Many of the people who move to Chevy Chase are middle-aged professionals who have children who are just entering their early teens. The residents are eager to take advantage of the fact that the neighborhood has to of the top rated elementary schools in the Washington D.C. area.
Dupont Circle is a Washington D.C. neighborhood that attracts young professionals, many of whom have just left school and are just starting their professional careers. A majority of these young, rising stars are employed by think tanks, the World Bank, hold positions in one of the government agencies, and think tanks – industries that are often the last to be impacted by economic downturns.
Most residents are newly married and don’t have any children. Since most of these young professionals aren’t sure of where their career will take them and they don’t anticipate staying in the Washington D.C. area for long, they’re more interested in renting a nice home than in purchasing real estate and being tied to a mortgage.
Helping Renters Find You
So, now you know the top 5 neighborhoods based on steadily increasing property values and rents, it’s important to get in the head of your renters so that you can have a steady pipeline of new renters in case of turnover. We’ve got 3 suggestions below, but you can always reverse engineer how renters are finding apartments in Washington, D.C. to make sure they rent with you.
- Find out where local colleges and universities direct their students and list your properties on those services
- Create a pipeline from businesses or governmental organizations to your rental investments
- Partner with a reputable agent whose clientele fits the profile of renters you want in your rental property
Just remember – as foreign investment grows in US real estate, rental investment properties for purchase at a reasonable price or even to rent at a reasonable price become more and more scarce, and hindsight continually proves buying yesterday is advantageous to buying rental investments today!
Written by: Mike Tiscione