So You Want to Invest in DC Real Estate - 10 Things You Should Know Before You Get Started
As a Metro DC Realtor I am approached weekly by people who are interested in learning more about how to invest in real estate in the city. DC boasts a steady growth in demand for real estate, impacted by 20 colleges and universities, federal employment, international development, military bases and tourism that attract more people, more people, more people. All of these people need a place to stay temporarily or permanently. That's where investing in DC real estate pays off.
Currently DC is experiencing an influx of 1,000 new residents each month, Air BnB, rental and new construction are booming and the number of single family homes available for purchase is limited. All of this translates to, we need more people who can make more homes available for our residents. If it means that they make money while they make homes available, so be it! I'm OK with it, as long as they give back to the community through taxes and infrastructure development and don't displace, dismiss or mistreat Washingtonians who built the history and legacy of Chocolate City.
So it is a good time to invest in DC real estate, but there are several things you should consider before you get started!
1. Take stock of your temperament!
Not all investments fit all personalities. Do you have the patience to deal with everyone on all levels (contractors, tenants, real estate service providers)? Some folks require more attention and more of your time. This doesn't mean that you have to deal with all of them, but you certainly have to make the final decision. Be honest in your self evaluation, it will go a long way to give you the peace of mind you need and help you determine how to proceed.
2. Know what type of investment you have the resources to support!
Of course all investments take money, but some take more than others and qualify for different types of financing. Unless you're paying cash. Here in DC, and I suspect across the nation, good mortgage brokers will be able to tell you what types of financing they offer and what projects they will fund. Find a good broker who understands what you are trying to do and will be honest about their capacity to support you. They should also be able to direct you to another broker or someone within their financial institution that can provide the type of financing that you need. Also consider other types of financing options and the financial implications they impose. Bear in mind hard money lenders and commercial lenders may be your only options depending on the project. Find out your options, weigh the pros and cons and commit to moving forward or altering your plans.
3. Know your numbers!
Every deal is not a good deal. It's important to know what you can afford to pay for a property, and what the final cash outlay will be. This includes settlement costs, construction costs, permit fees, commissions and any other expenses that might hit your budget. Determine what you want to walk away with and in what period of time. If you are looking for property to hold, how long are you able to hold it and with what expectation? If you are looking for rental property, what are the operating expenses and the rental rates you are able to charge? If you are looking to flip a property, have an idea of what construction costs are likely to be, how long construction will take and expenses to sell the property when it is ready to hit the market.
4. Know laws, permits and zoning regulations-or find someone who does!
There are many laws to consider based on the type of investment property you ultimately own. If you are considering building from the ground up or renovating an existing property, there are zoning and permit rules and regulations. If you are considering rental property there are landlord responsibilities and tenant rights. If you are buying a property through an estate sale or foreclosure, settlement attorneys are a must so that there are no complications in securing a free and clear title. I am not suggesting that you know everything, but you better have a team that works with you that can guide you legally and through the city requirements before you reach a path of no return (see #5).
5. Develop your team of local experts who can guide you to the end game!
I strongly recommend that after you have considered your temperament, financial capacity and narrowed your interest to the type of property you would like to invest in, that you develop your team. At minimum you should engage a local mortgage broker, financial strategist, attorney, architect, general contractor and realtor. I stress "local" and those with experience in the DC market. Local experts are able to navigate through the process and reach out to local contacts who can help ensure delays are minimized and financial goals are achieved to the best of their ability. It really is about who you know to get things done and minimize frustration in the city.
6. Find a real estate agent who knows the city!
I am not only talking about an agent who is licensed in DC, but has connections in DC and knows the ebs and flows of the market. An agent who is connected with other agents, developers, contractors and architects. Your agent should be the one person on your team that will help you find other people to answer the questions needed as you move forward with your real estate investments. They should be available to you frequently (within reason of course). Your agent should be looking out for your best interest and they should be able to tell you about activities in the market that may impact your investment. Your agent should help you find the best property to buy and help you sell your property when all is said and done. They can also help you find tenants for rental properties if you do not engage a property management company. Your real estate agent is your advocate from the beginning to the end!
7. Be ready to make an offer.....Quick!
You are not the only one looking for the best investment, so be ready when it comes to you. Have your financing done (pre-approved) and if you are paying cash have copies of your assets to present on request. Know your numbers-your acquisition and expense budget range in order to reach your financial goals. Bring your general contractor with you and have your Realtor write the offer asap. Many investors lose because they think they have time to consider a deal. Though this might happen occasionally, I would say 90% of the time it is not the case. In my experience Buyers and Agents have stalked a property in advance and have been provided one day to look at it. You cannot walk into the investment game in DC afraid to make an offer on the day you see a property. The market is tough, do your homework in advance - be prepared and be tougher!
8. Are you in a hurry?
If you're in a hurry, investing in DC real estate may not be for you. Of course this might contradict my previous note ( #7) that said you need to be ready to make an offer; but really it doesn't. In some markets you may have to wait and explore options until the right deal comes along. This might be due to low inventory which sparks competitive bidding (aka the DC real estate market). You may also be outbid on several properties before you finally are able to get your offer accepted. Don't lose faith if it takes a while to find the right investment and to have your offer accepted.
9, Stay engaged!
Now that you have the property of your dreams, it will not take care of itself. If you are not the type to want to be involved or can't be involved on a day to day basis, be sure you have considered this in advance and hire a property manager for your rental properties or a project manager for your construction projects. Something will happen daily, if not weekly that will need your attention. If you are not able to respond to questions or requests, this could cost you money in the long run. Go back to item #5 and be sure to include a manager as part of your team.
10. Be patient!
Most importantly, be patient! Investing in real estate is a process! Take the time necessary to get your financing in order, find your real estate agent and develop your team of experts. Wait until the right property comes along that meets your investment criteria. Once you find and secure your property, stick to the timeline set for your return on investment and know that external factors may affect it. Have a contingency plan. If you have followed the 10 steps to move forward you should be in a good place to invest in DC.
What Next-subscribe or call?
So if you are ready, willing and able to step into the DC real estate investment game and need resources to help in any of the ten areas identified, subscribe to my newsblog which will feature guidance and guest authors who will help you through the process. You can also give me a call to schedule a personal consultation at 202-823-9313. As a project manager for DC real estate residential construction, experienced in locating great properties to fit all types of investment portfolios and connected to many of the resources you will need to get started and move forward; I am happy to help you navigate through the process. But before you call or sign up, be serious about moving forward. There is no time to waste and money to make!
Cheryl Shaw is a Metro DC Realtor with GreenLine Real Estate LLC in Washington DC. She works with local developers and real estate investors in the DC metro area. Visit her website at www.shawsellsdc.com