WWYD: keep DC rowhouse in Shaw as investment?

[Anonymous]

I would do it in a heartbeat.

You’ll have an amazing asset with positive cash flow on the way to owning to outright.

We kept our first condo for the same reason and I am thrilled we did.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I would just because the cash flow is so positive on it to start. I know people who've kept their first house in DC to rent when the rent was just barely covering the mortgage at the beginning, and they look like geniuses 5 years down the line.

You can always sell it later if you find it's too big a hassle.

But what if the value drops and you lose 100k in equity? It’s possible.

This isn't some 4 BR, 2.5 BA on an exurban cul-de-sac. It may not increase as much in value, but it's unlikely to decrease, and it's still generating great rental returns.

It can still drop.

Thorough analysis there. Yes, it's possible. But there is literally no investment that is guaranteed to not drop. Keeping it in cash will even effectively drop because of inflation. But rental that is cash positive in a close-in neighborhood that has rapigly gentrified is a pretty good bet.

Also, think of it this way - for every $4000 rental payment, OP gets $2000 in cash, and $1000 is used to pay her mortgage. Thus, even if the property value drops $100,000, which is unlikely, she's protected because someone else is paying to increase her equity.

They probably have about $400,000 in equity now, if they sell. But say they keep it and rent it for $4000 - $2000 pays the mortgage ($1000 principal and $1000 interest), $1000 for expenses, and $1000 profit. That's effectively $2000/month (money paid to principal and profit). Even if it drops in value $100,000 in 5 years (and that's very unlikely), they're ahead of the game by $20,000.

[Anonymous]

OP, you noted that you can manage the DP on the new house without the proceeds on the rowhouse--but do you also have a mortgage on it? Remember that lenders will consider that debt as well in determining how much to loan you for a new house, and the rent will not count initially so you'd need to be able to (at least on paper) afford both mortgages on your current salaries. That math might work out fine depending on what you're planning to buy, but it's a factor to consider in addition to the downpayment itself.

[Anonymous]

There is a non-negligible chance that property values will fall over the next few years: how do you feel about that?
Do you have a good network of tradespeople you can call on in the event of plumbing disasters etc?

Faced with a similar choice, we decided to sell. Even though we would have made good money, I don't really regret that decision. I know that the stress would not have been worth it. A good mix of stocks and bonds is relatively stress free - it may appreciate more or less than the house in any event.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I’d keep it but not use the management company. They take a huge amount of the profit and some charge you for things like finding a handyman- which means profit you thought you have, You don’t. They list on Craig’s list just like you would.

Disagree with this. I rented a unit of mine without a mgt company and regret it. First off, there’s a lot of work involved. I think going through a mgt company means you get more normal tenants. Tenants seem less likely to try and mess with someone with the backing of a company. It shouldn’t work that way, but it does. You’d be surprised how challenging having a rental can be.

We have many rentals: an office building, a townhouse, a condo and 3 homes. What was the work involved that you had to do?

- list on Craig’s list
- show the unit (scheduled to happen with many people coming the same time and day)
- run credit check of applicant (get application online, credit check is paid for by them)
- get lease (online)
- let utility co know you have a tenant if necessary
- open bank account/create llc thru scc
-get security deposit
- change locks
- give key to tenant, walk thru (walk they list from online), get first month’s rent, sign lease, give garage door opener
- if tenant calls with problem: Plummer, electrical, etc - join nextdoor and get recommendation. Tell tenant who worker is and have them schedule it themselves. Tell tenant to pay, send a bill copy to you and deduct it from rent OR have worker call you to pay by credit card

This is pretty much it. Have money available for repairs.

[Anonymous]

I think strictly by the money there's probably a good argument it makes sense but you need to seriously consider whether you want to be a landlord and particularly a landlord in DC which has some of the tenant-friendliest laws in the country.

For example, did you know a tenant has the right to keep renting an apartment as long as they want, so long as they meet their lease obligations (and no, you can't double the rent as a way of getting rid of them).

Also, keep in mind that if you sell now, your capital gain will be entirely free from tax. If you rent for more than 3 years you lose that. Plus once you convert it to a rental you will start taking depreciation (good) and owing depreciation recapture tax when you sell it (not good).

If you are on the fence or need the equity I'd probably suggest selling, but if you are into the idea of having rental property for the long haul you will probably do pretty well.

[Anonymous]

Here is a good bogleheads thread on becoming a landlord--

https://www.bogleheads.org/forum/viewtopic.php?t=226980

[Anonymous]

Anonymous wrote:Do it OP! Very few people can afford a DP on a new place without taking money out of the old. Is the place in good shape? If so, id try renting without a management company at first. We do it and it really doesn’t take that much time. We hire repairmen for any needed repairs.

We only net 800 or so a month, so you are doing great.

We're in a similar position. We don't have a management company because we triage the problems and some of the repairs we can handle ourselves. One time, the thermostat needed new batteries, but the tenants said it was broken. A management company probably would have brought in a contractor. Same with the bathroom faucet (needed new O ring). We still live nearby, however, so this isn't a huge problem. I could see us switching to a management company in a few years when rent goes up a little more.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I’d keep it but not use the management company. They take a huge amount of the profit and some charge you for things like finding a handyman- which means profit you thought you have, You don’t. They list on Craig’s list just like you would.

Disagree with this. I rented a unit of mine without a mgt company and regret it. First off, there’s a lot of work involved. I think going through a mgt company means you get more normal tenants. Tenants seem less likely to try and mess with someone with the backing of a company. It shouldn’t work that way, but it does. You’d be surprised how challenging having a rental can be.

We have many rentals: an office building, a townhouse, a condo and 3 homes. What was the work involved that you had to do?

- list on Craig’s list
- show the unit (scheduled to happen with many people coming the same time and day)
- run credit check of applicant (get application online, credit check is paid for by them)
- get lease (online)
- let utility co know you have a tenant if necessary
- open bank account/create llc thru scc
-get security deposit
- change locks
- give key to tenant, walk thru (walk they list from online), get first month’s rent, sign lease, give garage door opener
- if tenant calls with problem: Plummer, electrical, etc - join nextdoor and get recommendation. Tell tenant who worker is and have them schedule it themselves. Tell tenant to pay, send a bill copy to you and deduct it from rent OR have worker call you to pay by credit card

This is pretty much it. Have money available for repairs.

This is horrible advice. First off, knowing DC rental laws this probably isn’t even legal. Your tenant is in no way obligated to coordinate and approve repairs to your unit. Most renters will balk at this for good reason. One of many reasons to rent is you don’t deal with repairs.

Second, having anyone spend your money and later send you a bill is a recipe for a disaster.

[Anonymous]

It really comes down to whether you and your husband are handy and want to be property managers, or not. It's not for everyone. But I agree with others that your numbers work out. Another thing to consider is if you sell in the next year or two, you will get a capital gains exemption. You'll lose it if you don't sell. Something to consider; once you lose the tax break, you need to hang on to the property and keep renting it out.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I’d keep it but not use the management company. They take a huge amount of the profit and some charge you for things like finding a handyman- which means profit you thought you have, You don’t. They list on Craig’s list just like you would.

Disagree with this. I rented a unit of mine without a mgt company and regret it. First off, there’s a lot of work involved. I think going through a mgt company means you get more normal tenants. Tenants seem less likely to try and mess with someone with the backing of a company. It shouldn’t work that way, but it does. You’d be surprised how challenging having a rental can be.

We have many rentals: an office building, a townhouse, a condo and 3 homes. What was the work involved that you had to do?

- list on Craig’s list
- show the unit (scheduled to happen with many people coming the same time and day)
- run credit check of applicant (get application online, credit check is paid for by them)
- get lease (online)
- let utility co know you have a tenant if necessary
- open bank account/create llc thru scc
-get security deposit
- change locks
- give key to tenant, walk thru (walk they list from online), get first month’s rent, sign lease, give garage door opener
- if tenant calls with problem: Plummer, electrical, etc - join nextdoor and get recommendation. Tell tenant who worker is and have them schedule it themselves. Tell tenant to pay, send a bill copy to you and deduct it from rent OR have worker call you to pay by credit card

This is pretty much it. Have money available for repairs.

The list you wrote is actually a lot of work. It involves numerous phone calls that can be a problem if you don’t have a flexible job. If you’re mananging your own property you need to be able to head over to the rental at any moment. Even just changing the locks requires you to get the new key from the locksmith and then deliver it to the renter. If you live or work in another part of town it can mean you need to take a few hours off of work.

However, the work isn’t what made me regret not using a property manager. I had a tenant who stopped paying rent and I had to evict. Just dealing with me made it extremely easy for the tenant to give me the run around. Dishonest tenants know that as an individual you have very little power to do anything. A management company is experienced in this, knows what they can and can’t do, and has a lawyer on retainer. The tenant know this.

My using a property manager is fine with you don’t have any problems. If it’s a strong rental market, you don’t require many repairs, and you have a solid tenant then you may be fine. But when you’re not it’s a huge headache.

Also keep in mind that credit reporting is lagging. Someone can be evicted on Friday, try and rent from you on a Monday and you wouldn’t be able to know they had any sort of problem with their previous landlord.

[Anonymous]

Anonymous wrote:My husband and I have a rowhouse in Shaw we bought in 2011 for around 600k. Houses on our block are now selling for 900k. We have one toddler now and the house is great, but if we add to our family in a few years, we will likely need to move somewhere larger. We've got about 125k saved now for our next down payment and are saving a little more than 3k/month to that fund. We could increase the monthly savings if we needed to, so we could probably manage a down payment on a new house without the proceeds from the row house.

Would you hang on to the row house as an investment? Husband thinks we can manage it ourselves, but we are two busy working professionals and will possibly have two kids at the time, so I want to hire a property manager. It is three bedrooms with parking, I am guessing we could get around 4k in rent, mortgage is $2186. What would you do?

I'd look really hard at vulnerability to flooding.

I'd find one of those Google flood maps and show what happens to the house if a storm pushes the sea level up 12 feet, and look at what happened to the neighborhood in the worst recorded floods.

If there could ever be any flooding issues, I think you should consider selling, no matter what other analyses show.

Even if you still want to invest in residential real estate, try to trade this property for a property far from where you'll own your primary residence, to reduce the odds a bad storm will take out both houses at the same time.

I'd also look at how this might affect college aid. I have the impression that real estate assets make calculating financial aid harder than owning financial assets does.

[Anonymous]

I'd do it, too -- but as others have said I'd get a property manager. You'll still do fine and remove all the stress involved. And, believe me, there's a lot of stress involved.

[Anonymous]

Anonymous wrote:I'd do it, too -- but as others have said I'd get a property manager. You'll still do fine and remove all the stress involved. And, believe me, there's a lot of stress involved.

This.

[Anonymous]

OP, I think you’re jumping the gun on leaving. You have a HOUSE. Unless it’s 600 sq ft, you can easily have two kids thru elementary there. We live in a 2 br apt with two kids and we’ll stay there until the youngest is about 6/7. I’d keep your sweet lifestyle, build more equity, and most importantly, cash in on super convenient and free, good early education for your kids. Really. You don’t need much and neither do your kids.