WWYD: keep DC rowhouse in Shaw as investment?

[Anonymous]

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?

[Anonymous]

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.

[Anonymous]

Nope. I’d sell and buy your next place using the equity.

[Anonymous]

Agree with PP--keep it! And, yes, use a management company.

[Anonymous]

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.

[Anonymous]

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.

[Anonymous]

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.

This is the OP. I am not sure what this means "the cash flow is so positive on it to start". I am new at the investing and finance game but trying to learn. Thanks!

[Anonymous]

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.

[Anonymous]

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.

This is the OP. I am not sure what this means "the cash flow is so positive on it to start". I am new at the investing and finance game but trying to learn. Thanks!

If you can get $4k/month in rent, you're clearing almost $2k/month in cash flow. You won't actually make $24k/year, because you have to budget in repairs, vacancies, etc., but you're starting from a very good place.

[Anonymous]

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.

It's certainly possible but you're still paying off the mortgage with someone else's money, and making additional money on rent besides. It's not risk-free, but like I said I know a lot of people who started with much worse numbers and came out ahead. Also the fact that it's a rowhouse means it will be worth more on resale than keeping a condo as a rental (OP will have the option of selling to regular buyers and developers).

[Anonymous]

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.

This is the OP. I am not sure what this means "the cash flow is so positive on it to start". I am new at the investing and finance game but trying to learn. Thanks!

NP - it means that the rent far exceeds the mortgage payment, and expected maintenance costs.

I agree you should keep it. Four years ago, we were faced with the same choice, and chose to sell our place in Columbia Heights. We made a ton of money on it, and that helped with respect to the new house purchase, but it was the wrong decision.

[Anonymous]

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.

[Anonymous]

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.

[Anonymous]

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.

[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.

But if they sell the rowhouse, they’d put the money into their new house, which could also drop. As could the stock market. That’s why people diversify.

OP, being a landlord is surprisingly polarizing on this board, but we’ve had a good experience overall. My advice would be to get good tenants with high credit scores (over 700), have a minimum income (verified by W2 or pay stub) and we even gave a discount for having a security clearance. Be willing to wait a few extra weeks for the right tenant. Go with your gut.