UT Reader Asks: Should You Buy If You Are Going to Leave DC and Rent Your Home?

by UrbanTurf Staff

image
Logan Circle one-bedroom for rent. Courtesy of Nest DC.

In this installment of UrbanTurf Reader Asks, a reader wants to know if it makes sense to buy a unit in central DC when he knows that he will likely leave the city.

I’m considering buying a one-bedroom condo in Dupont. I will likely not stay in DC forever, but I’d like to hold onto the unit indefinitely. I’ve heard conflicting advice about whether buying a place with the expectation of renting it out from afar is actually a good or viable idea. What do UT readers think? Is anyone doing this successfully?

Readers, what do you think? Post your thoughts in the comments section. If you would like to submit a question for UrbanTurf Reader Asks, send an email to .(JavaScript must be enabled to view this email address).

See other articles related to: urbanturf reader asks, renting in dc, renting, dclofts

This article originally published at http://dc.urbanturf.com/articles/blog/ut_reader_asks_should_you_buy_if_you_you_are_going_to_leave_dc_and_rent_you/8329

27 Comments

  1. Amy said at 11:37 am on Tuesday April 8, 2014:

    Assuming that your building does not have many (or any) restrictions on you renting your unit and you don’t need to sell it in order to rent or buy your next place, I would say do it.

  1. DDR said at 12:01 pm on Tuesday April 8, 2014:

    It is certainly doable but you should have a good plan in place as far as who is going to manage the rental while you are away.

  1. Uvaeer said at 12:57 pm on Tuesday April 8, 2014:

    As someone who did pro bono landlord-tenant law for a while in DC, I would say no. DC is very tenant friendly (which isn’t a bad thing) and there are plenty of complications if you try to sell when you are renting. I bought 4 years in ago in Dupont fully intending to sell when I move to a house in a couple years

  1. hannah said at 1:02 pm on Tuesday April 8, 2014:

    May I suggest Nomadic Realty and Property Management?  They are a realty/management agency that works primarily with government employees who often are deployed abroad.  I bought my house through them, and several friends rent their houses through them as well - which I will do when I’m deployed!

  1. Charlotte said at 1:05 pm on Tuesday April 8, 2014:

    The turn over costs between tenants can be very high and arranging the work is not easy. DC government is hostile to landlords so one bad tenant can be very costly. And there are many complications if you want to move back or sell. Short answer: dont do it.

  1. Jack said at 1:54 pm on Tuesday April 8, 2014:

    While I would agree with some of the negative comments (tenant rights, etc), I think the investment far outweighs it, especially considering the area.  DuPont is a highly sought after area, so finding desirable renters should be easy, as well keeping your property value safe.  There are a decent amount of co-ops in the area, so def check the rental rules for the property.  As an example, I bought a studio there about 2 years ago for about $230k.  20% down left me with a mortgage + fees of about 1400/mo, and Im renting it out for 1650/mo (and could probably get a little more).  If you do your homework on monthly expenses vs rental income estimates, and you don’t have co-op rules precluding you, do it.

  1. saladman8283 said at 2:54 pm on Tuesday April 8, 2014:

    I have seen many comments on this site over the years about DC being “tenant-friendly” and “hostile to landlords,” and I don’t necessarily agree. In my experience as a landlord, as long as you follow the rules carefully, and use common sense, you will be treated fairly.  A former tenant trashed our place—we kept his security deposit and he sued.  The DC Small Claims Court judge, and the mandatory mediator you must see before trial, both were very fair and reasonable.

  1. Anonymous said at 3:36 pm on Tuesday April 8, 2014:

    I second the comment about expenses vs. rental income. If you can rent at a significant profit, it may be worthwhile, but you have to consider tax on the rental, turnover maintenance costs, and having someone around to show it as well as manage repairs.

  1. Vered said at 4:03 pm on Tuesday April 8, 2014:

    If you have the choice of buying versus renting in the DC area you should always buy. The cost of renting here is disproportionately higher than buying, by any measure. You should be okay if you choose a solid property management group to support you in renting the property. Good luck!

  1. janson said at 4:11 pm on Tuesday April 8, 2014:

    The math for breakeven on investment real estate has about a billion pages and opinions splattered across the internet and real estate books. After a deep dive it looked to me like there’s sort of a band of consensus between aggressive and conservative that is based on a range of returns on capital plus a risk premium for intermittent capital costs, vacancy, and management over the long term: the standard expected carrying cost (prop tax, insurance, mortgage, fees) should be between 45% and 65% of rental rate. Obviously, this rule of thumb is useless in any one instance, but it’s interesting. As a Dupont condo owner in a building with 70% sublets, I’d venture that there is no place in Dupont close to that level of return available to purchase today. Obviously, there are people on my block who bought 20 years ago that have carrying costs that are 10% of rental rate, but we are talking about the future, not the past. There are tactics that can help - filing taxes as a “real estate professional” changes the way you write off depreciation, for example. But most amateur landlords would probably be better off in terms of risk management investing in a plain vanilla target date fund of index funds.

  1. Kate said at 4:18 pm on Tuesday April 8, 2014:

    Check the building restrictions on renting your unit very, very carefully.  If it’s an old building that doesn’t have any, check with the condo board to make sure they aren’t contemplating any. Owner occupancy and financing can get tricky.

    Be prepared to hire a solid property management firm that will handle the inevitable work that will need to be done.  You really don’t want to rely on your tenants to do it.  The worst experience I had with renting was with someone who clearly did not think the situation through and had no plan to make repairs.

  1. nunya said at 4:21 pm on Tuesday April 8, 2014:

    Not by choice, I have a rental property in another city that makes a little money and at some point will sell for more than I paid. I’m lucky. Great. However, what you have to account for is the use of the money in the meantime.  Had I invested the equity in a smart investment, the returns would be real - NOW.  Its about where you can get the most for your money with as little risk and uncertainty as possible.  While Dupont is a great bet, you can do better in the market in these days.

  1. Paul said at 4:24 pm on Tuesday April 8, 2014:

    A friend of mine just took a job in San Francisco. He has lived in the building next door for 6 years. He considered that he should rent out his unit rather than sell. But his dealings with property management companies suggested they wanted 2 months rent in fees the first year and 1 month rent in fees subsequent years. That sounds pretty steep and like it would cut way into your profits unless you bought your unit pre-bubble.

    While you can probably managing the property yourself and save that expense if you move out of it but stay in the area and rent it out… I don’t know if it’s realistic to think you can move far away and not have a property manager represent you.

  1. Dana Hollish Hill said at 4:46 pm on Tuesday April 8, 2014:

    One other thing to consider…

    The type of loan you have may also be a factor. If you used an FHA loan to purchase your condo, you will not be able to use an FHA loan to purchase a second home. You can only have one FHA loan at a time.

  1. mona said at 4:51 pm on Tuesday April 8, 2014:

    That is a hard call cause so many things can go wrong and you aren’t in the area to remedy them so you have to rely on someone else to make decisions about a substantially expensive investment you have made. If I had to do that and be out of the area I would 1) have a big cash reserve 2) property manager or someone you can trust to rent and show the place and if not property manager then pay whom ever it is cause they will deserve it 3)An excellent contractor who you can rely on in the event of an emergency and isn’t going to try and hose you on prices and will show up to do the work. As for the laws in DC…when it comes to tenants screen, screen, and screen some more. Get credit score and credit report and go through it no matter what the score is. Do back ground check. Check if they have filled lawsuits against landlords in past. Doesn’t mean it wasn’t legit but if you see 50 in the past 2yrs(like I did for someone applying to rent my place) then probably a problem. Don’t be afraid to say no to potentially questionable tenant just so you can get the place rented. Keep the cash reserve so you aren’t desperate to get someone in there. Bad tenants can smell desperate. It is easier to eat a month of rent then to only get one month of rent over a year while you try to get them out of there, and that does happen.

  1. jag said at 5:33 pm on Tuesday April 8, 2014:

    I can’t imagine any ROI you’d get in Dupont at this point would be good enough to bother with the risk/pain/cost of being a landlord. You’re not going to be able to pick up a unit on the cheap, like you might in other submarkets. If there was some built-in equity from buying a distressed property, then maybe it’d make sense.

  1. Rick said at 5:36 pm on Tuesday April 8, 2014:

    @Dana Hollish Hill,

    You can have more than one FHA loan under certain circumstances. 

    In this instance, the borrower can obtain an FHA loan on his/her DC property.  If they were to relocate and re-establish residency in another area not within reasonable commuting distance (generally 50+ miles from the current principal residence), then they can obtain another FHA loan.

    Another instance that may be in play for condo owners with an existing FHA loan and wish to seek another FHA loan: an increase in family size.

    Yes, I speak from experience… Moved from a 1 bedroom condo in Logan (financed via FHA loan and kept as a rental) to a rowhouse in Bloomingdale (also financed via FHA loan) to Cleveland for a job transfer, where I obtained a third FHA loan.

    The trick is finding a loan officer that is willing to put in the extra effort to justify this FHA exceptions to the bureaucrats.

  1. Alex Sanderson said at 9:38 pm on Tuesday April 8, 2014:

    I’d advocate for doing it - and I would recommend Globe Trotter Properties (info@globetrotterproperties).  Highly respected company, far better rates and experience than competitors.  All have lived abroad and know the hardships one could face while owning and living far away.  Would NOT recommend Nomadic Real Estate, I have heard far too many horror stories about them.  Good luck.

  1. James said at 5:57 am on Wednesday April 9, 2014:
  1. Lisa Wise said at 9:18 am on Wednesday April 9, 2014:

    This is a great conversation.  In our experience, there really an answer for everyone.  People are right that it’s essential to review condo docs and rules to be sure you can use your investment as a rental. It’s also important to ensure that the building has appropriate reserves and a financial plan to handle common element and limited common element issues as they emerge.  Also, factor in the changing landscape of the city.  Neighborhoods like Dupont and Cleveland Park have always enjoyed a very strong rental market but housing stock tends to be more dated and (in our experience) renters are more and more interested in newer construction and building amenities. New “it” neighborhoods are also more attractive for many renters including NOMA, Logan, Shaw and Bloomingdale. This isn’t to say there won’t be people that want to be other neighborhoods - it’s just something to factor in if you are looking at property to invest in.  Another word to investors, make sure the unit has a washer/dryer.  We find time and again that units without them are passed over in favor of one that offers the convenience.  In all cases, being a landlord and investor requires patience, an un understanding that upkeep and maintenance are part of the equation and a bit of good luck.  All in all, we think it can really work for a lot of people.  Thanks to Urban Turf for linking to a Nest DC listing!  Good luck everyone! Lisa Wise, Owner, Nest DC

  1. Michael said at 10:03 am on Wednesday April 9, 2014:

    You should always know your building’s rental policy.  The District gives you 3 days to review the condo documents after you go under contract to find out this (and any other) information so you’re not burdened with a condo that doesn’t fit what you’re looking for.  If there’s something in the condo docs you don’t like, you can void the contract with no harm to you.

    Or, your real estate agent would be able to put in a phone call and ask what the rental policy is for a particular building (investor/tenant ratio, how close to the building’s cap, etc).

  1. Nat said at 10:44 am on Wednesday April 9, 2014:

    I can only speak from my personal experience, but this is what I decided to do. I loved living in Cleveland park but hated paying $1800/mo to rent a nice studio. I wasn’t positive that I would want to stay in DC “forever” but was pretty certain that I would be here at least a few years and would probably be ready to move into a bigger place by then anyway. I bought a largeish studio to renovate and live in for 1-3 years, and I expect it to easily rent after that time. For me, once I found the place, the idea of paying more than my mortgage and fees in rent without gaining any equity? In a neighbor hood where even the most conservative estimates mark property value increases at at least 5% per year? Crazy, especially when I think of selling my 200k condo down the road for a decent amount more and buying more space in another part of the country.

  1. DCisinmyheart said at 11:18 am on Wednesday April 9, 2014:

    If you don’t plan on staying anywhere close to DC I would say don’t do it. It is a lot of work (if doing it on your own- especially from afar), D.C. is very tenant friendly- making things difficult for landlords close or far sometimes when it comes to selling, evicting, etc.

  1. jag said at 1:19 pm on Wednesday April 9, 2014:

    “In a neighbor hood where even the most conservative estimates mark property value increases at at least 5% per year?”

    In Cleveland Park? Uh, no. Anyone who is banking on “at least” a 5% y/y return, “conservatively,” for any substantial period of time is absolutely drinking Koolaid. You sound like you’re from 2008…and about to learn the hard way your place will be worth the same (or less) in 2014. And probably 2018, too. Not to mention 5% ROI is still terrible, compared to other means of investment. I’m not anti-home buying, but Nat’s analysis is way off in a myriad of ways.

  1. Chettworth said at 11:08 pm on Wednesday April 9, 2014:

    I bought a 2br/2ba condo about 10 years ago near a local university here in DC.  I decided to keep it when our family began to grow and we moved. Renting to students (gasp!) has actually been more pleasant than you would expect. I have their parents all cosign and I keep two months of rent as a security deposit. Keep in mind with some condos they have in-unit matinence so if any issues arise, someone who knows the building in and out is almost always on site to deal with any problems.  If you can locate a building with a couple matinence and/or engineers on site, this has for me alleviated any undue stress. Best of luck but if you properly secure your investment it can be nice extra cash monthly.

  1. James said at 8:55 am on Friday April 11, 2014:

    @Chettworth: Tread cautiously. It is illegal to treat students differently than you would any other person. If you require two months’ rent deposit of students, you had better require the same of non-student renters.

  1. Charlotte 2 said at 3:21 pm on Wednesday April 16, 2014:

    One solution that both avoids the onerous DC tenant right laws and guarantees that you are maximizing your rental income potential is to rent your property short-term. As an added feature you can also stay in your own condo when you come back to DC for visits. LUXbnb is a property management firm here in DC that specializes in short-term rental management. http://www.LUXbnb.com. They do have condos in their inventory in several buildings. As many posters have said, you will need to check with any condo association for restrictions on rentals.

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