Investing in your future

(Photo courtesy iStock)

Early last year I began to see the investors tiptoe back into the real estate market. Like tap dancers, they started slowly and then finished the year with a grand finale. Now, they are clogging, Bristol stomping and performing Riverdance all over the city.

Don’t believe me?  Just try to buy a fixer-upper in Petworth or in the northern and eastern sections of Columbia Heights.

Now that potential profit margins are nearing obscene levels again, lots of people are anxious to invest in the D.C. market. Not all are seasoned investors. Some may want to buy a property to rent out, some may want a distressed property to fix and resell and others may simply want a home to live in that they can put their personal imprint on over time.

The challenge in helping the small-scale investors is that they may be unprepared for the competition they face and the money required to add real estate to their portfolios. As with any other transaction, having a real estate agent by and on your side is extremely important, but even we have no crystal ball to say for sure whether a particular investment will be profitable.

To illustrate the market competition, here is some information taken from the Metropolitan Regional Information System (MRIS), our area’s multiple listing database, for properties sold in 2012.

A three-bedroom, 1.5-bath row house on New Hampshire Avenue near the Georgia/Petworth Metro generated a lot of interest. The home had been foreclosed upon and was in reasonably good shape, with a large footprint and a basement ready to be finished. The bank listed it for $345,000 in June. The final sales price 37 days later?  $515,000!

Want to start a bit lower to allow for multiple offers and still stay within your budget? Of the eight homes listed for $250,000 or less in eastern Columbia Heights, 25 percent sold at the list price and 75 percent sold above the list price. Two stood out from among the rest, one in the 600 block of Harvard Street, which sold for 20 percent over list and the clear winner, one on the same block of Newton Place that sold for more than 36 percent above its list price.

Perhaps a one-bedroom, one-bath condo to rent to others is your desire: less maintenance, fewer headaches, easy to obtain a tenant if it’s located near a Metro, right? In Dupont Circle, expect to pay the list price, an average of $345,000 for 750 square feet or less. In Capitol Hill, not as condo-oriented as other parts of the city, you may get a bargain at 99.5 percent of list prices averaging about $327,000 for a similar size unit.

Whatever your preference, buying property as an investor can be a bit tricky nowadays given the tightening of the mortgage market. This is one area where cash truly is king, not to get a bargain as much as to beat the competition, leaving our hopeful homeowner with his pre-approved FHA 203K renovation loan in the dust.

Without a surplus of cash, financing your purchase can be tricky too.  A down payment of 10-25 percent will get you most any condo, but what about those of you who are looking to purchase and renovate a row house? Depending on its condition, it may not be eligible for traditional financing, so you may need to look to alternative, “hard money” lenders, friends and family, or personal loans, not only for the purchase, but for the renovation and holding costs as well.

Still game? Then consult with your agent about current rents and sales in the area you are interested in before you buy. Allow for cost overruns, vacancy rates and more time than you think you will need for each task on your to-do list. If you do your homework, understand the requirements and pitfalls and surround yourself with trusted advisers, you may soon be boot scootin’ gleefully down 14th Street.

Valerie M. Blake is with Prudential PenFed Realty, an independently owned and operated broker member of BRER Affiliates, Inc. Reach her at 202-246-8602 or Valerie@DCHomeQuest.com. Prudential, the Prudential logo and the Rock symbol are registered service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.  Used under license with no other affiliation with Prudential.  Equal Housing Opportunity.