Earlier this year, I wrote about the question of renting vs. buying a home in D.C. In this column, I’ll address the other side of that equation—leasing out vs. selling a property.
Washington is a city with many small real estate investors holding one or two properties. Imagine that you’ve owned a rental town home for a while that has suffered from deferred maintenance, and that now needs an overall facelift to continue being rentable. You’re trying to decide whether to spend $100,000 on renovations or to sell the property as-is for its market value of $600,000. What should you do?
There is no absolute right or wrong answer to this question. Your decision will be informed by a number of factors:
• Your current financial situation—how much do you need the full amount right now? Are you using the property for current cash flow? Do you have all the money for renovation or will you refinance with a conventional loan to get a $100,000 cash out or will you wrap your existing loan into a 203k loan (with the renovation cost built in)?
• Your long-term financial situation—are you planning to use the property as part of your retirement, whether for cash flow or for a nest egg to sell?
• Your tax situation—Do you need the property as a tax shelter? If you sell now, will you do a 1031 exchange or will you have to pay capital gains?
• Your patience—Do you have the energy to manage a construction project (if only as the client of the general contractor) and all the many renovation design choices you will have to make?
From a purely financial aspect, the numbers are clear that you will do better to lease and hold rather than to sell and invest (unless it’s in another rental property). Let’s take a look at the numbers for a 15-year comparison, based on the chart here.
First, let’s consider the sales scenario, which is quite simple: Let’s say you sell the town home for the current market value of $600,000. With 8 percent selling costs (6 percent for brokerage fees and 2 percent for other fees, including the city transfer tax), that would leave you with net cash at settlement of $552,000. If you invested that cash in a fund paying 5 percent, after 15 years you would have $1,166,765.
Next, the rental scenario: For the sake of simplicity, let’s say you already own the town home outright and you have the ($100,000) cash needed for renovation. Doing the renovation will take three months, so that means (3 x $2000=$6000) in lost rental income, but your renovated town home will be worth $675,000, so let’s assume that you can now command $2700 in monthly rent for the renovated space. With monthly expenses and property taxes costing around ($1355), your monthly net operating income (NOI) is $1345. Let’s say that your monthly depreciation on your property is ($1818), which subtracted from your NOI gives ($473) in monthly taxable income. For a 35 percent tax bracket, that translates into ($166) tax savings per month.
If you invest your $1345 monthly NOI (net income after operating expenses and property taxes) at a 5 percent rate of return, in 15 years you will have $359,525. Over the same period, you will have saved $29,805 in income tax. At that point, your rental property should have appreciated in market value to $1,426,750, assuming an average 5 percent increase per year. (For Washington as a whole, average sale prices have appreciated 6.4 percent over the last six years from December 2009 to December 2015.) In order to end up with a cash-to-cash comparison, let’s say you sell the town home for market value at this 15-year point. With 8 percent selling expenses, that would leave you with $1,312,610. Adding together the 15-year value of the net operating income, tax savings, and net cash from the town home sale—and then subtracting the renovation cost and lost rental income during renovation—you would realize a net gain of $1,595,941.
In this comparison, leasing and holding yields a 36.7 percent improvement over selling and investing. But remember, your circumstances may not be the same as those assumed in these scenarios. Your best option is to consult your tax adviser, as well as a Realtor knowledgeable in investment properties.
Ted Smith is a licensed Realtor with Real Living | at Home specializing in mid-city D.C. Reach him at [email protected] and follow him on Facebook, YouTube or @TedSmithSellsDC. You can also join him on monthly tours of mid-city neighborhood open houses, as well as monthly seminars geared toward first-time homebuyers. Sign up at meetup.com.
Leather and lace in your home decor
From couches to countertops, add some flair
When I was very young, I would visit my maternal grandmother and marvel at the hand-tatted and crocheted doilies that adorned the arms and backs of her sofa and chairs. They were also found on her dressers and side tables, and on the dining table as coasters and placemats, to prevent scratches on the furniture. Like snowflakes, the designs of the doilies were both intricate and individual.
I’m convinced that people had better posture in the early 20th century, because I never saw the remnants of men’s hair tonic, Macassar oil, or pomade on Nana’s doilies, even though they were there to keep the furniture from absorbing those hair products. Certainly, people weren’t the couch potatoes lounging on sofas then that we are today. Being able to Netflix and chill was a long way off.
I was impressed with the amount of work that had gone into such a little piece of fabric, so I later tried to learn to crochet. Sadly, all I was able to accomplish was string after string, never having been taught how to join those strings together to resemble a doily. At least with knitting, I was able to form squares large enough to be blankets for my Barbie.
In my mid-century childhood, doilies were put away and saved for grandchildren who, years later, would neither want them nor appreciate their historical value. The ‘50s saw polyvinyl chloride (PVC) go from a commercial substance used frequently in post-WWII construction to a residential fabric that we now refer to fondly as “pleather.” I can still remember the sound of my thighs peeling off the vinyl banquette at the diner when I would get up to leave a booth.
To be without a leather couch in the ‘60s was déclassé and, although styles have changed, such a couch remains a timeless piece. These days, if you are looking for a little more leather in your life and in your home, you can look beyond that couch and chair, where options range from the subdued to the highly decorative.
While vinyl is still the least expensive leather-look fabric, we now have “bonded” leather, made with scraps that are bonded together using polyurethane or latex. As you can tell from the prices of such furniture, the actual leather used in the process can vary from 10-90 percent.
Of course, top grain leather is the most expensive, and we have suede, die cut, embossed, patent, and a variety of other techniques used to change the look of a hide. In addition, there is now vegan leather.
For something unique for your kitchen or bar, check out the tooled leather countertop from Kosel Saddlery (koselsaddles.wixsite.com/marty) in Montana. They also make saddles and chaps.
Instead of the shiny granite counters that we all know, MSI Surfaces (msisurfaces.com) makes honed and leathered granite finishes for a more subtle appearance and has dealers throughout the DMV.
For a do-it-yourself application, Amazon sells the Aspect brand eight-pack of leather glass, peel and stick subway tiles for backsplashes in five neutral colors for less than $20 each.
EcoDomo (ecodomo.com) in Gaithersburg offers a variety of custom leather treatments, including countertops, door and cabinet panels, floor planks and tiles, and wall systems. Your color choices aren’t limited to black or brown either. They can manufacture pieces in blue, red, green, and even in custom colors to match other items in your décor.
Many online stores such as Wayfair and Overstock carry real and faux leather headboards, footstools, poufs and benches at affordable prices.
There’s always something in leather at Pottery Barn, even for the conservative budget: pieced leather pillows, tufted stools, basket collections, and even a leather-bound coffee table book for cigar aficionados.
If you’re looking for small accent pieces, try a leather coaster, placemat, napkin ring, or my personal favorite, a cutlery pouch for your tableware collection from Lucrin Geneva (lucrin.com). They also offer office accessories such as crocodile desk sets, wastebaskets and storage boxes.
And for the connoisseur of leather, vinyl, rubber, or even neoprene items of a more personal nature, head to the Capitol Hill Hyatt Regency this Friday through Sunday for Mid-Atlantic Leather weekend. With plenty of specialty items, high-impact fashion, toys and games for all ages and yes, even custom-made furniture among the vendor exhibitions, you’re sure to find something that will tickle your fancy.
Just remember that you (and your puppy) must both be vaccinated and masked to attend. We take COVID (and rabies) very seriously here in D.C.
Valerie M. Blake is a licensed Associate Broker in D.C., Maryland, and Virginia with RLAH Real Estate. Call or text her at 202-246-8602, email her via DCHomeQuest.com, or follow her on Facebook at TheRealst8ofAffairs.
Winter Restaurant Week a welcome escape from the cold
Enjoy D.C.’s diverse culinary scene at great prices
Saving Washington, D.C. diners from winter doldrums, RAMW Winter Restaurant Week is back in action. It returns Jan. 17-23 with the motto of “Dine Out. Take Out. Eat Up.”
The city’s signature winter dining event is back as a one-week promotion focused on dining out and tasting the city’s diverse culinary scene. Yet it also is providing diners with newer programs that they have grown to love over the past few cycles. These include the popular “RW-To-Go” takeout dinner meals, outdoor dining spaces, as well as cocktail pairings, allowing diners to take advantage of a range of indoor/outdoor comfort levels and dining opportunities.
Participating restaurants are set to offer multi-course brunch and lunch menus for $25 per person, and multi-course dinner menus for $40 or $55 per person for on-premises dining. Most are offering the traditional three-course meals, while others may include extras.
Many restaurants will also offer the RW-To-Go dinner meals, a program introduced in 2019, available at two price points: $70 or $100 for two people and $140 or $200 for four people.
More than 200 restaurants across the area are participating.
“Our restaurants have shown resilience, creativity, and perseverance over the past two years, and they continue to count on the amazing support of loyal diners and newcomers through promotions like Restaurant Week,” said RAMW President & CEO Kathy Hollinger. “Designed to get diners out to experience all our great food scene has to offer, we have evolved this turnkey promotion to help meet diners where they are in terms of comfort. With offerings to include RW-To-Go, curbside pickup and delivery, heated patios, cozy igloos and indoor dining, there is truly something for anyone looking to support their favorite spot or try something new.”
New restaurants participating in Winter Restaurant Week include Ala, Bar Chinois, Bistro Du Jour, The Mayflower Club, Officina Cafe, Penny Royal Station, and Urban Roast in the District; Diabolo’s Cantina at MGM and Rosa Mexicano at National Harbor; North Italia Tysons; and the newest The Capital Grille location in Fairfax.
2021 RAMMYS Winners and finalists participating include Convivial, Cranes (also Michelin-starred), Espita, Estadio, iRicchi, and Sababa.
In the 14th Street and Dupont Circle areas, popular participating restaurants include Agora, Cork, Duke’s, Floriana, and Sushi Taro, among others.
Winter Restaurant Week also extends beyond core neighborhoods, stretching far past the city’s borders. Areas like Takoma Park and Bethesda in Maryland, and Alexandria and National Landing in Virginia, are also hosting participating restaurants.
Some spots are offering additional deals, extended timelines, and other options. “I’m excited about the creativity of our local restaurants,” says Hollinger, “with their offers and spaces that give diners great experiences during the promotion, and the flexibility to dine in the way that works for them whether indoor, in heated outdoor dining spaces or at home with our Restaurant Week To-Go program.”
For example, Ambar (both the D.C. and Clarendon locales) will have a $70 seven-course to-go menu for two people. The deal includes a bottle of wine in addition to the food.
James Beard Award-winning Chef Michael Schlow says, “This is a great way for Restaurant Week diners to experience more of our menu offerings, and perhaps explore some of our restaurants they haven’t tried yet. Plus, with [our] Restaurant Week extended an additional week through Jan. 30, there’s ample time to dine.”
Gay-owned KNEAD Hospitality + Design group is involving all its restaurants in the promotion. The group’s restaurants include Gatsby, Mi Vida, The Grill, and more. Owner Jason Berry notes that he is “excited to participate in this year’s winter restaurant week. Each year Restaurant Week brings new diners to our doors to experience the creativity and talent our staff continues to showcase at our restaurants.”
Recall that the city has reinstated mask mandates for indoor spaces. In addition, On Jan. 15, 2022, per Mayor’s Order 2021-148, the District of Columbia adopts a citywide vaccination entry requirement that requires COVID-19 vaccination to enter indoor facilities within the city. This includes restaurants and bars.
What to know if you’re buying or selling in 2022
Research interest rates, contractors now before spring arrives
The years 2020 and 2021 were wild on the books for real estate. Many successfully sold a house, bought a house, or sold a smaller residence and bought a larger one due to the new “needs” that they realized they had.
After a year or more of staying home, working from home, dining out (at home), studying from home, many just realized they needed a different home than the one they were sitting in. Many experts are saying that 2022 might be the year we go back to our “normal cycles” in real estate. If that is the case, then what does that mean?
It means that right now, first time buyers can find deals on one- or two-bedroom condos that are sitting on the market, and the single family home market is going to be ramping up in the spring, when more buyers are out in the streets and more homes are getting ready to go on the market. So, if you are thinking of selling this year, you might already need to be calling painters, carpenters, and other contractors to do those little projects that make a home ready for photographs and to be shown in its best light. Now that the holidays are over, many of the contractors we hire start getting calls, and their schedules start to fill up. As a Compass agent, we have the “Concierge” program that helps sellers to finance, at zero interest, projects that spruce up their home, and then it gets paid back when the home sells. I know other brokerages have some similar programs, also.
If you are going to buy a home this year, you might want to seriously look at how long homes have been sitting in the market in the neighborhoods that interest you. If the “days on market” are more than 20, 30, 40 or even 50 days, this might be your time to strike. Call a local lender or two and see what interest rate you can get and how much you can get approved for a loan. Interest rates could be going up this year, so you might want to get this done in the first half of the year, if your current situation allows.
At any rate, if you are thinking of making a move this year, feel free to sign up for one of my homebuyer seminars, or give me (or your favorite Realtor) a call and find out what you need to do to get ready to make this move.
Joseph Hudson is a Realtor with the Rutstein Group of Compass. Reach him at [email protected] or 703-587-0597.
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