Are you looking to make an investment with a proven ROI? Look no further than buying rental property in Washington D.C.
Home to historical significance, a bustling city life, and picturesque backdrops, Washington D.C. is one of the premier areas to own an investment property.
Whether you’re new to the world of property management or are looking to expand your territory, this article is for you.
Here, we’ll cover 14 things you should consider when buying a rental property in D.C. Take hold of your winning spirit and let’s get started!
1. Washington D.C.’s Rich History
Before you think of buying rental property in Washington D.C., it’s important you know a bit about the area’s rich history. Not only is this a draw for many renters, but the historical significance is felt in many of the buildings and homes found here.
Some of D.C.’s houses were established in the Civil War era, dating back as far as the 1750s. Famous structures include The Linden’s home, the Old Stone House, and the William Brown House.
Most of these homes were once owned by wealthy, well-to-do families in the area — many with roots in local and federal politics. While most structures have undergone renovations and restorations, their historical significance still remains intact.
2. Historic Districts
Aside from the housing market itself, there are entire historic districts that still exist in Washington D.C., attracting tourists and residents alike.
Capitol Hill is one of the most notable areas and home to blocks of beautiful historic architecture. The largest of D.C.’s historic districts, this neighborhood was once called Jenkins Hill and is home to John Philip Sousa’s birthplace.
Lafayette Square surrounds Lafayette Park and the White House. This area was once home to many famous figures including Henry Adams and John Hay. Rich in D.C. history, you’ll also find the Decatur House here, which is one of the city’s most historic buildings.
Other notable districts that boast beautiful architecture and historic significance include Columbia Heights, Mount Pleasant, and Georgetown.
3. Washington Property Values Are On the Rise
Now is the perfect time to consider buying rental property in D.C. Why? The housing market is on the rise!
The housing market in the D.C. area has seen notable growth over the last 10 years, with the median home price rising a shocking 20%! In June of 2019, the median price for a D.C. home hit $621,000 — the highest ever in D.C. history.
Not only are investors renovating historical properties for rent, but new condos, apartments, and developments are popping up all over the city. Investors (and renters) have their pick of gorgeous renovated homes or move-in-ready new construction, creating a dynamic market.
5. New vs. Old
This is one of the greatest questions to ask yourself before investing in a D.C. property. Do you want a new build or are you willing to tackle a fixer-upper?
Not everyone’s prepared to roll-up their sleeves and put in the time, money, and effort it takes to renovate an older building. But if you’re willing to put in the work, it may pay off in the end.
Similar to the concept that the minute you drive a new car off the lot, it depreciates, the same can be said for new construction. Sleek, gorgeous new builds are priced high to start. Chances are, you’ll resell or rent the property in a price range where you break even.
Older rental properties that need a little TLC can offer more bang for your buck. That’s not to say you should invest in a money pit and hope for the best.
Find a rental property that needs a little work and a facelift, not a complete renovation. Also, choose properties that have classic features that never go out of style including open floor plans and position in a great location.
Just be sure not to strip the house of it’s historical, classic charm. After all, most renters moving to D.C. still want the traditional experience. Strike a design balance between new, luxurious design and original features.
6. New Builders Have Insider Knowledge
Your mother always told you to be a leader, not a follower. Unfortunately, when it comes to buying a rental property, following the masses has its benefits.
Unsure of where to invest in Washington D.C. rental property? Just look at where the builders and developers are going.
Builders often have insider knowledge about what areas are on the rise. If new condos and apartments are popping up, it means a real estate boom is sure to follow. And that’s exactly where you want to be!
In addition to residential builds, keep your eyes peeled for retail developments including malls, shopping centers, and sports arenas.
A prime example is the construction of the Washington Wizard’s new area and its positive impact on the Congress Heights area.
7. The Best of Both Worlds
One of the main appeals to Washington D.C. is that renters have access to both city and rural life. Ideal rental properties are located close enough to public transportation and city amenities but far enough away for residents to enjoy more peaceful surroundings.
Some up and coming areas include Park View, Riggs Park, Manor Park, Sheperd Park, and Brightwood. Rental properties that are close to the city but not too close offer affordable pricing for both investors and renters.
8. Consider Expenses
While there’s plenty of money to be had when investing in rental property in Washington D.C. you still need to calculate overhead costs and expenses.
If you plan to purchase a fixer-upper, calculate renovation costs in your overall expenses. A good rule of thumb for general operating expenses is that they’ll amount to 50% of your gross annual income.
To get a more detailed picture of what you’re up against, divide your expenses into two categories — operating and capital.
Operating expenditures represent all recurring expenses including insurance, taxes, property management costs, repairs, and maintenance, and vacancy costs. While most property owners calculate monthly rental income, they neglect to account for times when the property is vacant.
Remember, while your rental income is taxable, rental expenses are tax-deductible.
Capital expenditures are large-scale, unplanned expenses. Things like a damaged roof, property damage, flooding, plumbing issues, or replacing major appliances like heating and air conditioning units all fall under this category.
When buying and budgeting for an investment property, you must plan for the unexpected.
9. Property Management Options
Do you live or plan to live in the Washington D.C. area?
If the answer is no, that doesn’t mean you have to give up your dreams of buying rental property here. It just means you need to find a reliable, quality property management company to keep an eye on things in your absence.
When you can’t be on-site to oversee the everyday operations of your rental property, a management company can help. They’re responsible for collecting rent, handling tenant complaints, and even perform evictions.
In need of renters? A property management company can help with this too by marketing your rental property in the area, saving you time, money, and aggravation.
10. Choose Tenants Wisely
When it comes to choosing and approving tenants for your rental property, it’s okay to be picky! In fact, you should be selective when choosing potential renters.
The ideal renter fits the following criteria:
- Has stable employment or a reliable co-signer
- Shows substantial income to cover rent
- Has a history of paying rent on time
- Fits your lifestyle
- Clean, neat appearance
- No prior criminal record
- Is friendly, polite, and easy to work with
- Agrees to your conditions surrounding pets, smoking, etc.
The truth is, you may not know that you’ve signed a lease with an unreliable tenant until it’s too late. During the interview process, use good judgment, check references, and don’t be afraid to ask tough questions.
The Washington D.C. housing market is prime for families just starting out, singles, students, and retirees. With the right vetting process, you can find responsible, serious tenants that stick around for months or even years.
11. Consider Different Property Investment Strategies
Although residential rental properties are most popular among investors in the D.C. area, they aren’t the only option. Here’s a quick breakdown of the most popular property investment strategies to consider.
Traditional Buy to Rent
This is, by far, the most popular way to break into the rental property business. With the recent Airbnb craze, it seems everyone is renting out their homes or rooms to strangers.
Investing in a rental property is a much bigger commitment than welcoming local travelers into your home for a few days.
The buy to rent arrangement generally involves purchasing an apartment or condo rather than a house, due to lower costs and greater ROI. Tenant demand for apartments is generally quite high so, chances are, you won’t experience a shortage of interested renters.
Increased capital growth also makes this an attractive option strategy for those interested in resale down the road.
HMO investments (or Houses of Multiple Occupancy) are similar to traditional buy to rent arrangements except you can rent to multiple groups within a single building.
HMO owners see increased cash flow but are also tasked with managing multiple properties at once. This can become overwhelming for someone renting as a passive form of income.
It can also be difficult to secure property managers for HMO properties. If you plan to burden most of the workload, this type of arrangement can work in your favor. Just remember, it’s a big commitment that demands most of your time.
Investing in hotels is a completely different animal than a basic rental property.
In this situation, you purchase a hotel room (or rooms) and receive a kickback based on the guests staying in the hotel. Think of it as making income off tenants with much shorter leases. This figure is generally a percentage of the room cost over a specified number of years.
Hotels that charge hundreds of dollars a night can bring in big bucks, fast. The problem? You need to find a hotel that not only charges enough to make you money but one that’s busy enough and meets your standards.
Hotel investments are riskier than traditional strategies but also come with greater yields and less responsibility.
12. Timing is Everything
In life and in business, timing is everything. The housing market goes through ebbs and flows similar to the stock market. Before investing in a rental property, it’s important to monitor the market and time your purchase right.
One of the biggest indicators that you’re ready to enter the property investment world is that you’re financially stable. Don’t invest your last few dollars in a rental property and hope it works.
Buying a rental property takes careful planning, budgeting, and research. It shouldn’t be a rushed decision.
13. Be Aware of the Risks
Nothing in life worth doing is without risk. Although buying a rental property in the right neighborhood of Washington D.C. is a promising investment, you should always be aware of the unknowns.
The good news is, property investments carry a much lower risk than other investments. Identifying the risks is step one in preventing them and minimizing potential damages.
Some things to consider include your property depreciating, choosing unreliable tenants that end up costing you money, and negative changes in the surrounding areas. This is why focusing on up-and-coming neighborhoods with plenty of growth is crucial when choosing a rental property.
14. Establish an Exit Strategy
No one wants to start their journey into property buying rental property by already planning their exit, but this is an important part of the process.
Pay close attention to capital appreciation in the area. This is the potential growth in property revenue for the foreseeable future.
Creating an exit strategy guarantees that you get the most ROI. It also prevents you from continually dumping money into your rental properties until you’re too far in debt to get out.
Avoid this by choosing a predicted retirement date. How long do you want to work in property investments? This helps establish a timeline.
Next, decide how you plan to sell your properties — all at once, selling them as they decrease in value, or maybe selling them when they’re at the peak of the market.
Looking toward the future and creating an exit strategy helps you remain in control of your properties and assets.
Buying a Rental Property in Washington D.C. is an Investment in Your Present and Future
Are you considering buying a rental property? Have you considered doing so in the Washington D.C. area?
With a perfect mix of city life, historical significance, and rural beauty, this up and coming area is a mecca for renters of all kinds. From families and retirees to singles and students, people are scrambling for a chance to live in and around D.C.
Capitalize on this high demand by purchasing a rental property today. It’s an investment that’ll pay off now and well into the future.
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