Home Buying Strategies in Washington DC: A Primer for Investors

According to the U.S. Census Bureau, the homeownership rate at the end of 2019 was 65.1%.

Despite how daunting it can feel, homeownership is possible for most Americans.

It’s even possible to turn home-buying into a lucrative investment. It’s known that up to 90% of millionaires have made their money by investing in real estate in one way or another.

If you’re considering buying a home, it could be the perfect time to follow through. Understanding what to consider when buying a house just takes a little time and research.

Read more to understand the best home buying strategies in Washington, D.C.

home buying

What to Consider When Buying a House

Home buying comes down to time, money, and effort.

It takes time to find the right home to invest in, and it’s just as important to buy a home at the right time. Buying a home takes a lot of money, and it’s essential to calculate your return on investment no matter how much you’ll be spending.

If you’re ready to invest in real estate, you need to understand that it will also take a certain amount of effort. The best investors stay on top of market trends, continuously view new properties, and work toward creating a lucrative portfolio. If done correctly, real estate investing could function as a full-time job.

Consider the following factors when you’re beginning your research into home buying:

  • Timeline
  • Personal finances
  • Wants and needs
  • Renovations and updates
  • Financing options

Now let’s look at D.C.’s specifics.

Understanding the Washington, D.C. Housing Market

As of Spring 2020, the D.C. housing market included a low inventory yet increased prices.

The median sale price had increased by 4% from previous years.

Limited availability doesn’t necessarily mean it’s easier to sell homes. If you’re a smart shopper, you’ll know to wait for the best deal. Unfortunately, the limited availability of housing means D.C. is experiencing a seller’s market.

In a seller’s market, home sellers have the opportunity to price homes as they please. In the meantime, buyers need to play the waiting game until they find the right house at the right price.

Purchasing an investment property is much easier in a buyer’s market, where you would have many more options. It isn’t impossible to invest in a seller’s market, though you may need to put in more research or even partner with a real estate agent.  

According to Redfin, the average homes on sale in 2020 are about $590,000 in D.C., and they’re usually on the market for 37 days. This constitutes a very competitive market. Compared to overall U.S. housing prices, this is nearly double the average median sale price.

A lot of home buying is about timing. If you’re new to home buying, it may seem beneficial to watch the market and wait for a buyer’s market to swing around. This can take more time than you’d like, however. Washington, D.C. homes have been on the rise for the past 10 years, and investment is getting more and more competitive with historical renovations and brand new developments.

The great thing about investing in a seller’s market is that you’ll be more likely to gain an ROI on any of the properties you buy and decide to sell.

The Benefits of Real Estate Investing

Like any type of investment, real estate investing is full of risk.

It is, however, known to be less risky than the stock market. By choosing to invest in real estate, you could benefit from stable, passive cash flow income.

Accessibility

One of the biggest benefits of real estate investment is that anyone can do it. It does take diligent research and smart decision-making, but it’s a straightforward process. Unlike the stock market, you have tangible proof of your investments and can see exactly what you’re paying for.

Real estate investing has become more accessible to everyone over the years because home buying has become more lenient. Depending on your credit, you could put down as little as 5% on a down payment, which opens the doors to multiple types of properties.

Multiple Types of Income

Another beneficial aspect of real estate investment is the ability to see multiple streams of income.

One of the easiest ways you can make money is by renting out your property. At the start, your renters could be helping to pay your mortgage. Once the property is paid off, the rent they pay becomes continuous cash income. Renting is best when you partner with a property management company to take care of coordinating with tenants.

You can choose to rent out the entire house to tenants or benefit from house hacking. This form of income is where you live on part of your property while renting out a portion. It might protect you from potential tenant damage and also helps save costs.

Another great way to make money is through REIT income. REIT stands for Real Estate Investment Trust. To make money through a REIT, you need to own stock in it, which gives you a small piece of ownership over many different properties. The rent gained from all properties in the REIT is divided and distributed to all stock owners.

Lastly, allows you to make money even if you do nothing. Buying property in an up-and-coming area means your property will probably appreciate or gain value. You could purchase a home, wait for the community to develop, and sell at a price significantly higher than what you paid.

Setting a Timeline

Before you begin your home buying process, set a realistic timeline. This should include how much time you’ll need for research and budgeting as well as the ideal buying season in your location.

In most cities, the busiest home buying seasons are in spring or summer. This could be due to a variety of factors, but it’s usually because it’s easier to move in warmer weather. Also, many buyers are families looking to settle down before the start of a new school year.

Choosing to search for a home in the busy season means you’ll have more options, though you’ll also be faced with more competition. If you’re faced with poor credit and a limited budget for a down payment, you may benefit more from searching during a down season. It may take longer, but you’ll have more of an opportunity to sell yourself as a buyer against limited competition.

Your home buying timeline should also include the following activities:

  • Finding a real estate agent
  • Starting the mortgage process
  • Looking for additional financing options
  • Researching the market and areas where you want to focus
  • Visiting homes
  • Placing offers and negotiating

Overall, we recommend starting the whole process at least a year before you wish to have purchased a house. Even if you set a time range for when you’d like to make a purchase, it’s best to feel as least rushed as possible.

Home buying is different for everyone, but it should take as much time as it needs for you to find the right home.

Evaluating Your Finances

After you set your home buying timeline, it’s essential to evaluate your finances ahead of time.

First, get an updated credit report. You can do so for free online through a variety of sources. With your credit score and report, you’ll be better equipped to apply for a mortgage. The higher your score, the easier it will be for lenders to approve you for a loan. Furthermore, you’ll benefit from lower interest rates.

Next, put together a personal budget for the out-of-pocket expenses you’ll have to account for when purchasing a home. This includes the down payment and closing costs.

The down payment may range from 5% to 20% of the total cost. Closing costs include everything involved in the administration of purchasing a home. Account for legal fees, title insurance, taxes and homeowners insurance.

Aside from the costs that you’ll need upfront, you should also budget for at least a year’s worth of all the initial maintenance costs. Your first year of owning a home will usually be more expensive than the rest. Even if you aren’t doing full renovations, you’ll likely need money set aside for small improvements or even things like new furniture and decorations.

Listing Wants and Needs

Before researching homes, put together a list of everything you want and need. This list should help you prioritize what to look for in each home.

Consider the following questions:

  • Are you looking for a home, condo or multi-family unit?
  • What type of tenants are you looking for?
  • Would you be willing to rent to college students and young professionals, or are you looking for a family home?
  • What type of community are you looking for?
  • Do you want a home that’s part of an HOA?
  • Will you be hiring a property manager to coordinate with future tenants?

This list isn’t exhaustive, but it can help get you started. Some of the most important aspects to think about are location and tenants.

If you’ll be relying on tenants as a form of income, you may want to invest in a newer property or an older home that you can afford to update. As tenants come in and out over the years, it’ll be easy for the property to depreciate.

If your goal is to purchase multiple properties for rent, you’ll also need to prioritize a proper property management plan ahead of time. You may also benefit greatly from a property management company that can easily handle everything for you.

Renovations and Updates

Evaluating renovations and updates should be a part of your budget and list of wants and needs. It’s important to think about renovations as a separate factor because they’ll require a sizeable chunk of your budget as well as a lot of planning.

When you’re evaluating each home, consider any aspects of it that you’d like to change. Is anything outdated? Making updates can help improve the value significantly so you’ll gain a bigger ROI if you eventually sell. Furthermore, updates and improvements will allow you to raise the rent to the quality of living that you’re providing.

As you’re moving forward with the home buying process, it’s beneficial to have a contractor who you can call to ask questions. As a general rule of thumb, your renovations should be within your overall budget and they should only help appreciate your property value.

If you’ve found the perfect home but the renovations you want to complete are too expensive, it might not be worth it. Remember that investing means making smart decisions to help build your wealth rather than bring you closer to debt. 

Financing Options

No matter how much cash you have to be able to put down on a down payment, it’s essential to look into all your financing options.

Start by seeing which types of loans you can prequalify for. You should start this process before you find a home you want to buy. Prequalifying will show you how much you’re eligible based on your credit report and other factors. 

Once you’ve found a home you want, you can move forward with the mortgage pre-approval process. You’ll need a variety of personal documents, including your most recent tax forms, proofs of identification, your Social Security number, proof of address and more.

Keep in mind that a mortgage pre-approval isn’t a guarantee, but it’ll help you look more attractive to sellers. Before a lender can officially approve you for a loan, you’ll still need to place an accepted offer by the seller, and the home will need to be appraised.

Putting These Home Buying Strategies into Practice

Understanding what to consider when buying a house is the very first step to a smart investment. Everything else you do should work toward giving yourself the biggest ROI. Our best advice is to start small if you haven’t invested in real estate before.

Ask as many questions as you need, and take time to evaluate your wants and needs against each property. After putting in your due diligence, you’ll be on your way to the best buy strategy for real estate investing in Washington, D.C.

Contact Nomadic Real Estate to make your landlord experience as easy as possible. 

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