Home Buying in McLean>Question Details

Erik J. Weis…, Real Estate Pro in Fairfax County, VA

Buying rental property in Fairfax, Ashburn, Reston area

Asked by Erik J. Weisskopf, ABR,CDPE, Fairfax County, VA Mon Jul 5, 2010

was wondering what my colleagues think...would you buy 2 investment properties at about 275k each or 1 for about 550?

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I'm basing this answer on my own personal experience plus that of my late partner's ( a 20-year in a row Top Producer and Multi-Million $$ Sales Club member).

How you make very serious money from rental properties is as follows: Buy single family detached homes in a location as close in as you can afford, spend money on maintaining them to attract high quality tenants, and hold them for at least 20 years, if not longer. Typically, you'll have negative cash flow for the first seven years or so, but the gains you'll make when you sell will be partially tax sheltered and far more tnat the sum total of your losses. Since 1945, this has been a sure-fire way to make lots of money.
0 votes Thank Flag Link Fri Jul 9, 2010
"Owner financing, for example."

Don,
Most properties that come with owner financing or rent-with-option-to-purchase tend to be overpriced - if they were priced correctly, most of them would sell as a traditional standard sale. One needs to be very careful when it comes to owner financing.

Of course, the question was asked by master of the trade so we have nothing to worry about :-)
0 votes Thank Flag Link Tue Jul 6, 2010
There are so many other factors involved.

Obviously, there's the question of rental income as Vivianne touches on. And as you know, while there's a general relationship between the price of a property and what it'll rent for, there are a lot of variations, too.

Then there's the question of financing. I'm guessing you're assuming conventional financing. But you can make your money go a lot farther with creative financing. Owner financing, for example. Or option a property rather than buying it. With your numbers, lease-option that $275,000 property for maybe $1,400 a month, then lease-option it to a tenant-buyer for $1,750 a month.

Then there's the question of what your ultimate goal is: Cash flow? Appreciation? A combination of both? There are some areas where properties will cash flow but appreciation may not be as good. Other areas (such as Ashburn) you might get better appreciation over the long term, but not have the cash flow.

Then there's the question of buying a good value. Would you rather buy two properties at $275,000 each with a fair market value of $550,000, or a $550,000 property with a fair market value of $700,000?

Two suggestions: One of the posters active on Trulia is Dp2--a real estate investor in Virginia. He's very good--get his feedback. And there are plenty of agents in Northern Virginia who know investing. Try Darren Marquardt with Long & Foster in Centreville.

Hope that helps.
0 votes Thank Flag Link Tue Jul 6, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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If you purchase the $550K property, you have to be able to rent out for at least $3,500 to break even.
[($550K x 5% x 360 months) + taxes and insurance)]. Of course, for investment property you must have at least 20% down. Do you think renters will be willing to pay $3,500 per month to live in a $550K home?
Just a rhetorical question.....

Of course, unless you purchase in time to get advantage of the low interest rates and find a great bargain.
0 votes Thank Flag Link Mon Jul 5, 2010
so based on the locations..Fairfax, Ashburn, Reston.decent investment property for 275k kind of puts you in the apt/condo situation which in turn gives you more competition from apt. complexes. Of course you could go older in Reston or sift through what's in Ashburn and still come up with some townhomes. My belief is Ashburn will be a slower recovery than perhaps what's in closer. For 550k I am thinking better location, better investment potential from appreciation and a better quality tenant.

I would love to hear more of your thoughts!
0 votes Thank Flag Link Mon Jul 5, 2010
It all depends on the condition of the properties, location, rentability, etc.
0 votes Thank Flag Link Mon Jul 5, 2010
Twice the work keeping 2 places up, running and rented.
0 votes Thank Flag Link Mon Jul 5, 2010
Vicky's right ... there's a lot more to it. But, all other things being equal, diversification is probably the better option.
0 votes Thank Flag Link Mon Jul 5, 2010
In general, two for $275K, but since we're talking investments there is a lot more that goes into that equation than just that.
0 votes Thank Flag Link Mon Jul 5, 2010
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