Washington DC Start-Up

I’m a new investor who is interested in purchasing and renting out SFHs for the long term. I live in No. Virginia where home prices have soared in the past several years. I’d like to stick to my own backyard for my first few deals but I have read that as a rule of thumb monthly rent to purchase price ratio should be between 1 to 1.3%. With 3 bedroom homes in my area selling for $300,000 plus and rent rates around $2000 a month I can’t hit this mark.

Is anybody in the Washington DC metro area (or similar markets where home prices have out-paced rents) buying homes now and getting a positive cash flow on rentals?

Should I be looking at a different investment strategy (e.g. buy low, fix-up, and sell, or look at multi-unit housing where income determines value)?

Howdy Cwmalz:

This is a problem some investors are solving by coming here to Austin, San Antonio to buy property. Our prices are low and so is the rent but you can still cash flows on lower income houses and duplexes. I just saw a fourplex that rents for $2000 per month that could be bought for $125,000 and this was not a distress sale. A lot are not that good but with a little leg work they are available. Appreciation will come when the market turns and in the meantime you are not feeding the property monthly.

You do have a good point about your own backyard but you may even find the same problem with multi units as well. Cap rates are low in higher value areas and with low interest rates sellers are asking more for their properties giving the buyer less cash flow. In a sellers market too you have a lot against your trying to find good deals.

If you are good at rehabs you may want to buy and fix and resell but even there you may find it difficult too.