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Featured Market Spotlight: Washington DC

July 17, 2021•
Washington DC Market Spotlight For Real Estate Investors
Asset Based Lending is committed to helping our borrowers reach their financial goals through smart real estate investments, so our expert team has decided to highlight markets with lots of money-making potential. Each month we will do a deep dive into a real estate market that can benefit an investor looking to fix and flip, start new construction, or embark on some other form of real estate investing. This month’s market is the nation’s capital, Washington DC – a city that has seen exponential growth in its housing market as well as consistency in its rental market. DC is a unique market compared to other major metro areas due to its job permanency with government positions, making it a strong economic center that attracts middle- and upper-class renters and homeowners.

While demand to live in the city continues to rise, the available inventory is shrinking each day. March 2021 saw a 9% drop in homes available for sale from the previous year. To highlight how quickly and frequently homes are moving in the city: homes are spending an average of 32 days on the market before closing on a sale. As of March 2021, the number of pending sale contracts for units in Washington DC was 1,188, which is 59% higher than March of the previous year. With record low inventory meeting record high housing demand, there’s a wealth of real estate investment opportunities occurring in the city. We’ll touch on the major investment opportunities in the area based on current data averages from sources such as Redfin and Long & Foster.

Washington DC Multi Family Builds & Condo Conversions

The country is experiencing some of the hottest real estate markets of all time with lines around the block for open houses in prime areas. Washington DC is experiencing that kind of action right now-March 2021 saw 991 homes sold, which is a 31% increase from the previous month’s 756 and a 19% increase from March of the previous year. The city was already seeing record high home prices in recent years, but the pandemic’s demand coupled with inventory shortages have shot prices up even further. March saw the average home prices reach $657,262 which is a 6% increase from the previous year and easily the five-year-high for the city.

“Given the limited amount of land opportunities, many seasoned investors have turned to condo conversions to offset the lower profit margins we’re seeing in flips,”

New construction investments are becoming more popular, and necessary, than ever before. While the number of permits issued for single-family homes to be built continues to be slightly higher than previous years, the major increase has been the construction of multi-family properties in the area. Approximately 1,364 permits for new multi-family construction projects were issued during March 2021, which is a five-year-high for the city. Unfortunately, the cost of materials skyrocketing over the last year has made self-capitalizing some of these new builds prohibitive.

Scott Davis, our Area Manager for the DC market, has firsthand knowledge of how savvy investors are capitalizing on demand while keeping their costs low. “If you’ve submitted an offer in DC as of late, you’re probably painfully aware of the level of competition,” says Scott. “That goes for most densely populated areas but given the small size and lack of land to develop, it’s even more challenging in the District versus other areas just outside of DC.” The solution- rather than building ground up or spending the money on materials for small fix and flip renovations, invest in full condo conversions. “Given the limited amount of land opportunities, many seasoned investors have turned to condo conversions to offset the lower profit margins we’re seeing in flips,” says Scott. This kind of investment allows you to potentially hold the property as a rental asset or sell the units individually, giving you flexibility in your exit strategy.

If traditional fix and flips are more your speed, DC currently has some spots that could provide solid returns with the right investment strategy. One of the neighborhoods, like Trinidad in the northeast section, have lower property values and consist of mostly older, smaller homes in need of modern updates. These properties offer a lower barrier to entry cost for fix and flip investors looking for quick renovation projects if you can lock down the inventory. Keep in mind that projects are taking longer than expected due to material supply being limited and requirements like appraisals being backed up from volume.

Washington DC Rental Market Holds Steady

Many metro areas, especially in the northeast, experienced an increase in rental vacancies due to a combination of people moving away from cramped city spaces and a shift to home ownership over renting. However, Washington DC held steady throughout even the worst parts of the pandemic. Pre-pandemic in January 2020 the vacancy rate in the city reached 6.8%. Since that time it has dropped to 5%, which is well below the national average of 6.5% and highlights the strength of the city’s current rental market. While the average rent prices are overall lower year-over-year, the lowest point occurred September 2020 and has already rebounded. As of March, 56% of the population are renting their home for an average monthly rent of $2,058 which is approximately 1.5x the national average monthly rent. When compared to the average rent of other major metro areas in the area, such as Arlington and Fairfax, it ranks as the most expensive city of the bunch.

The consistency of DC’s rental market, despite the pandemic that caused other metro areas to flounder with higher vacancies and harsh price drops, makes it an excellent choice for buy and hold investors. Between the job sector permanency and consistent population turnover, Washington DC is one of the best cities for using the BRRRR method of investing.

Final Thoughts On Washington DC Real Estate Market

The District will always be a special market due to its uniquely regular population turnover and economic consistency. These factors cause its to almost always be a healthy real estate market, especially in the favor of real estate investors. Looking at the overall picture to understand the market demands and how to navigate potential deals with so much competition, led to Scott’s recommendation to look into condo conversions. By toeing the line between ground up new construction and a fix and flip, an investor could turn a project into a very profitable return. If you’re a real estate investor looking to use hard money loans for DC investments, then contact us today.



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