Temporary relocation to Alexandria... Rent or Buy? (Franconia, Springfield: real estate, foreclosure)

[raccoondawg]

Hi all,

I'm in the military and I'm relocating to Alexandria for work this summer. I will only be in Alexandria for 3 years before my next assignment, which is probably going to be in California.

I am considering buying a home in Alexandria because I've saved up enough for a large down payment and thought it would be a good idea to build equity towards a house instead of renting while I'm in NoVa.

The plan is to put about 200k down to purchase a 600k house, pay the mortgage/live in the house 3 years, then have a rental property manage the house after I move out in 2021.

This is assuming the rent I can collect in NoVa is high enough to cover the mortgage and other expenses so it won't be a huge expense every month. After the house is paid off in 30 years, it will become a vehicle for passive income.

I am a first time homebuyer thus don't have any experience.

Does this sound like a good idea? I do have concerns about dealing with the home after I move away. Is it difficult to have a property manager deal with everything 2500 miles away?

Would I be better off investing my money elsewhere instead of buying a home to become a long distance landlord after 3 years?

Is Alexandria a good location (homes are easy to rent out, home values likely to appreciate) to invest for my situation?

I would appreciate any advice and insight. Thank you.

[ersatz]

I own a house in the Alexandria area and move around a lot. Since I return to the area, I keep the house and rent it out via a property manager when I am living somewhere else. Some years I lost money, some years I broke even. However, I bought that house to suit my personal living style, not to make money off it.

If you want to purchase a property as an income generator, you need to carefully evaluate specific expenses for that house. If you google, you will find a number of guides to calculating cash flow for rental properties.

In my case, I had to pay carrying costs for when the house was not rented, advertising costs, landscaping costs to keep the yards and bushes in shape (the county fines if the property is reported as unkept). There often HOA fees or condo fees and special assessments. Once you have renters, some may break stuff frequently, which requires a service call and replacement parts. You may or may not know if you are being overcharged. In my case, the property management fee was 9% of the rent. Some Washington metro area property managers specialize in nonresidential owners such as the military.

Among the tax advantages are the ability to deduct mortgage interest from taxes and to take depreciation over 27.5 years.

In the Northern Virginia, there is a high rental demand from transient government and military workers. Our area is also famous for extremely high property costs. Prices vary by neighborhood and a lot of this is driven by (perceived) school quality. Yes, prices tend to appreciate, but that did not hold true in the Great Recession, when property owners took a real bath. So the answer to your question is, run the numbers very carefully for the specific properties you consider, and make sure you have a good financial cushion to absorb unpleasant surprises.

[rbkoreaus]

Congrats on having saved up the sizable down payment. Not sure what your liquid assets look like outside of the $200K you plan to put down, so I would just caution having everything wrapped up in your house.


With how transient the area is with military and federal employees, I doubt you would have issues finding renters, given the right location. Check out militarybyowner.com if you haven't yet. There's a large community of military and federal employees that network places for rent to one another. A number of these folks were/are in your situation and doing exactly what you're considering.

[HokieFan]

Which part of Alexandria are you considering?

My initial thought is that the market will be narrow for renters who can afford to pay rent on a $600k house. I very rougly estimate you would need to have a monthly rental rate of $3000 to cover the PITI mortgage + property manager's fee - and that's not considering the maintenance costs.

Ersatz has some good points about buying a property as an investment versus a personal home. If you're looking at this as from an investment standpoint, I would think about buying a less expensive townhome or condo which would open up your market.

As an investment, I would consider buying a foreclosure or a property that needs some cosmetic work, put down only 20% and use the leftover funds to make some cosmetic improvements. Then you might come out ahead.

[ACWhite]

Most houses in this area do not command enough rent to cover the mortgage, taxes, and all other expenses and capital investments, and provide a financial return.

[ChristineVA]

Originally Posted by ACWhite

Most houses in this area do not command enough rent to cover the mortgage, taxes, and all other expenses and capital investments, and provide a financial return.

I agree for a new buyer. I've been in my house over 20 years and I could easily clear $1,000 over my mortgage payment if I rented it. Maybe more.

[raccoondawg]

Thanks for all the responses, guys.

Originally Posted by HokieFan

Which part of Alexandria are you considering?

My initial thought is that the market will be narrow for renters who can afford to pay rent on a $600k house. I very rougly estimate you would need to have a monthly rental rate of $3000 to cover the PITI mortgage + property manager's fee - and that's not considering the maintenance costs.

Ersatz has some good points about buying a property as an investment versus a personal home. If you're looking at this as from an investment standpoint, I would think about buying a less expensive townhome or condo which would open up your market.

As an investment, I would consider buying a foreclosure or a property that needs some cosmetic work, put down only 20% and use the leftover funds to make some cosmetic improvements. Then you might come out ahead.

I'm considering the area around Franconia or West Springfield. That's a good point about buying a less expensive townhome which would open up the market of renters. I have heard people say that nice houses attract higher quality renters though, such as families looking to rent for the long term?

[ACWhite]

Originally Posted by ChristineVA

I agree for a new buyer. I've been in my house over 20 years and I could easily clear $1,000 over my mortgage payment if I rented it. Maybe more.

I was replying to the OP, who was considering buying now, and would have today’s costs.

Further, the calculation is different if someone has a lot of equity built up over time. She or he would need to think about what that equity could be earning for him or her, in alternative investments. Of course, this particular week, the stock market as an alternative, isn’t looking so good!

[boyd888]

Originally Posted by raccoondawg

Does this sound like a good idea? I do have concerns about dealing with the home after I move away. Is it difficult to have a property manager deal with everything 2500 miles away?

So you plan to rent the place you don't own yet out after three years with only 33% down living 2500 miles away with no land lording experience whatsoever

Being a small time landlord is not the cash printing machine you think it is. No way you get enough in rent to cover a $400K mortgage (with tons of interest), vacancy time, property manager, condo fee, repairs, taxes, etc etc. A $600K home will be nowhere near the one percent rule in this area.

I would just rent. You are planning on renting anyway in CA right? If you want real estate exposure look into some REITs.

[HokieFan]

Originally Posted by raccoondawg

I'm considering the area around Franconia or West Springfield.

Franconia and West Springfield are in Fairfax County (not Alexandria City).

Originally Posted by raccoondawg

I have heard people say that nice houses attract higher quality renters though, such as families looking to rent for the long term?

You may want to quiz real estate agents or property managers about this but it's my opinion that there isn't a big difference in quality of tenants if you're comparing somone who can afford $2200-$2500 a month versus $3000+ a month.

I think you'd be better off renting while you're in NoVA. I agree with Boyd that with your situation (first time homebuyer, eventually a long-distance, inexperienced landlord) and the high housing costs here, you'd be better off buying an investment property closer to where you'll eventually settle long-term if landlording is going to become your thing.

That's only my opinion though. I'm not an expert, just an observer.

We've been in our house for roughly 7-years. Refinanced it a few years ago at a lower interest rate. If we were to rent it out, we might break even each month after paying the mortgage and HOA fee. We would lose money after considering that we've replaced the heat pump, hot water heater, backyard fence, installed a french drain in the backyard, and the roof will need reshingling in the next year or so. Not to mention smaller ticket items such as we have the deck and siding power washed annually.