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I have an opportunity to purchase a studio condo in Friendship Heights as an investment. I am considering it, and I wanted to hear some feedback from others as to whether or not you think this is a good idea.
The condo is small but adorable, about 500 sq ft in a well-maintained building with low fees (about $220 per month). It has hardwood floors and an updated kitchen with new SS appliances and a gas stove (no granite countertops, but that is an easy fix). Its walkable to the metro and lots of other shops/restaurants. The neighborhood is safe and quiet. The condo now has a tenant that pays $1300/mo with a lease til February and no plans to move. Laundry on site, but not in the unit (again, fixable as there is space to put a stack W/D. On street parking-- no dedicated space, but in that neighborhood I never had an issue (you can get a permit.) I actually lived in the condo for a while and know exactly what I would be getting. The layout is more like a jr 1BD than a real studio with separation between the living space, sleeping space and kitchen.
Now, here is the rub. The owner purchased the condo in 2005 at the height of the market for $215K. She put about 10K in to update the kitchen and bath. She tried to sell in 2011 with no luck as she couldn't recoup her investment. She is living overseas and is now looking to sell again. Similar condos in the area are about $200k. We both spoke with realtors and heard the same comps.
I have a few options if I want to go about this. I can purchase it outright as I have enough liquid cash, or I can finance for the tax shelter. I understand that the owner wants to get her money back, but I would be foolish to ignore the fact that there are other units in buildings down the street which are going for significantly less.
So:
1. Do you think buying a studio condo is worthwhile in DC? Would you make an offer?
2. What would you offer for this space if you were interested in purchasing it?
3. If you wanted to buy this, would you do so outright or would you finance?
I don't know about the market in DC, but I have heard that studio condos can be a rough sell. Most people tend to want 1bdrms. I would think about that in terms of resale value.
People who bought property during the super, hyper real estate boom of the DC market from 2005-2007 are
still recovering from their wounds. The blood is still fresh everywhere.
Don't buy a studio condo because it's a crappy investment even in stable markets. With more apartment development projects coming down the pike through out The District, the monthly lease rates should flatten a little and that's bad news for apartment/condo owners.
If you pay cash, maintain 100% occupancy and rent/costs track with inflation, counting condo fees, insurance, a modest maintenance budget, property taxes and tax benefits you're going to see somewhere around a 3% annual return on your investment (i'm eyeballing this). If you're okay with that return, and just that return, then I'd say go for it.
I personally wouldn't bet on a studio condo in an established neighborhood like Friendship Heights to be the most ideal candidate for significant appreciation in property value. In terms of potential appreciation, I think you're much much better off going with a fee-simple property in a neighborhood that is transitioning. I would put a portion of your liquid assets towards a downpayment on a townhome with an english basement and get two rental incomes from the property. Management is more of a hassle, but the return and potential for appreciation is better.
So my advice on the condo would be; look at the cash flow. If you decide that the return is satisfactory regardless of whether the property significantly appreciates or not, then go for it. It seems a little tight to me though, and there are better investment options out there.
As an investment, I think you can do better. I, however, disagree with the notion that studio condos are bad investments. There are a lot of factors that can determine whether it's a good investment or not, square footage, area, etc etc. If Zillow is to believed, my condo has appreciated about 45K in 2 years.
If Zillow is to believed, my condo has appreciated about 45K in 2 years.
Yeah, but that's because you're comparing to the absolute lowest point for RE valuation in this area in the past 10 years. We're just now resuming where we were, value-wise, about 6-7 years ago.
Overall, a condo is simply not a great investment - unless you plan to live in it for awhile, of course. Then it can be a much better choice than renting.
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