Buying a home in a transitional Baltimore neighborhood (Madison Park, Middle East, or neither?) (for sale, real estate market)

[grad.student.homebuyer]

My fiance and I are looking to buy a house in Baltimore. Our favorite houses so far have been in transitional areas, right next to nice or up-and-coming locations. As a grad student that will be in Baltimore for at least another 4-5 years before graduating, buying a house for less in an area that will probably increase in value by the time we leave is an attractive option.

So far our favorite homes have been on Madison Ave. in the Madison Park neighborhood, on Broadway Ave. near the future Hopkins Biotech park, and just south of Orleans St. near the northwest corner of Patterson Park. We've been turning over the merits and pitfalls of each of these areas for a few weeks already, but it's difficult to make the final call.

Does anyone have any input or advice to help us with this decision?

[HandsUpThumbsDown]

It's not a bad idea, but I would hedge your gamble by taking on roommates (perhaps friends from your program). Truth is there is really no way to predict with certainty what will appreciate in only 5 years. Five years is a long time in NYC or Washington but is just a moment here.

You also have to be realistic with yourself on how averse you are to the pains of living in such a place. Nearby shootings, drugs dealt in close proximity ... that sort of thing. You'll surely become involved on the neighborhood board, which is a good thing.

If you can buy low and get ahead on your mortgage without getting bogged down in repairs, it could be OK. But there's a good case to be made for simply renting, as well.

Additionally if you're with JHU you can get significant grant money: http://web.jhu.edu/lnyw/neighborhoods.html

PM me if you want any personal insight.

[MrRational]

Originally Posted by grad.student.homebuyer

...buying a house for less in an area that will probably increase in value
by the time we leave is an attractive option.

On the surface at least. Yeah, it sure seems like it would be.

Does anyone have any input or advice to help us with this decision?

You don't your mention income or level of wealth in order to afford the skilled professionals
and of course to buy all the correct materials needed to do the level of work needed.
Estimates are never correct.

Research the distinction of discretion vs valor

[remstone]

Those areas are three pretty different house sizes, and three different levels of investor profile. I'll make the assumption you haven't been in Baltimore that long to see where each neighborhood might fit on the "likely bargain" scale.

NW of Patterson Park has been on the investor radar for a while, with everyone kind of waiting for the good feeling to break north of Fayette. Rehabbing has proceeded even during the slump, with lots of foreclosures too. It's basically guaranteed that the area will improve, possibly even in your 5 year horizon. But your likelihood of getting a bargain seems lowest - you have lots of competition here. You'd have to be doing a lot of serious work yourself, or getting a great foreclosure deal (which was probably owned by an investor who didn't finish, meaning it needs work too) to make money. You might also have the greatest chance of breaking even here, but you might feel like you suffered for five years.

Broadway saw some rehab but a lot more speculation. Houses are bigger, sales prices don't really support rehab yet, but everyone is wondering what the effect of Hopkins might be. I haven't been there much in a few years to say how Broadway feels, but the neighborhoods on both sides are still pretty rough (despite some real money getting poured into Oliver). I also don't see much for sale beyond shells, and those are probably overpriced at $40k. If you got a bargain on a livable house then maybe it makes sense. But the future state of this area is the most uncertain of the three.

Madison Park has the biggest houses and probably the least speculation at this point. It's not really on investors' tongues as a "hot neighborhood," for better and worse. The most likely event to change that will be the future redevelopment of Pedestal Gardens and some other subsidized housing on Eutaw, which has a fairly uncertain timeline. I think it's a decent neighborhood, with some drug impacts especially, but good enough for our congressman to live in. The big houses are probably worth the $200k and up they go for, but that won't leave much chance of making money. I see one listed for $70k and wonder about the condition - probably a bargain if you can do some work. There may be a foreclosure or two hiding around, but your search window is pretty small and you can't expect too much inventory. A roommate is a good idea too.

[Tallybalt]

People who bought five years ago and need to sell now have certainly lost money on their houses. In many cases a great deal of money.

If the market remains flat over the next five years, that hides the losses due to property taxes, inflation and maintenance. You need to offset that against money lost due to rent.

There are "up and coming" areas of Baltimore that have been "up and coming" for a long time. Check out the Reservoir Hill thread on this forum.

If you're a graduate student without a steady source of income and with expectations of moving away from Baltimore in 4-5 years buying a house in a flat real estate market is a serious gamble. My son's MBA professor pointed out that when you add up the cost of buying a house (real estate fees and taxes) with the cost of maintaining the house and property taxes along with that the bulk of your mortgage in the early years goes to the interest, people who buy and sell within five years tend to lose money. It's only in a steadily appreciating market that it becomes worth it and people who bought in 2000 and sold in 2005 made out like a bandit, but those five years were the exception not the norm. With the US economy still in a shaky state, the likelihood that interest rates will go up in the next five years and changing demographics where younger people are increasingly mobile and more reluctant to buy properties that ties them down I'd be reluctant to invest in "up and coming" areas that would cater to young homeowners.

A friend of my wife is one of the most successful real estate agents in the region and she mentioned at a recent dinner party that what's happening to the real estate market is that rather than across the board trends we're now facing an era of different trends for different subsets of the market. A stable family neighborhood with good schools is one scenario with its own trends. A long-term investment (10+ years) as both homeowner and landlord is also a scenario. But neither are relevant to your situation so you should be careful about how you proceed and not assume what works in one neighborhood or city can be applied to different kinds of neighborhoods or other cities.

[Woodlands]

Some good advice being offered on here... Forcasting the next 'Hot' neighborhood in Baltimore is a difficult affair... If you look at areas like Canton and Fells Point.. On could argue that those neighborhoods were stable long before the Harbor East and related waterfront development.. In fact their stability may have been part of the reason for the success of those developments as opposed to the other way around. Same for Hampden. In Baltimore.. stable neighborhoods that are not in decline tend to be the next "hot" neighborhoods because there is something desirable to build up from.. Look at Westport in south Baltimore... On paper it should be like Canton, Federal Hill, or Fells Point.. Its close to the water, downtown, has a transit stop, and is right off of I-295... However if you go there or to Cherry Hill you will not find the same stability or foundation that has made Canton or Fells successful.

Even with some of the incremetal improvements.. north of Patterson Park as described by others.. Its house by house by house which means it could take years to get to the block you purchased in at a 'deal' in a block far north of Fayette.. The jury is out on the Hopkins development in Mid East... Will Hopkins spur more redevelopment or will it simply become a fortress and everything just outside its gates being no better than what is 12 blocks north of it???? It may be more prudent if using this approach to find a foreclosure or an unimproved home in one of the adjoining "established" neighborhoods and to make the improvements/ repairs yourself over time.. So instead of Madison Park.. choose Bolton or Reservior Hill.. Instead of Mid East.... consider parts of Patterson Park, Highlandtown where prices vary depending on the street.

I certainly believe that you should buy what you can afford (and makes sense) and where you feel most comfortable/safe and not totally on speculation (not saying that you are doing speculative buying) because if you love where you live and are involved in your neighborhood... Its likely others will join you in that effort and thats what creates "value" certainly from a personal level.. which often then translates to monetary over time..Patterson Park area is a prime example of this.......

[mrboltonman]

I would run the numbers to see if it makes sense. Definitely include property taxes, renovations costs, down payment, etc. Once you have the monthly expenses to own then compare it to an apartment in the same area.

Rough/Quick Example:
Madison Park -

Rent
2 bedroom $900/month - no utilities

Purchase $150k
- 30k down (could get like $100/month @5% APR)
- HOI like $100/month
-Maintenance $120/month
-Property taxes $280/month
-Interest $550/month
~Total $1150/month (at first interest is most of payment then it drops)

At this price in good condition I would say your monthly costs will be even (rent vs owning). If the property appreciates then you could make money but closing costs (buying and selling need to be calculated) will to subtract from any potential profit. If the property value is flat/depreciates then you lose or the tax payer does it seems to you decide to walk from the property.

It's not easy to make a buck.

[Woodlands]

Originally Posted by mrboltonman

I would run the numbers to see if it makes sense. Definitely include property taxes, renovations costs, down payment, etc. Once you have the monthly expenses to own then compare it to an apartment in the same area.

Rough/Quick Example:
Madison Park -

Rent
2 bedroom $900/month - no utilities

Purchase $150k
- 30k down (could get like $100/month @5% APR)
- HOI like $100/month
-Maintenance $120/month
-Property taxes $280/month
-Interest $550/month
~Total $1150/month (at first interest is most of payment then it drops)

At this price in good condition I would say your monthly costs will be even (rent vs owning). If the property appreciates then you could make money but closing costs (buying and selling need to be calculated) will to subtract from any potential profit. If the property value is flat/depreciates then you lose or the tax payer does it seems to you decide to walk from the property.

It's not easy to make a buck.

Does the City give tax breaks on renos or just new construction......Taxes are certainly a dis-incentives.. but I know I am preaching to the choir on here.. When my lender calculated my mortgage payment.. he called and left me a message apologizing because he felt his staff had made a mistake on the taxes... He later called back (as I knew he would) and said with surprise.. Do you know what the real estate taxes are in Baltimore? That is outrageous...... He was more upset than I was at the time....

[mrboltonman]

Taxes are almost as much as my interest rate. It's ridiculously high but it is preaching to the choir here.

[HandsUpThumbsDown]

If the OP is affiliated with JHU, the financial assistance is substantial.