The Pursuit: The Reality of Searching for an Investment Property

• August 14th 2012

by Shilpi Paul

✉️ Want to forward this article? Click here.

Charlie Dawson had big plans for his first home purchase.

Dawson, who moved to DC with his wife two years ago, had aspirations that mirror a lot of industrious buyers these days: he was interested in turning a dilapidated row house into a multi-family investment property, with one floor for he and his wife, a rentable basement unit and an addition rental unit on another floor.

Dawson, the Financial Services Policy Representative for the National Association of Realtors (NAR), thought he could use an FHA 203(k) loan to finance the renovations and qualify for a larger loan if there was a rental unit involved. Instead of taking out one loan for the mortgage and another for the rehab, the FHA’s 203(k) loan combines both into one. (Here is a quick primer). Though his position with NAR didn’t give him direct insight into the process, Dawson spent evenings researching the loan and talking to lenders.

When his search began, Dawson set his sights in neighborhoods all over the area — Capitol Hill, Petworth, Arlington — for a fixer upper in the $700,000 range. However, as Dawson took a closer look at properties that fit his parameters, a few roadblocks emerged.

First, the competition was fierce. Investors would show up to the properties he visited with cash in hand, hoping to turn a row house into a condo conversion or a new single-family home. Many of the listings would attract multiple offers, resulting in bids that rose well above the initial asking price.

Second, though Dawson liked the mathematics of turning a fixer upper into an investment property, the condition of some of the homes was intimidating.

“We found more than a couple that had actual foundation issues,” Dawson remembers. “When we went in and the floor was angled, it was hard to say ‘we can live here and get this all fixed up’.”

So, Dawson and his wife Amy broadened the search to include condos and single-family homes that didn’t meet their initial criteria. Out on the hunt one day, they came across a three-bedroom townhouse just off the H Street Corridor listed for $545,000. It had been renovated in 2004 and had a finished basement, a paved patio…and nice, even hardwood floors. After months spent gingerly walking through crumbling homes, Amy liked the clean, well-maintained home the moment she entered.

“She said ‘we should really get this one,” Dawson remembers.

The couple submitted an offer, which was accepted and they closed on the house last week. They plan to tweak a few things, like switching out the stove for a gas model and maybe updating the electrical system, but the house is essentially ready when they move in this weekend.

Ultimately, the scale of renovations necessary for the fixer-uppers that Dawson had in mind was just too much. But the dream of turning a run-down house into a money-maker is still alive.

“I think it’s a good idea if you can find the right place for the right price,” Dawson said. “But it’s probably better to do it as an investment, and I think I’d like to do it with a partner.”

This article originally published at http://dc.urbanturf.production.logicbrush.com/articles/blog/the_pursuit_the_reality_of_searching_for_an_investment_property/5904.