Risks and Rewards of Investing in Washington, D.C. Real Estate - Article Banner

Washington, D.C. is a city unlike any others in the world. It has history and politics, a diverse culture where people from all over the globe gather. There’s plenty to do, great public transportation, and a local economy that thrives on government, politics, education, advocacy, tourism, and lots of other industries. 

There’s a lot happening in the nation’s capital, but is it the best place to invest in rental real estate? 

Yes. Washington, D.C. is a rental market that provides a number of unique opportunities for investors. As long as you’re prepared for the risks and rewards of investing here, you can navigate the local neighborhoods and the tenant demands to have a very successful experience. 

It’s also important to work with an experienced Washington, D.C. property management company. You’ll have laws and regulations to grapple with as well as the challenges of finding good maintenance vendors and marketing platforms. Surround yourself with professionals, and you’ll be a successful real estate investor here.

Let’s take a look at some of the risks and rewards that can be found when you invest in real estate around Washington, D.C.

Reward: Diverse Rental Neighborhoods in Washington, D.C.

The city of Washington, D.C. is pretty huge, which means you’ll likely find something that fits your investment portfolio. If you’re looking for multi-family buildings where you can rent out several apartments or condos, there are thousands of them here. New construction buildings are also going up. If you’re more interested in single-family homes, there are dozens of established neighborhoods that well-qualified tenants find attractive. 

You have options for residential real estate, commercial real estate, large apartment buildings, small basement apartments, and even short-term furnished rentals if that’s what you’re looking to buy. There are plenty of options and an inventory that’s sure to give you something to consider. 

It’s also an excellent place to diversify a portfolio. If you’re looking to introduce different types of rental properties into your portfolio in order to better manage risk or motivate growth, Washington, D.C. is a great place to do it. 

Risk: Older Homes May Mean More Maintenance 

A lot of historic neighborhoods can be found throughout Washington, D.C. This is great for your tenant pool – a lot of renters will be looking for that history. Georgetown, Lafayette Square, and even Capitol Hill are neighborhoods teeming with older homes that have great architecture and beautiful views. 

However, it’s not necessarily great for your maintenance budget. 

Most investors know that maintenance costs rise with the age of a property. You may find yourself making repairs more frequently, and those repairs will come with a larger price tag than you may anticipate. 

The way to manage this risk is to invest in preventative maintenance and to gather a list of excellent, competitively priced vendors. Before you invest in a Washington, D.C. property, have a complete inspection so you understand your starting point. Talk to a property manager about the repairs and renovations that may be required to get it ready for the rental market. 

Invest in preventative HVAC inspections, roofing inspections, and an annual check of plumbing systems, electrical systems, and other functions at the property. This will cost you a little bit of money every year, but you won’t have to worry about large surprise maintenance bills over and over again on older homes.

Reward: Washington, D.C. Property Values and Rents are Rising 

The median home value in Washington, D.C. has risen 20 percent over the last decade. That’s some impressive growth on its own, and we’re seeing home values rise again even over the last year or two. You know that when you invest in a property here, that home is going to make you money in the long term. The housing market here is not going to sink any time soon. People are always arriving in Washington, D.C., looking for high quality rental housing. 

Rental prices are also trending upwards. Tenants are willing to pay for a property that’s well-located, well-maintained, and attractive. When we talk about location, there are dozens of great places that tenants are hoping to rent in. Some of them will insist on a Georgetown address, others like the activity in Dupont Circle or Adams Morgan. Near Union Station and Capitol Hill there are also great opportunities and rising rents. 

Risk: You’ll Pay More for a Washington, D.C. Property

While you stand to earn some great money in rents and in long term appreciation, entering the real estate market in Washington, D.C. won’t be cheap. You’ll need resources to make an initial investment, and the current market – like others around the country – is competitive and fast moving. 

At the end of 2021, the median home price in Washington, D.C. was $600,000. That’s considerably lower than in other large cities across the U.S., but it’s also a lot higher than smaller markets up and down the east coast. You’ll have to decide if you are willing to invest a large amount of money to enter the local market. You can likely get more for your money in a nearby place like Baltimore or Virginia. 

But measure the rewards against the risks. You’ll spend more now, but you’re investing in the unique opportunities provided by the DC market. 

Reward: Vacancy Rates are Dropping 

During the height of the COVID pandemic, Washington, D.C. lost a good chunk of its residents. But, people are moving back into the city now, and the vacancy rates are dropping. You won’t have to worry about losing money on long vacancy times when you have rental properties here. 

Vacancy is dropping and the homes on the market now are renting faster than they were even a year or two ago. Single-family homes, condos, row houses, and apartments in multi-unit buildings are renting within weeks of being listed, and in many cases – owners are dealing with multiple applications for a single property. 

In the current market, we have a huge demand for well-maintained rental homes and a supply that can barely keep up. This means there’s a great pool of tenants for Washington, D.C. landlords and owners. Rents are high, and investors won’t have trouble attracting good residents to their rental homes.

That’s a reward. 

But, rental markets fluctuate and there may be a time where things change. Rents could drop. Tenants could disappear. The type of property you own could completely fall out of favor with well-qualified renters. It’s unusual for such market trends to hit Washington, D.C., but as the pandemic showed us – it can happen.

That’s a risk. You have to prepare yourself for vacancy costs and turnover loss. These things are expensive, and often difficult to budget for. If you find yourself with an unoccupied rental property, the cost of keeping it up and marketing it to new tenants could be high.

Washington, D.C. Tenants are a Risk and a Reward 

Here’s the reward when we’re talking about the tenant pool in Washington, D.C.: they’re often well-qualified. They’re here for a reason, and they’re likely to stay in place for at least a couple of years. Most of them earn high incomes or they’re students with parents who can afford Washington, D.C. rents. They’re often responsible, conscious of their reputation, and committed to providing a good rental experience for themselves and their landlords. 

Tenants in this market are willing to pay higher rents for things like:

  • Ideal locations with parking 
  • Proximity to public transportation
  • Modern upgrades and updates
  • Building amenities such as fitness centers and pools
  • Concierge services such as package delivery

Tenants want to move in with their pets, so pet-friendly properties in Washington, D.C. are especially good investments. 

Finding tenants often won’t be a problem when you invest in a Washington, D.C. property. 

The risk is that these tenants will have high expectations. You’ll need to be prepared to meet them. 

Tenants will need good Wi-Fi. They will expect an immediate response when they have a question or request a repair. Cosmetic upgrades will be just as important to them as plumbing and electricity. 

If you’re investing in a high-end luxury home in Washington, D.C., you’ll have to pay special attention to the details that they’ll be looking for. 

Investing in Washington, D.C. offers a lot of financial rewards. It’s also less risky than a lot of other investment types and investment markets. 

But, it helps to be aware of the unknowns before you invest.

You might find yourself dealing with bad tenants who need to be evicted. It’s possible your property will depreciate faster than you expected. 

Understanding your potential expenses, knowing the local market, and working with qualified Washington, D.C. property managers will help you have a successful investment experience that’s less risky and more profitable. 

Property management is a huge part of the equation. Get in touch with a good partner before you invest in Washington, D.C. Then, you’ll understand the rental values, the maintenance costs, and the other particulars that come with owning rental property in this market. 

Work with InvestorsWe can help. Please contact us at Stripe Management. We work with owners, investors, and properties in Upper Marlboro, Prince George’s County, Washington, D.C., Capitol Heights, District Heights, Baltimore, and anywhere in the DC metro area.