Your Washington DC Real Estate Investment Compass
All the ways you can house hack in the District... and how. Start here.
Real estate in the District is pricey, but has proven itself a solid investment over time. Smart home buyers are finding ways to offset some of the costs associated with ownership, while retaining and compounding the benefits. Here’s how:
House Hacking
Generate income from your personal residence. Live in one portion and rent the rest, either short-term or long-term. Ideally, tenants cover the mortgage, owner builds equity.
Fits Classifications:
One Family Rental
Shared One Family
2 Family Rental
3+ Family Rental
Fix And Flip
Purchase below-market priced property requiring updates, renovation or remodeling. Do the work and resell at market rate.
Fits Classifications:
All types
Buy And Hold
Buy and hold real estate is a long-term investment strategy primarily focused on value appreciation (equity build). The investor purchases a property and rents it for an extended period of time, often 5-10 years. Ideally the arrangement will provide annual breakeven after costs, or positive cash flow.
Fits Classification:
All types
BRRRR
‘BRRRR’ is an acronym for Buy Rehab Rent Refinance Repeat, a long-established real estate investment strategy. It is a form of Buy And Hold, branded with the acronym by Brandon Turner of BiggerPockets.
The strategy involves purchasing a property in need of rehab at under-market value, renovating, renting it and effecting a cash-out refinance in order to purchase another property, then repeating the process with each additional property, retaining all until it is beneficial to divest.
Fits Classifications:
All Types (but most effective with SFH and Multifamily)
Multifamily
Multifamily properties such as apartment buildings, 2-4 unit boutique rental properties, or duplexes offer multiple spaces for rent and thereby boost net operating income and cash flow. These properties can also realize outstanding equity build, if properly maintained and managed.
Fits Classification:
Multifamily
Which one is right for you right now? Let’s dive into more detail:
House Hacking
Buy And Hold (can be a house hack)
BRRRR (a type of Buy And Hold)
Fix And Flip
Multifamily
The DC Real Estate Investment Compass
Zuzu Notes:
Timing and planning your house hack often involves scaling. Many property owners initially begin with a basement rental in the home they occupy, later lease the upper floor, then expand to other methods. Or simply repeat!
Start With The Basics
Whether you’re investing in DC real estate as a side hustle or full-time business, understanding the local real estate market and fundamentals is key.
How I Help
Guidance and education
Off-market opportunities
Skill, experience and resources
Assembling A Team
Having a team of professionals in place will ease acquisition and management of your investment portfolio.
Your Realtor, lenders, property manager, contractors and vendors functioning as a team can identify opportunities, speed transitions, address issues, and increase profitability.
Important Supporting Information
The Washington DC Investment Compass
The details you need to step through the door.
1. DC Accessory Dwelling Classifications & Uses
Type: One Family Rental
Rental of single-family homes, townhouses, duplexes, individual condominium units, or individual rooms (including individual rooms in a residential building that the licensee also occupies).
Uses: Conversion
Convert a basement, attic, garage or room(s) into a separate rental unit, creating a two family, shared one family, or two family rental.
Type: Shared One Family
Rental of a single-family home to multiple tenants who share the property as roommates.
Uses: Detached Accessory
Freestanding structures on the same lot, separate from the primary residence.
Type: Two Family Rental
Rental of a converted basement apartment or carriage house in a single-family home where the main residence is occupied by the property owner, or another tenant.
Uses: Attached Accessory
Accessory Dwellings created by extending the main residence, either adding an apartment above a garage, building out an unfinished basement, or creating a separate addition.
Type: 3+ Unit Multifamily
Apartment houses; including the rental of buildings with three (3) or more dwelling units. DC Link
Uses: Jr Accessory (JADU)
Junior Accessory Dwellings of less than 500 Sq Ft with one bedroom and bath.
D.C. Code
Chapter 34. Rental Housing
Conversion and Sale
Read the DC Code
2. Evaluating NOI
Before purchasing an investment property, it’s vital to evaluate your NOI (net operating income). Here’s how:
Begin with Gross Operating Income (GOI). Include income from rent, fees, etc. Then subtract overhead and costs:
Insurance premiums
Utilities and services
Property taxes
Recurring maintenance/upkeep
Repairs and replacements
Personnel
NOI = Gross operating income – operating expenses
*Factor in non-recurring CapEx (capital expenditure) not included in your NOI calculation.
You may also choose to use the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) method to measure potential earnings.
EBITDA = Operating income + Depreciation + Amortization
NOI represents the property’s revenue after operating expenses are deducted. This is not a profit calculation. Profit is the net after all expenses are subtracted (CapEx, debt and interest payments).
3. Financing DC Investment Property
DC real estate investors should exercise caution when choosing financing for a property purchase for many reasons:
Cost Implications: The type of financing chosen can significantly impact the overall cost of the investment. Interest rates, loan terms, and associated fees can vary, affecting the total amount repaid over the life of the loan.
Cash Flow Management: Different financing options come with different monthly payment obligations. Investors need to ensure that the chosen financing aligns with their cash flow strategy, allowing them to meet their financial commitments without undue strain.
Risk Management: Some financing options may expose investors to higher levels of risk, such as adjustable-rate mortgages that can fluctuate with market conditions. Investors need to evaluate the risk tolerance associated with each financing option and choose one that aligns with their risk management strategy.
Long-Term Viability: Investors should consider the long-term implications of their financing choices. For example, a short-term financing solution may have lower initial costs but could result in higher payments in the future. Long-term viability is crucial for sustaining the investment over time.
Flexibility for Property Types: Different financing options may be better suited for specific types of properties. Investors should consider the nature of the property they are acquiring and choose financing that accommodates its unique characteristics, whether it’s residential, commercial, or multifamily.
Market Conditions: The state of the real estate market and broader economic conditions can impact the availability and terms of financing. Investors need to be aware of market conditions and choose financing that is suitable for the prevailing economic environment.
Exit Strategies: Investors should consider their exit strategies when choosing financing. For example, if they plan to sell the property after a short period, financing with prepayment penalties may not be ideal.
Understanding how financing aligns with exit strategies is crucial for maximizing returns.
Read more on financing investment property
4. Licensing
DC Rental Licenses
Rental of a D.C. single-family home requires a One Family Rental License for each rental unit. Applies to dwellings such as houses, condo units, townhouses, duplexes, even individual rooms within a home. OFR License applications do not need to list Certificate of Occupancy information.
Basement apartments require a Two Family Rental License, which also requires a Certificate of Occupancy.
Basic Business License
Basic Business License. Submit online. You’ll be asked for general business information, EIN, tax registration number and Certificate of Occupancy number.
Registrations
LLCs & corporations must register with DC’s Department of Licensing and Consumer Protection (DLCP).
The Employer Identification Number (EIN) is issued by the IRS. You are required to have this number if you are a registered business and are applying for an DC license.
You must also register with the Office of Tax and Revenue. Your registration number is required for a Basic Business License.
Clean Hands Cert
Clean Hands Self-Certification is your signature-verified statement that you don’t owe District of Columbia >$100. in taxes, fees, fines, etc.
Inspection
Following application approval, the property must be inspected by the DC Inspections & Compliance Administration within 45 days of issuance of your One Family Rental License.
DHCD Registration
Finally, register your rental property with the Dept of Housing & Community Development Registration (DHCD)
Registered Agent
You can hire a registered agent to help you manage the licensing process, renewals, etc.
Certificate of Occupancy applications are processed through the DOB’s Certifi digital platform. Learn More
More Investment Resources
These articles were originally published in my Tools section at realestateinthedistrict.com. Now they live here—on DC Real Estate Channel.