condos

Rent vs Buy: Data to Aid Your Decision

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Rent vs Buy: Data to Aid Your Decision

Question: How have rental prices and purchase prices changed in relation to each other over the last few years?

Answer: This is not going to be a column about whether you should rent or buy, there are plenty of those. Rather, I’m offering a data comparison of how rental and purchase prices and demand metrics in Arlington have changed in relation to each other since 2018.

We all know that both have gotten mind-numbingly expensive over the last few years, but there’s not really a third option (aside from crashing with Mom and Dad) so everybody is faced with the same decision of whether it’s a better decision/value proposition for them to rent or buy – hopefully this column helps with that decision.

Note: the rental data used below is limited to what is in the MLS, which is a limited data set of the Arlington rental market but it is more than enough data to allow us to capture an accurate reading of the rental market

Buy a Condo, Rent a House?

Since 2018, the average price of a single-family home has gone up by significantly more (+28.3%) than the average cost of renting a house (+20.7%) in Arlington (note: this does not take mortgage rates into consideration) whereas the average cost of renting a condo (+12.9%) has gone up much more than the average cost of buying a condo (+8%) during that time.

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Another way of looking at the price relationship between sale prices and rental rates is to look at the multiple of the average cost to buy compared to the average cost of a 12-month rental. Using the table below, we learn that condo prices are the cheapest they’ve been since 2018 relative to the cost of renting, which may very well be due to high mortgage rates pushing more demand towards renting and away from buying condos.

We can see a modest decrease this year in the cost of buying a house relative to renting, after five straight years of that multiple increasing. This is also likely due to mortgage rates shifting more demand than usual towards renting.

The other key takeaway from the table below is just how much more it costs to buy a single-family home relative to renting one in comparison to buying vs renting a condo.

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Renting Ain’t Easy

Unfortunately for those fed up with purchase prices, high mortgage rates, and low inventory for purchase, deciding to rent isn’t exactly an easy way out. Not only have rents increased significantly since 2021 — by 10.5% for single-family homes and 15.1% for condos (yes, it’s higher than the increase since 2018 because rents fell in 2020 and 2021) – but the rental market has gotten much more competitive in that time with properties renting more than twice as fast as they did in 2019 and about six times faster than they did in 2018!

The demand metrics below show just how competitive the rental market has gotten over the last two years, because of higher prices and mortgage rates pushing more demand towards rentals. For reference, depending on the season and type of property, about 40-60% of homes for sale go under contract within seven days and usually sell for 99-101% of the original asking price.

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How to Use this Data to Decide on Buying vs Renting

The data in the first section suggests that the smart financial decision is to buy a condo and rent a house, right? No, not really. This data isn’t meant to answer your buy vs rent question, rather it can be a helpful input amongst the many other considerations that factor into which decision is right for you/your family.

For example, you may walk away from this column feeling that renting a house is a better financial decision, but the reality of renting a single-family may not actually work for you – it’s harder to find what you want from a rental, you give up a lot of control over the home’s maintenance and condition, you may not be able to live there as long as you’d like, etc.

Condos (and apartments) are a different story though, you have significantly more options from individually owned condos to commercially managed apartment buildings and there a fewer maintenance and condition issues that might negatively affect your day-to-day living and enjoyment of the property.

At the end of the day, the decision to rent or buy should include a wide range of factors and be based on your individual situation, not the opinion of one or two people in the business of making content or who financially benefit from your decision. I do think that a mistake many people make is that once they’ve owned a home, they never consider renting as an option again. I think that for every move you need/want to make, you should give serious consideration to both renting and buying, allowing yourself to revisit assumptions you’ve made, challenge your reasoning, and consider current market conditions.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Mid-Year Condo Market Review (Arlington)

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Mid-Year Condo Market Review (Arlington)

Question: How was the market for condos in Arlington during the first half of the year?

Answers: The condo market loves stability, often it’s a bit too stable for most condo owners (low appreciation), so after a wild ride from 2019-2021, we can finally say with a high level of confidence that the Arlington condo market has found its level in the wake of Amazon HQ2 (rapid appreciation) and COVID (supply surge and depreciation).

The data below is based on the sales of apartment-style condos in Arlington during the first six of of the past five years. Note: I filtered out new construction data because it throws off the readings on actual market trends and gives a distorted view of pricing in 2021 (mostly due to 2000 Clarendon sales).

Average Prices Down Slightly

I’m generally not a big fan of using $/SqFt because it can throw off so many false readings, but in this case, I think $/SqFt is a more reliable way of reading the year-to-year price trends of the market than average sale price, but both readings indicate pretty similar market conditions over the past five years.

  • The average price for a 1BR decreased by .6% to just over $375,600 and the average $/sqft decreased by 2.5%
  • The average price for a 2BR decreased by 1% and the average $/sqft decreased by 3%
  • Overall, prices have changed very little since the Amazon HQ2 bump in 2019, with just 1.6% appreciation for 1BR in the last five years and 6.9% for 2BR on an average price basis, and a 2.7% increase for 1BR and 3.8% increase for 2BR on a $/SqFt basis
  • On average, condos are selling for just under their original asking price
  • Keeping up with the market-wide trend of low supply, sales volume in the first half of 2023 came in just higher than 2020, when the market froze for Q2. 2023 sales are down well below the first half numbers over the rest of the decade.
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  • Just over 50% of condos are selling within the first ten days on market
  • Just over 50% of condos are selling for at or above their original asking price
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Poised for Future Price Growth

I expect the second half of the year to be like the first half, but with normal seasonal trends in play, meaning properties will take a bit longer to sell and buyers will be able to negotiate more off the asking price, but expect prices to hold steady for the most part.

However, if rates start coming down by next year, the condo market is poised for strong appreciation (in the condo world, that would be 3-5%). If you look at the first chart below, you’ll see that we are operating with some of the lowest inventory levels we’ve seen in the past decade (bested only by the 16 months of Amazon HQ2 craze), any pop in demand will cause prices to jump with such low inventory levels. The second chart shows Months of Supply is remaining low as well, at about five weeks. Months of Supply measures supply and demand, with lower values indicating a more favorable market for sellers.

These charts suggest a market with a lot of upward pressure on prices, being held back only by the high interest rates.

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If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Best Arlington Condos for DC July 4th Fireworks

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Best Arlington Condos for DC July 4th Fireworks

One of my favorite things about the Arlington condo market is the remarkable views that some of the buildings have of DC and the National Mall! Some of the best July 4th fireworks in the country take place on the National Mall and what better place to view them than from your very own Arlington condo!  

Today, Jean Ropp, Arlington real estate agent with Eli Residential Group, toured 4 Arlington condo buildings to check out their views of the DC Skyline:

  1. Prospect House, 1200 N. Nash Street, was built in 1966 and is located just steps from the Iwo Jima Memorial. The building is best known for its views of the Washington Monument and DC skyline.
  2. The Pierce, 1781 N. Pierce Street, completed in 2021, it is Arlington’s newest building for sale. This high-end, luxury building has an average sale price of ~$1.8M and $1,000 per square foot. Part of the price tag come from the impressive views of DC from many of the units, the rooftop terrace and the rooftop pool.
  3. The Odyssey, 2001 15th Street N., built in 2006, is located in the Courthouse neighborhood. This building’s great reputation and excellent amenities make it an Arlington favorite. The views from the rooftop pool and top floor gym are exquisite.
  4. The Waterview, 1111 19th Street N., built in Rosslyn in 2008, is unique because floors 1-15 are a hotel and floors 16-31 are condo residences. The Waterview has its name for a reason! The views of the Potomac River and Washington DC are unmatched.

There are other buildings in Arlington that offer superb views not mentioned here including 2000 Clarendon and Clarendon 1021.

Let us know in the comments below which of these buildings you’d like to watch the DC July 4th Fireworks from! If you’d like to tour any of these buildings, you can contact Jean at Jean@EliResidential.com.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Impressive Sales at Rosslyn’s New Luxury Condo, Pierce

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Impressive Sales at Rosslyn’s New Luxury Condo, Pierce

Question: How are sales going at Pierce condos in Rosslyn?

Answer: The Pierce condos are one of three new buildings in Rosslyn’s luxury Highlands development (the other two buildings are rental apartments) with prices that rival the most expensive buildings in the DC Metro and far outpace other Arlington buildings on a price-per-square-foot basis, which I detailed in this 2019 column.

Building Overview

Penzance (developer) and The Mayhood Company (sales) began pre-selling the 104 units just before the pandemic hit. Sales in the building have captured the attention of many Arlingtonians and the real estate community because of the building’s prominent position in the Rosslyn skyline, record setting price-per-square-foot, and shifts in condo demand for a couple years following COVID lockdowns.

The Mayhood Company, who also handled sales at Turnberry Tower, Rosslyn’s other luxury condo building, played an active role in designing Pierce condos and conceived it as “Turnberry Gen 2” with the application of lessons learned from their time selling those units. 

Prices ranged from roughly $950,000-$4,000,000+ with the average unit going for about $1,750,000 for approximately 1,700 SqFt of living space. Currently, units in the building range in price from ~$1,800,000-$2,600,000 and in size from ~2,000-2,400 SqFt. The bulk of the building has sold for $1.5M-$2.4M.

Pierce was completed and ready for move-ins by the fall of 2021.

I caught up with the Mayhood sales team to get a sense of how sales have gone through the lockdowns, during the post-lockdown flight from condos, and the return to more normal buying habits over the past 12-18 months. 

Pre-Sales/Pre-Pandemic

Sales jumped out to a great start prior to the pandemic, with about 10 contracts right out of the gate. As expected, many of these sales were to buyers targeting premium views – the building has quite a few upper-level units with unobstructed (and nearly impossible to be obstructed in the future) views of DC and the Potomac. The other non-view sales were units on lower floors with the lowest price-per-square-foot.

Many of these early buyers were downsizing from larger single-family homes, which is/was expected to be the most common buyer profile for the building.

COVID Lockdown, Sales Lockdown

The sales office shut down due to COVID lockdowns in March 2020 and sales were frozen until August 2020, when they began taking calls and doing virtual sales. There was zero activity from mid-March until August/September, but they still finished 2020 with 15 total contracts.

Vaccines Led to More Activity

The building had about one contract per month from August 2020 through May 2021, but once vaccines become more broadly available and life started opening back up around June 2021, activity picked up significantly, resulting in 8 contracts in June 2021 and about 3-4 contracts per month through the end of 2021.  Also, by June of 2021, the construction had progressed to allow prospective buyers to take hard hat tours and see the finishes and views in person, as opposed to renderings, which is always going to boost interest and sales. There were 28 contracts written in 2021. 

From late summer 2020 through early summer 2021, the buyer profile shifted from those downsizing from larger single-family homes to buyers who were already living in condos/apartments and looking to upgrade. That shifted back to the “norm” of more downsizers by summer 2021, when vaccination rates were up.

Return to “Normal” Life Kept Sales Strong

2022 was a return to “normal” operations for most people and Pierce sales were excellent, with a consistent pace of 2-3 sales per month, totaling 30 contracts on the year, evenly split between the first and second half of the year. The overall condo market in Arlington also started experiencing a return to more normal buying behavior; low interest rates early in the year helped too.

Current Status, Closing Out

The project is transitioning into the close-out phase which means more is on the table for negotiations for buyers and as a result another 16 units have contracted so far this year, leaving just 15, or about 14% of the building, left to sell. The advertised price on the remaining units ranges from about $1.8M to just over $2.6M. Unit 2601, the largest penthouse unit, is also being resold after being one of the first contracts in 2020.

Featured Available Units

Some of the units that highlight the remaining 15 include:

  • Unit 1203: A D5 floor plan with 2BR+Den/2.5BA over 2,400 SqFt and a 175sqft of balcony across two balconies

Figure 1: D5 floor plan

  • Units 1302 and 2002: Both D2 floor plans with 2,000+ SqFt. Unit 1302 is the least expensive unit available (by a lot) and unit 2002 is the largest unit available with a view (Potomac River, Georgetown, National Cathedral)

Figure 2: D2 floor plan

  • Unit 2502: If you want the best view without the extra space unit 2502 (C4, 1700 SqFt), is the highest floor of any unsold unit and has two balconies with excellent northern views the Potomac River, Georgetown, the National Cathedral and on a clear day you can see Sugarloaf Mountain in Maryland (30+ miles away)

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Figure 3: C4 floor plan

  • Resales: It’s normal to see a handful of units resold in the first few years so it’s good to monitor on and off market channels for floorplans, views, or price points that are no longer available (like the penthouse unit 2601)

What I’ve Learned from Pierce

When I first analyzed this project, I was suspicious that there would be enough $1,000/SqFt buyers in Arlington. At the time (2019), there had been less than 10 sales in Arlington that exceeded $1,000/SqFt.

Fast forward to today and about 40% of sales (35+ units) in the building have exceeded $1,000/SqFt and the top five highest $/SqFt have ranged from $1,350-$1,530/SqFt! Incredible numbers when you compare it to not just to Arlington sales, but all regional sales.

The strength and pace of Pierce sales speaks volumes about Arlington’s ability to support the luxury market and the distance Rosslyn has come in the last 5-10 years (shoutout Mary-Claire Burick and the entire Rosslyn BID team!) to attract buyers with the financial means to live in DC and Bethesda’s premier neighborhoods and buildings. It’s also a testament to Penzance and Mayhood for recognizing how much demand there is from downsizing buyers for 2BR+den/3BR condos (much of Turnberry is 2BR) with large outdoor space and excellent amenities.

The sales team has noticed that after dealing with COVID, buyers seemed to value direct elevator access to their unit more than before. About 50% of the units in the building have direct elevator access in and out of the unit. The large private balconies on many units have also become more important to buyers, something I’ve noticed elsewhere in the condo market as well.

Another interesting shift in the buyer profile is more interest coming from Washington DC (and Maryland, to a lesser extent). If you’ve ever tried dating somebody who lives in DC, you know how hard it is to get Washingtonians to cross the “Potomac Ocean” and the same goes for housing, so it has been a pleasant surprise to see the building drawing so much attention from DC.

If you’re in the market for a luxury place to call home with excellent floor plans and incredible building and nearby community amenities, the close-out phase at Pierce is a great time to buy. Feel free to email me at Eli@EliResidential.com or call at (703) 539-2529 to discuss your options.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

2022 Arlington Mid-Year Condo Review

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2022 Arlington Mid-Year Condo Review

Question: How did the Arlington condo market perform in the first half of 2022?

Answer: It has been quite a ride for the Arlington condo market over the past four years!

After a long stretch of relatively little appreciation from ~2013-2018, the condo market surged on the November 2018 news of Amazon HQ2 and then flatlined when COVID lockdowns began in the spring of 2020. Beginning in the summer of 2020, condo inventory flooded the market in record volume, causing the market to soften and prices to drop.

Conditions were improving by the summer of 2021 as demand picked up. By early 2022, competition return to the market with more multiple offers and escalations. The competition didn’t last long, as the entire housing market began to slow due to high interest rates and worsening economic conditions.

After much volatility in the condo market since late 2018, I think we are finally seeing signs of the market finding its natural balance — moderately favorable for sellers, while providing buyers with a range of options and the occasional opportunity for a discount.

Let’s look at the stats behind the first half of the 2022 Arlington condo market… 

Pace of New Inventory Evens Out

From 2013-2018, the Arlington condo market averaged ~500 and ~700 new listing in the first and second quarter, respectively. Those numbers dropped off a cliff in 2019 and 2020 because people chose to hold properties because of Amazon’s announcement (Q1 2019-Q1 2020) and then held in Q2 2020 because nobody knew what to do when COVID hit. Then the pace of inventory surged at a record-shattering pace from the summer of 2020 through the end of 2021.

Inventory levels finally came down to earth, closer to their 2013-2018 averages, with 576 and 651 new condo listings in the first and second quarters of 2022, respectively.

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Supply/Demand Levels Back to Normal-ish

With the easing of new inventory volume and demand coming back to level, Months of Supply (a measure that combines supply levels with the pace of demand) has returned to levels more in-line with pre-Amazon years and what I would consider to be the Arlington condo market’s natural balance.

Housing economists consider six months of supply to be a truly balanced market for buyers and sellers, but we rarely see a sub-market around here that gets close to six months. 1.5-2 months of supply is a favorable market for sellers, but it usually takes less than one month of supply for multiple offers and escalations to become a common occurrence. 

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Demand Metrics Tell Similar Story

The return to balance is showing up on the supply and demand sides of the equation, although demand seems to be marginally stronger that it was pre-Amazon announcement, which I’d attribute to how expensive townhouse/single-family properties have gotten lately, driving more demand towards less expensive condos.

What we can see from the chart below is that the speed of the market, measured by the percentage of properties going under contract within the first ten days, has improved over last year but has fallen well below 2019/2020 levels. The same goes for the percentage of properties selling for at or above the asking price.

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Good Half-Year for Two-Bedroom Condos

All pricing data points to the first half of 2022 being a great year for two-bedroom condos and an okay year for one-bedroom units. Here are some key pricing data points:

  • The median price of a two-bedroom condo increased 11.7% to $550,000 in the first half of 2022 compared to the first half of 2021
  • The median price of a one-bedroom increased 3% to $380,000
  • The average price of a two-bedroom increased 15.7% to $620,616 compared to 3% to $381,220 for a one-bedroom condo
  • On a $/SqFt basis, two-bedroom condos increased 7.4% to $517/SqFt compared to 2.8% to $497/SqFt for one-bedrooms
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If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Should Your Condo Building Have a Rental Cap?

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Should Your Condo Building Have a Rental Cap?

Question: Do you think it is a good idea for our condo board to consider setting a cap on the number of units that can be rented at a given time?

Answer: One of the most common debates within condo buildings is whether an Association should limit the number of condo units that can be rented concurrently. There are some benefits of limiting the number of owners who can rent out their unit(s), but I think it’s the wrong decision for most buildings because it can hurt property values and is unnecessary, in most cases.

For the sake of clarity, when I refer to rental/investor units in a building, I am referring to individual unit owners renting their unit(s) out to tenants instead of occupying it themselves (they are considered investors).

Lending Misinformation

There is a lot of misinformation out there about how the number of rental units in a building effect the warrantability of a building (ability of future buyers to secure a mortgage). Here are the limits you need to be aware of:

  • Fannie/Freddie Loans: Conventional loans backed by Fannie Mae/Freddie Mac do not have any rental limits for primary and secondary home loans. They limited the number of rentals in a building to 50% for investor loans only.
  • VA (Veterans) Loans: No rental limits. The VA does not like seeing rental caps and may not approve a building for VA loans if they do have rental limits in place.
  • FHA Loans: FHA loans are restricted in buildings with more than 50% of units rented. FHA loans represent a small percentage of the loans written in this area.
  • Jumbo/Private Loans: High balance loans (over $970,800 loan amount), not insured by Fannie/Freddie, have a wide range of guidelines. Some have rental restrictions and others don’t, but in general jumbo/private loans tend to have more conservative lending guidelines and a higher chance of restricting a loan due to the number of units being rented. However, many banks will make exceptions, especially with higher (30%+) down payments and there are many alternative lending options in the jumbo/private arena a buyer can choose from.

Pro: Better Quality of Living

Owner-occupants generally invest more in their home, take better care of common areas, and take more pride in developing a strong social community. In small associations or those intent on maintaining a certain standard of living, quality of living may prevail over property value.

Cons: Buyer Turn-Off, Forced Sales

Many buyers want to keep their options open to renting a unit out after they are done using it as their primary residence and are turned off by the idea of a rental cap and plenty will not buy in a building if there is a cap, even if it’s unlikely to be reached. By turning otherwise motivated and qualified buyers away, you’re bound to hurt the market value of units in your building.

If a rental cap is reached and enforced, it can hurt market values even more because homeowners are forced to sell if they move out and a forced sale may result in a homeowner agreeing to take a worse deal when they would have otherwise chosen to rent the unit until they can sell into a strong market.

Track Rental Activity in Your Building

Even if you do not have a rental cap, it’s still important to track which units are being rented out. At a minimum, your Board/Management should receive a copy of each lease and keep a basic spreadsheet to be able to report on which units are being rented. In my experience, I have found that most buildings in Arlington settle into a rental percentage of 20-35%. For some buildings, like those in the heart of Clarendon, I see higher rental percentages, sometimes exceeding 50%.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Are Condos a Good Investment?

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Are Condos a Good Investment?

Question: How have rental rates on condos compared to appreciation in resale market value?

Answer: Last week, I compared the historical appreciation rate of different property types (tl;dr…single-family > townhouse > condo) so this week, I thought it would be interesting to drill into what a condo investment looks like in Arlington by comparing historical market value appreciation against historical rental rate appreciation.

1BR vs 2BR Condos, North vs South Arlington

Last week we learned that, since 2012, condos in South Arlington have appreciated faster than similar condos in North Arlington, and in both areas, a two-bedroom condo has performed better than a one-bedroom condo.

North Arlington Rental Rates Frozen, Moderately Higher in South Arlington

Incredibly, the average rent for a one- or two-bedroom condo in North Arlington has barely changed since 2012, while increasing about 18% and 15%, respectively, in South Arlington. I believe that is due to the high volume of new apartment buildings delivered over the last 10+ years, significantly increasing the supply of rents and delivering more modern finishes and amenities than most condo buildings offer, causing condo buildings, mostly built 15+ years ago, to become less desirable for renters.

It’s important to note that the rental data below is limited to what is in the MLS, which is mostly condo rentals and does not reflect the commercial rental market, which has seen average rental prices increase since 2012.

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*Calculated using that year’s average 30yr fixed interest rate (5.5% for 2022), 20% down, and $50 per month on homeowner’s insurance

**Approximate first-year return on an all-cash purchase

Expect Low Return, Potentially Negative Cashflow

In most cases, real estate investments follow similar principles as other investments – more risk for higher returns and lower expected returns for more stable investments. Arlington is one of the most stable, lowest-risk real estate markets in the country/world and condos tend to have the lowest risk of all property types because they’re generally easy to rent with less exposure to costly repairs and maintenance oversights. Thus, you can expect shockingly (for some) low returns on a condo investment in Arlington.

If you’re putting close to 20% down, expect to be cash-flow negative for a while. If you’re paying cash, expect a low single-digit cash-on-cash return. It’s important to note that the calculations above do NOT include vacancy periods (expect some between tenants), property management (usually ~6-10% of gross rent), maintenance/repair, and other expenses you may incur.

Where is the Payoff?

Investment properties come with significant tax benefits from depreciation and some other expenses (not mortgage interest) so for high-earning individuals with few write-offs, the payoff for large tax deductions is substantial and can offset monthly cash flow losses. If you are financing the investment, you must consider the unrealized gain of principle buydown (unrealized until you sell) and incorporate that into your return-on-investment calculations.

Also, keep in mind that these are blended averages of one- and two-bedroom condos. If you are exclusively seeking an investment property, you will find some properties with moderately better-projected returns by focusing less on what you want to live in and more on value.

Many people end up with a condo investment property because they’ve bought it for their primary residence and then convert it into a rental property when they move out. This can be an excellent way to build your investment/real estate portfolio because you get a lower interest rate on a primary residence, with the ability to put less than 20% down, and generate value just by living there and not paying rent yourself.

Condos are, of course, not the only option when it comes to real estate investing but they tend to be the most accessible, and thus, the most popular. Investing in real estate can be a great way to build wealth, but you must first understand the risk-return profile you want and be realistic about costs, returns, and the time you’ll spend managing the investment. 

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Demand and Showing Activity Slowing Down

reallivingathomeblog Arlington, Buyer, Seller , , , , , 0 Comment
Demand and Showing Activity Slowing Down

Question: Have you seen a drop in demand and buyer activity recently?

Answer: There has been a modest, but noticeable drop in the intensity of demand and buyer activity over the last 3-4 weeks. I’m seeing fewer showings/offers and more price reductions and cases of homes lasting through the first week on market. I saw signs of it in the second half of April, but it became most noticeable in May.

But let me be clear, we are still very much in a seller’s market. I expect prices to hold in many cases and continue increasing in some, but the frequency and number of escalations should start to ease (already has) and buyers may find themselves able to secure some contract protections (contingencies) they couldn’t before.

DC Area Demand Index Tapers, Arlington Remains Strongest Market

Below you will see the Bright MLS Home Demand Index for the DC area. From July 2021 through February 2022, demand trailed its year-over-year (YoY) counterpart and even came close to matching the YoY demand reading in February 2022. However, you’ll see a noticeable separation in YoY demand taking place in March and especially April. I expect these lines to separate even further in May.

It’s worth noting that, with a demand reading of 227, Arlington has the highest demand reading in this index amongst the nine jurisdictions included in the Washington DC area index, followed by Alexandria at 190 and Fairfax at 151.

Arlington Showing Activity Drops

I pulled data on total showings and showings per listing for Feb 1-May 23 2021 and 2022 on homes priced from $500k to $1.7M, with combined data for all price points at the top of each table. For those not interested in examining the data in detail, here are the highlights:

  • Activity surged in the beginning of the year and shifted in April/May (I think this started in mid/late April)
    • Showings per listing increased 20-26% YoY from February-April 2022, but decreased 12% YoY in May 2022
    • Total showings were up a more modest 9% and 3% YoY in February and March 2022, respectively, but dropped by 11% and 25% YoY in April and May 2022, respectively
  • Historically, we have seen showings slowdown from April to May, but the rate of the slowdown in 2022 compared to 2021 is significant
    • From April 2021 to May 2021, showings per listing dropped 21%, but from April 2022 to May 2022, showings per listing dropped 43%
    • From April 2021 to May 2021, total showings dropped 31%, but from April 2022 to May 2022, total showings dropped 42%
  • In February and March, nearly every price range experienced a YoY increase in showings per listing and most experienced an increase in total showings as well. By April, the changes were split evenly between increased and decreased activity, but in May nearly every price range experienced a YoY decrease. 

I will continue to track market data for you and in a couple months, once most of the spring contracts have closed, we will be able to measure how some of these early indicators of weaker demand effect price metrics.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Condos Must Be Aware of New Fannie Mae Guidelines

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Condos Must Be Aware of New Fannie Mae Guidelines

Question: Can you summarize the important details of Fannie Mae’s new condo loan deferred maintenance requirements?

Answer: In response to the collapse of the condo building in Surfside, FL last year, Fannie Mae issued new “temporary” lending requirements, effective Jan 1 2022, for Condos and Co-ops to protect against future deferred maintenance issues and, hopefully, incentivize Associations to address issues faster.

I will highlight some of the key changes below, but I advise Condo and Co-op Boards/Management to review the policy changes in detail to ensure properties in your communities remain warrantable (banks will lend using traditional mortgage products), otherwise you’ll risk a significant drop in property values by limiting your buyer pool to cash buyers or those who qualify for alternative lending products (non-Fannie).

Significant Deferred Maintenance and Unsafe Conditions

This is the strictest of the new requirements, but also leaves a lot of grey area and subjective decision-making by each bank’s underwriter(s). The Fannie Mae language states:

“Loans secured by units in condo and co-op projects with significant deferred maintenance or in projects that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions are not eligible for purchase. These projects will remain ineligible until the required repairs have been made and documented. Acceptable documentation may include a satisfactory engineering or inspection report, certificate of occupancy, or other substantially similar documentation that shows the repairs have been completed in a manner that resolves the building’s safety, soundness, structural integrity, or habitability concerns.

Significant deferred maintenance includes deficiencies that meet one or more of the following criteria:

  • full or partial evacuation of the building to complete repairs is required for more than seven days or an unknown period of time
  • the project has deficiencies, defects, substantial damage, or deferred maintenance that
    • is severe enough to affect the safety, soundness, structural integrity, or habitability of the improvements;
    • the improvements need substantial repairs and rehabilitation, including many major components; or
    • impedes the safe and sound functioning of one or more of the building’s major structural or mechanical elements, including but not limited to the foundation, roof, load bearing structures, electrical system, HVAC, or plumbing.

…These policies do not apply to routine maintenance or repairs that a homeowners’ association (HOA) undertakes to maintain or preserve the integrity and condition of its property. Also, if damage or deferred maintenance is isolated to one or a few units does not affect the overall safety, soundness, structural integrity, or habitability of the improvements then these project eligibility requirements do not apply. Examples of this scenario include water damage to a unit due to a leaky pipe that is isolated or damage from a small fire impacting the interior of a specific unit…”

It’s possible a Fannie Mae loan can be approved on one unit and denied on another. The grey area comes from 1) how the Association responds to the questionnaire sent by the lender and 2) how each lender’s underwriter(s) determine what qualifies as significant/substantial deficiencies. It’s possible that the interpretation of a question, and thus the way that question is answer, can change based on who from the Management company is responding. The same difference an interpretation of a response and support information can occur between underwriters at different banks.

Special Assessments

Associations should be much more careful when choosing to issue a special assessment (as opposed to borrowing or increasing condo dues) because of the extra scrutiny that now applies for loans and possibility that issuing a special assessment may cause properties in the building to be unwarrantable. The Fannie Mae language states:

“Any current or planned special assessment, even if paid in full for the subject unit, must be reviewed to determine acceptability… The lender is expected to obtain the financial documents necessary to confirm the association has the ability to fund any repairs. If the special assessment is related to safety, soundness, structural integrity, or habitability, all related repairs must be fully completed or the project is not eligible. Additionally, If the lender or appraiser is unable to determine that there is no adverse impact, the project is ineligible.”

Reserve Requirements

Associations are now at risk for loans not being approved if they are not allocating 10% or more of their annual budget towards Reserves. In my opinion, this is the most unreasonable of the new Fannie requirements because it doesn’t take other relevant details into account like whether or not the account is overfunded or the recommendations of the Reserve Study. To issue a blanket requirement for every Association to contribute 10% of their annual budget to Reserves is bad policy.

However, there is some flexibility in this requirement. Borrowers putting 10% or more down can get an exception that will allow them to proceed with the loan. Borrowers with less than a 10% down payment have to go through an expensive and time-consuming exception process.

The full guidance letter from Fannie Mae can be downloaded here.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Has Your Condo/POA Banned Smoking?

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Has Your Condo/POA Banned Smoking?

Question: Do you know if Associations in Virginia have begun banning smoking using the new law?

Answer: Last year, I wrote an article about Virginia’s new law that allows Condo and Property Owners Associations to easily ban smoking inside units/homes via a new resolution to the rules and regulation, which generally requires a simple majority vote by the Board. Prior to this, Boards could ban smoking in common areas this way, but smoking bans within units/homes required a lengthy (multiple years), costly, and resource intensive effort to get a 2/3+ vote from owners to change the by-laws.

I have heard from a couple of Condo Associations that have implemented this new law to ban smoking and I would love to hear from other readers, in the comments section or in email, who have either passed a new smoking ban resolution, are in the process of doing so, or have run into challenges trying.

Last year I spoke with attorney Michael C. Gartner (703.280.9267 or mgartner@wtplaw.com), a Partner at Whiteford, Taylor, & Preston LLP and current President of the Community Associations Institute (CAI) Washington Metro Chapter, about the new law to make sure I was clear on the implications this has for Virginia condos and POA communities.

Mr. Gartner confirmed that the new law, effective July 1 2021, does in fact allow condo and POA Boards to ban smoking inside private residences with a simple majority vote of the Board. He also offered some helpful advice and caveats for any Boards/communities who plan to move forward with in-unit smoking bans:

  • In rare cases, some by-laws may specifically restrict a Board’s ability to make certain rule changes or require something other than a simple majority, so Boards should have an attorney review their by-laws prior to proceeding with a smoking ban
  • Smoking bans should be written as a compliant resolution through legal counsel, not as a simple motion
  • Enforcement is always a challenge for Boards (noise, trash, and other common rules always present enforcement challenges) and Boards may want to work with their legal counsel to establish compliant enforcement protocol
  • The new law includes a provision that allows owners to call a special meeting to vote and repeal a change in the smoking policy
  • Smoking ban policies might flip back-and-forth as new Boards are elected and the majority votes for a new/different smoking policy than the previous Board

Last week, I followed up with Mr. Gartner on the new law and he said that he has several clients (condo buildings) considering implementing a smoking ban and so far is not aware of any legal challenges or considerations that would change the opinions he shared last year when the bill was approved.

Please use the comments section or email me if you are in an Association who has taken advantage of this new law or is planning to!

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.