Are Andresen

Want to Buy An Investment Property In Tysons Corner?

One of the most common inquiries we receive is in regards to purchasing an investment property in the greater Tysons Corner area. In addition to doing a lot of business in the Tysons Corner area and managing investments for others (through our property management company), we also own investment properties ourselves.

Common questions are in regards to communities around the new metro stations in Tysons and whether prices and rents will go up. Also, there are questions in regards to what communities will give the best return on investment etc. So, here are some observations, comments, tips and information on the cash flow in specific Tysons Corner communities.

The first thing to do before deciding on a community and investment strategy is to find out what type and what amount of financing you can qualify for. Financing for an investment property is totally different from a mortgage for a principal residence. Some lenders will not lend to investors in certain communities (and if they do lend they have higher interest rates, closing costs and more stringent requirements for the borrower.)

As an example, at the Gates of McLean, few lenders will give investment loans due to the high investor ratio (more than 50% of the units are occupied by non-owners.) As an example, some lenders will only do 5/1 Arms for investors there with a 20-25% down payment.

After you have spoken to a lender and found out what their rates, points and closing costs are it is time to figure out what you want to achieve. Are you speculating on a price increase or are you looking for a long term investment for college fees or retirement?

Appreciation is great - however purchasing a home based on an expectation for appreciation is speculation. Instead, get as good a cash flow as you can and have your tenants pay down the principal on the mortgage for you. If the home appreciates in addition, this is just icing on the cake.

Strategy is important. If you have a specific amount of cash available (say $100,000) and plan to finance 80% of the purchase price – do you purchase one home at $500,000 or two homes at $250,000?  I would suggest two lower priced homes as they have fallen the most in value due to foreclosures and short sales. They should be due for a short term minor correction when the number of short sales and foreclosures diminish.

Or you may have been planning to purchase one home at $250,000 and put down 40% instead of 20% to help with the cash flow? Not that great of an idea – you can find homes that will cash flow with a 20% down payment in the Tysons Corner area – why settle for less? Also, you want to use leverage to your maximum benefit. Your return due to  appreciation will be double if you put down 20% as opposed to 40% on a property.

So, we typically recommend a 20% down payment on investment properties and to purchase lower priced homes (especially if you are just starting out as an investor.) Don’t think of areas you necessarily would want to live in – you are looking for areas with low prices and affordable rents (hint: you typically won’t find that next to a metro station.)

In the Tysons Corner area, low-end condos will likely be the only thing that will make sense cash flow wise.

The primary driver for the cash flow these days is the number of foreclosures and short sales in a neighborhood. While the foreclosures/short sale drives down prices, the rents often remain the same (overall rents seems to be going up a bit these days.)

So, lets look at a few potential communities:

Woodburn Village has seen a lot of foreclosures and is probably among the best cash flows you will get in the general Tysons Corner area. There are a couple of other condominiums that will have about the same cash flow in Falls Church. Values have fallen quite a bit on condo in those communities so may be a good buy if that is close to where you live as it makes management easy.

For Sale | Sample Cash Flow Sheet

Covington is an OK cash flow for a town home in this area. Some foreclosures of town homes but nothing compared to what has happened to condominiums.

 For Sale | Sample Cash Flow Sheet

Georgetown is a town home community in Manassas. Lots of foreclosures and still low prices and decent rents. Property values will probably recover at some point but a lot more uncertainty than further in as far as I can see. The commute out there may difficult for you when it comes to managing them. Chantilly has some areas too that are similar – also a few communities in the Baileys Crossroads/Colombia Pike area that may be good.

For Sale | Sample Cash Flow Sheet

Pimmit Hills is in a great location – most of the value is in the land though. That doesn’t get the you the best cash flow on rentals. The prices of the land may rise over time and it is great if you plan to tear down and build a new home at some point. In the meantime you will be paying holding cost not fully offset by the rental income. The investment cost may be pretty high too at ~$100,000 with down-payment, closing cost and repairs.

For Sale | Sample Cash Flow Sheet

Gates of McLean is located next to one of the new metro stations on the silver line. It is and will continue to be attractive to homeowners, renters and investors. The investor ratio there is currently above 50%. Rents are climbing, but as you can see from the Sample Cash Flow Sheet, the cash flow is not really there as compared to communities like Woodburn Village. The high investor ratio is not necessarily due to the community being a great investment - I believe it is more driven by owners not selling due to the overall market and choosing to rent out instead (and hoping for a bump in prices and rents when the metro is completed.)

For Sale | Sample Cash Flow Sheet

So, in conclusion, the cash flow varies greatly in the area. There are 5-6 communities in the Falls Church area and maybe 1 or two in McLean that may give positive cash flows with a 20% down payment. 

We will be happy to assist you in coming up with an investment strategy and finding the right investment property. After you have spoken to a lender and you are satisfied with the terms of the loan, please contact us or fill out the below form so we can get started!

This entry was posted on Monday, June 6th, 2011 at 12:37 pm and is filed under Being a landlord, Buying a home. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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