If you live and work in the Washington, DC area, you are into the eighth month of the Covid-19 restrictions. Yet, the real estate market appears to march on, pandemics notwithstanding. In fact, the DC Metro area had yet another record-breaking summer. Last July, the average listing price hit a ten-year high, posting a hefty increase of 13% from the previous year. For an average homeowner who purchased a home for $200K 12 months ago, it means that their home is now worth over $226,000. They are $26K richer by just twiddling their thumbs.
Of course, if your gig is fixing and flipping real estate, you never just “twiddle your thumbs.” For real estate investors, the name of the game is to identify properties with large profit margins: those that are priced below market and that can sell for significantly more once renovated. “We specifically advise our borrowers not to count on appreciation when estimating their deal’s potential,” – says Anastasia Sennott, Vice President of Marketing at New Funding Resources, a private lending company that works exclusively with real estate investors. “Our philosophy is that your deal needs to make sense at the time of your acquisition. In other words, your after-repair value should be based on the prices of the renovated properties that have already been sold.”
Still, the appreciation of 13% is a significant tailwind. What is even more remarkable is that the DC area experiences such tailwind year after year. Even during the Great Recession of 2008-2010, the prices of homes in Maryland, Washington, DC, and Northern Virginia decreased moderately and rebounded relatively quickly. In the last decade, the median prices of a home in DMV grew from $374,000 in July 2010 to $470,000 in Summer 2020.
Spring of 2020 was unusually slow, though. The whole world came to a stop, with many real estate investors eying the market suspiciously and reluctant to make a move. Many lenders hedged their bets, tightened their underwriting guidelines, or paused lending altogether. “As hard money lenders in Maryland, we have faith in the local real estate market,” – says Ms. Sennott, who has been in the private lending business since 2006. “Many out of state lenders have pulled out or changed their loan criteria, while we stuck to our guns and continued to lend on the same terms.”
For a brief time, the competition (usually severe in the DMV area) subsided. The early spring’s dwindling demand allowed some investors with high risk-tolerance to snatch properties at the unusually high-profit margins. But the window of opportunity closed pretty quickly when it became obvious that the local economy remains strong. By summer 2020, the overall volume of transactions got back to its pre-pandemic levels and posted an increase of 7%. The new listings were up by more than 20%.
DMV has always been a dynamic market with all the right fundaments to make money both in the short and long-term. Go out there and make offers! Autumn is an amazing time to nab a residential property to flip and have it all set for the springtime market.