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Is investing in Washington, DC profitable?

Posted by Walnut Street Finance Team on Dec 12, 2018

Washington, DC is a unique area to live. The lifestyle, development restrictions, and “transportation infrastructure” have shaped who moves to the region and how many homes are being built.

But as more jobs are promised in the future, heads turn to Washington, DC for the next place to call home. As they do, real estate investors are perking up to see if investing in Washington, DC real estate can be profitable. Here’s why we argue it can be.

The Lines Between Public and Private Sectors are Blurring

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When you think of Washington, DC, chances are, you think of government. This is the city where the President lives, it’s the nation’s capital, and it’s where dozens of monuments are erected in honor of past politicians. And yet, the government isn’t the only thing in the city. There are plenty of private sector businesses here, too. Now, these two sectors are coming together to collaborate, opening new jobs and increasing the chances of boosting home values.

For example, Washington, DC’s police headquarters is working with the private sector for renovations. These types of partnerships have broadened the demographic of people living in Washington, DC, expanding the need for more and better real estate. By investing in this growing city now, you could tap into this expansion by flipping or renovating homes, thus reach people outside of the traditional Washington, DC government demographic.

New Housing Developments are Constrained

In Washington DC, you cannot build up, which limits the space developers have for adding more floors and apartments. While this is a distinct hurdle for many developers, it is also an opportunity for real estate investors. You’ll have fewer people to compete with as you renovate outdated homes and apartments, adding new value to existing spaces. You’ll also decrease the likelihood that other developers will eat your sales or lower property values because fewer people can build.

New Jobs (Hello, Amazon) Could Skyrocket Home Values

Amazon certainly saw potential for attracting non-federal jobs when it recently decided to set up its headquarters in the area. The massive online retailer is just one example of one of the businesses that recognize the potential of this region. Over time, businesses moving in — like Amazon — will attract even more people to the private sector in this region, making it a hotbed for real estate and spurring profits for people who invest now. Here’s why:

Simple economics states that when demand goes up, supply must go up too if the prices will remain the same. The Metropolitan Washington Council of Governments predicts that, in order to keep up with this influx of demand, 235,000 new homes will need to be built by 2025. But, with the housing restrictions in place, and with Washington, DC already so dense in terms of housing, the opportunity for supply to increase isn’t as easy as it is in other cities. The only other solution is to make prices higher, increasing the profitability for real estate investors, or bring in renters who will provide quick, profitable cash flow. Both are positive scenarios for investors.

The Potential for More Renters is High

Apartment building in Philadelphia, Pennsylvania.

Although there hasn’t been tremendous year-over-year growth in renters in Washington DC, those numbers could change as new businesses, like Amazon, arrive. It’s no secret that the cost of living is high in Washington, DC. The opportunity to attract renters is higher than in many other cities, especially people who only live in the city part-time, younger professionals, or those who are new to the area. And, with more companies moving to Washington, DC, the opportunities for profitable rentals will likely increase over the years.

With condo prices dropping in recent years, as well as rent prices for multifamily units on the rise, rental properties are a hotbed right now.

Renters are one of the best ways to turn a profit with real estate. By continuing to get regular cash flow into the area while making slow improvements on the property, you can increase your value without draining your bank account. When it’s time to sell, you can ideally sell higher than your investment, increasing your chances at profiting on the property.

Washington, DC is Attracting Wealthier People

Demographics are important to consider when determining the potential profitability of your real estate investment. The average household income of people in Washington, DC continues to climb, which is promising for investors. The number of households with incomes over $150,000 has grown 34% since 2016, according to Urban Institute. The number of families in this income bracket that are renting has grown a whopping 59%. Both numbers pose tremendous opportunity because the people living in and flocking to this region can afford higher-priced homes.

Low-Risk Profitability

With the promise of new jobs for higher-income families in a variety of sectors, both public and private, the demographic of people moving to Washington, DC is promising for investors. The people moving to this region can afford the high cost of living, including paying higher house or rent prices. If you’re thinking of investing in Washington, DC, profitability looks promising.

Click the image below to download our free guide to real estate investing in Washington, DC! 

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Walnut Street Finance Team

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