DC area: buy, rent, or stay put?

[Goatee Joe]

Putting this question out there to those of you who are hopefully more familiar with this topic than I.  Here's the situation:

My work is transferring me to the Washington, DC area this summer with my family (wife, 3 kids age 10 and under).  We're likely to be in the area for a max of three years, before transferring again to another location outside of Washington.  We currently own a home there (in northern Virginia) and have had it rented out for the past eight years while we lived elsewhere (we converted it to rental once we departed from our last stint in DC in 2014).  It's a 3 BR, 2 bathroom townhouse in a nice neighborhood, in good condition, but maybe a bit small for our current family size.

Ideally, we'd like a bigger place to give us more space but the real estate market in the DC area (and maybe all around the country?) just seems bonkers right now.  Properties are selling for simply astronomical prices and it's reminding me of the atmosphere that prevailed in the time just before the bubble that burst in 2008:  people are buying properties sight-unseen, no inspection, cash-only, bidding wars, etc.  Rental prices are also insanely high in the area right now, seeming to follow the general trend.  The way I see it, I have 3 options:

1.  The double-edged sword option:  Sell our current townhouse (which will surely fetch a nice sum) and then buy another larger place (sticker shock guaranteed).  Could be cool to upgrade, but we may also be walking into a trap, buying a property for big $$$ then potentially left holding the bag when/if this market cools or this bubble bursts.

2.  The half-measure option:  sell the townhouse, rent a bigger house.  Not a terrible solution in my mind, but it just means we've dumped 100% of the real estate portion of our portfolio and are back to being renters yet again (see also the aforementioned high rental rates).

3.  The suck-it-up option:  just squeeze back into the current unit for a couple years, then look to sell or rent it out again.

Neither my spouse nor I want to own property long-term in the DC area.  Our dream is to eventually buy a large property... anywhere else, but definitely not in vicinity of Washington, as neither of us is originally from there and aren't terribly fond of living there aside from relatively short stints for work.

We'll be needing to make a decision in the coming weeks, so I appreciate any thoughts/advice/insights you guys might have.

[Dicey]

The DC market is very fickle, due to the ever-changing administrations and related hoopla. With your relatively short time span, it would be even easier to get caught in a bad situation.

You have a sure thing. I'd suggest talking to the family to get their buy-in. You could spend far less than the transaction costs on space optimization to make it workable. Elfa the closets, maximize the storage, get rid of superfluous crap, etc. There are lots of blogs chock full of ideas and inspiration. To a New Yorker, your townhouse would be a mansion. There could also be sweet tax advantages to living in it tor a couple of years before you eventually sell it.

[couponvan]

I’d personally move into the condo if it was in a good school district and had appreciated significantly to save on taxes. Because it’s been a rental, you’ve likely depreciated a fair bit of it as well. However, with 3 kids, depending on location and schools you might not fit.

[Dicey]

I’d personally move into the condo if it was in a good school district and had appreciated significantly to save on taxes. Because it’s been a rental, you’ve likely depreciated a fair bit of it as well. However, with 3 kids, depending on location and schools you might not fit.

You know I thought of you when I suggested Elfa-ing the closets ;-)

[PMJL34]

Option 3 all the way for me. Live in the 3/2 townhome. Although you saying "suck it up" as if you are going to be in a 1 bedroom D+ neighborhood may mean that you will be unhappy with this option no matter what. Since when is a 3/2 home you own in nice neighborhood and in good condition described as "suck it up"?

The kids are <10 and this is a temporary stint of less than 3 years. You don't want to be in DC area long term. Makes 0 sense to buy.

If you really feel option 3 is that bad, then do option 2 of selling and renting. But I can't recommend this option without seeing your numbers (rental cashflow, cost basis, new home rent cost, etc).

Best of luck!

[couponvan]

I’d personally move into the condo if it was in a good school district and had appreciated significantly to save on taxes. Because it’s been a rental, you’ve likely depreciated a fair bit of it as well. However, with 3 kids, depending on location and schools you might not fit.

You know I thought of you when I suggested Elfa-ing the closets ;-)

Ha! Yes. If you need help with your Elfa closets, I am your resident mustachian. I scoured Craigslist for mine, and probably paid about 30% of retail. They make smaller spaces infinitely more livable. My sister is in a 3/2 1950’s rancher that is quite small, but she’s maximized the heck out of her closets and garage space with Elfa.

[Villanelle]

The DC market is very fickle, due to the ever-changing administrations and related hoopla. With your relatively short time span, it would be even easier to get caught in a bad situation.

You have a sure thing. I'd suggest talking to the family to get their buy-in. You could spend far less than the transaction costs on space optimization to make it workable. Elfa the closets, maximize the storage, get rid of superfluous crap, etc. There are lots of blogs chock full of ideas and inspiration. To a New Yorker, your townhouse would be a mansion. There could also be sweet tax advantages to living in it tor a couple of years before you eventually sell it.

This is the opposite of what I've read.  Everything I've read on the subject (though I admittedly never did a deep dive because we never seriously considered buying) is that all of the federal jobs actually keep the market here more stable than most.  If that's not correct, I'd love to see something saying otherwise. 
~~

I think option 1 is not even worth considering.  I'd go with 2 or 3, of if the rental is making good money and you don't mind being a landlord, then option 4 which would be continuing to rent out the townhouse while you live in a rental.  It seems like your biggest issue with option 2 is being out of the RE market, so option 4 would allow you to keep investment, but rent your residence.  I most definitely would not buy a new place if you don't plan to be here longer term. 

And yes, rental rates are insane here, but the only thing more insane is buying.  With all costs of ownership considered, many places would cost you twice as much per month compared to renting a comparable home.  And in the first couple years of a loan, you pay down very little principal so they only thing potentially offsetting that massive difference is growth.  But that is unpredictable.  At least having your money in the also-unpredictable stock market means you are more liquid, and you will get to choose when you sell it, which isn't quite the case with a home (unless you keep and rent for a massive loss). 

[Dicey]

Hmmm, I know someone mentioned it on another thread recently. I'll do a little digging. I also used to date someone who was in the game in DC. He said he managed to lose money on two different houses as administrations came and went...

[Goatee Joe]

Option 3 all the way for me. Live in the 3/2 townhome. Although you saying "suck it up" as if you are going to be in a 1 bedroom D+ neighborhood may mean that you will be unhappy with this option no matter what. Since when is a 3/2 home you own in nice neighborhood and in good condition described as "suck it up"?

The kids are <10 and this is a temporary stint of less than 3 years. You don't want to be in DC area long term. Makes 0 sense to buy.

If you really feel option 3 is that bad, then do option 2 of selling and renting. But I can't recommend this option without seeing your numbers (rental cashflow, cost basis, new home rent cost, etc).

Best of luck!

Thanks for responding.  A few more details to clarify:  our current townhouse is "technically" a 2 BR, 2 full bath, though we have a third room in the basement that's easily useable as a bedroom though it's a bit small.  The place is about 1400 square feet, not bad for inside the beltway in DC area, but maybe a bit of a squeeze with 5 of us plus dog, cat and our stuff.  As you said though, it's likely only for a couple years.

As far as numbers:  the current townhouse is worth about $500K (if you believe Zillow's estimate).  We owe about $75K on the 30-year mortgage at 4.5%; we bought in 2009 and have been paying ahead on the mortgage since shortly after that.  Cash flow:  we should have around 150K income but unclear what our monthly expenses will be, as I hear DC has gotten even more insanely expensive than the last time we were there in 2014 for everything from groceries to fuel to utilities.  Rental rates for a slightly bigger house in the same general area (northern VA) are anywhere from $4000 to $6000 per month right now.

I'm leaning toward option 3 at this point, but still considering option 2.  Option 1 is seeming increasingly nuts to me, especially since we plan to not be there after 2025.

[Goatee Joe]

I’d personally move into the condo if it was in a good school district and had appreciated significantly to save on taxes. Because it’s been a rental, you’ve likely depreciated a fair bit of it as well. However, with 3 kids, depending on location and schools you might not fit.

You know I thought of you when I suggested Elfa-ing the closets ;-)

Ha! Yes. If you need help with your Elfa closets, I am your resident mustachian. I scoured Craigslist for mine, and probably paid about 30% of retail. They make smaller spaces infinitely more livable. My sister is in a 3/2 1950’s rancher that is quite small, but she’s maximized the heck out of her closets and garage space with Elfa.

This is a solid tip.  I'd never even heard of Elfa before, but it looks like it could really make our space a lot more livable.  Thanks!

[couponvan]

1,400 is actually decent sized for DC! At $159K of income, you are going to want to save your money for all the other expensive things! Only having a $75K mortgage will really help too. If the kids balk, consider offering to buy them all new bedroom furniture customized to their spaces. In one month you will save $4K in rent on a bigger place. Don’t discount the worth of having appropriately sized furniture for your home. You can sell it for 1/2 or 3/4 of what you paid when you leave. Sometimes new is better when it fits the space. Moving is expensive, and often it’s cheaper to sell the old stuff, not pay a moving company, and buy again. When we moved to VA from IL, we left a bunch behind, and probably should have left more!

Broadway express.net is a fairly affordable way to self load a moving tuck if you aren’t getting a relocation package. It’s the cheapest way I have found to move a house and car.

[AMandM]

I've lived in the DC area for 25 years with more kids and less income than you, never in more than 1600 sf. I would choose option 3 all the way. Downsize your possessions (or store them, that would still be cheaper than the other options) and plan the use of your space intentionally.

[PMJL34]

OP, I meant numbers as in purchase price (PITI) and rent you receive (when it's rented out). Nonetheless, I'm assuming the carrying costs is a tiny fraction of the 4-6000 rent per month you are looking at (which is too high even for your income). I stand by option 3 by a mile.

[calimom]

Joining the chorus here that Option #3 is the only real option here. Feel fortunate you have that option! At $150ish in income, that's the only thing you could afford to rent in that market. Crazy of course, because that's a nice salary outside of just about any major metro area in the US.

Just make it work with your existing condo. Millions of families do just that. As the saying goes, you can do anything, you just can't do everything. Which in this case is living in a HCOL, SAH spouse, short term assignment and so forth. You can do this!

[BlueHouse]

The DC market is very fickle, due to the ever-changing administrations and related hoopla.

Huh?  the ever-changing administrations makes for a constant source of new buyers.  Nothing really fickle about that.  The only thing I would be worried about is if democracy as we know it gets chucked.  I do agree with the rest of the post though. 

Definitely option #3 is the correct financial answer.  I'd just put some thought into the effect of moving your kids when they're in their early teen/tween years.  Is there any possibility that you would delay moving until they're out of school?  If so, then one of the other answers might end up being more reasonable.

[Dicey]

The DC market is very fickle, due to the ever-changing administrations and related hoopla.

Huh?  the ever-changing administrations makes for a constant source of new buyers.  Nothing really fickle about that.  The only thing I would be worried about is if democracy as we know it gets chucked.  I do agree with the rest of the post though. 

Definitely option #3 is the correct financial answer.  I'd just put some thought into the effect of moving your kids when they're in their early teen/tween years.  Is there any possibility that you would delay moving until they're out of school?  If so, then one of the other answers might end up being more reasonable.

I was surprised too when someone commented that his DC area property hadn't appreciated much at all lately. I dug through five pages of my own comments and can't find it. Either way, #3 is the best answer, especially given their short timeline. It's a lot easier to adjust to a situation when you know it's only for a few years.

[Villanelle]

The DC market is very fickle, due to the ever-changing administrations and related hoopla.

Huh?  the ever-changing administrations makes for a constant source of new buyers.  Nothing really fickle about that.  The only thing I would be worried about is if democracy as we know it gets chucked.  I do agree with the rest of the post though. 

Definitely option #3 is the correct financial answer.  I'd just put some thought into the effect of moving your kids when they're in their early teen/tween years.  Is there any possibility that you would delay moving until they're out of school?  If so, then one of the other answers might end up being more reasonable.

I was surprised too when someone commented that his DC area property hadn't appreciated much at all lately. I dug through five pages of my own comments and can't find it. Either way, #3 is the best answer, especially given their short timeline. It's a lot easier to adjust to a situation when you know it's only for a few years.

If someone's DC property hasn't appreciated much lately, it must be in a very unusual situation.  DC is up about 8% YoY, and Northern VA (since most people "in" DC don't actually live in DC and are spread out through Northern VA and parts of Maryland) is up 9+% YoY.  https://wtop.com/business-finance/2022/04/how-much-longer-is-the-dc-areas-record-housing-market-sustainable/#:~:text=The%20median%20price%20of%20a,year%2Dover%2Dyear%20sales.  And things were up the previous few years as well.  So I'm not sure how anyone's property hasn't appreciated, unless someone built a brothel or sewage treatment plant next door, or something oddly specific. 

The huge Amazon influx is still ongoing, and now Boeing has very recently announced they will relocate here from Chicago. 

The relatively stable market here, as well as his stated reluctance to get out of owning real estate entirely, is part of why I think OP should consider a 4th option, which is to continue renting the place he owns, while renting something for him and his family to live in.  If the rental is making money, keep renting it out and renting something better suited for his family. 

[Dicey]

The DC market is very fickle, due to the ever-changing administrations and related hoopla.

Huh?  the ever-changing administrations makes for a constant source of new buyers.  Nothing really fickle about that.  The only thing I would be worried about is if democracy as we know it gets chucked.  I do agree with the rest of the post though. 

Definitely option #3 is the correct financial answer.  I'd just put some thought into the effect of moving your kids when they're in their early teen/tween years.  Is there any possibility that you would delay moving until they're out of school?  If so, then one of the other answers might end up being more reasonable.

I was surprised too when someone commented that his DC area property hadn't appreciated much at all lately. I dug through five pages of my own comments and can't find it. Either way, #3 is the best answer, especially given their short timeline. It's a lot easier to adjust to a situation when you know it's only for a few years.

If someone's DC property hasn't appreciated much lately, it must be in a very unusual situation.  DC is up about 8% YoY, and Northern VA (since most people "in" DC don't actually live in DC and are spread out through Northern VA and parts of Maryland) is up 9+% YoY.  https://wtop.com/business-finance/2022/04/how-much-longer-is-the-dc-areas-record-housing-market-sustainable/#:~:text=The%20median%20price%20of%20a,year%2Dover%2Dyear%20sales.  And things were up the previous few years as well.  So I'm not sure how anyone's property hasn't appreciated, unless someone built a brothel or sewage treatment plant next door, or something oddly specific. 

The huge Amazon influx is still ongoing, and now Boeing has very recently announced they will relocate here from Chicago. 

The relatively stable market here, as well as his stated reluctance to get out of owning real estate entirely, is part of why I think OP should consider a 4th option, which is to continue renting the place he owns, while renting something for him and his family to live in.  If the rental is making money, keep renting it out and renting something better suited for his family.

That was exactly why I questioned whoever it was. It made zero sense to me. If anyone else remembers the exchange, feel free to chime in.

[Omy]

As a former realtor who lives in the DMV, I would NOT buy any time soon. Prices have been going up steadily and there's no inventory...and interest rates are going up (which means there are only 5 offers per home instead of 10). Especially if the plan is to move out of the area in the near term. The rental market is also insane (multiple offers/no inventory) with no indication that it will get more reasonable any time soon.

My vote would be to make the townhouse livable or to get lucky and find a better rental that works for you...but be prepared to overpay for that rental.

[couponvan]

Assuming you bought the property for $250K, and have depreciated it $9K per year for 8 years (we’ll round up to $75K for easy math), you have a tax basis in the property of $175K. If you sell it as a rental, you will be paying 15% capital gains. If you convert to your home, you won’t pay any gains. $50k tax savings for you to live somewhere for two years. In my personal opinion, I would take the $2K per month savings and splurge on something for the family to make living in the condo more palatable. Explaining the $ savings to the kids will be important as well. Maybe put the $2K per month into a. College savings fund they can actually see in their names?

[Villanelle]

As a former realtor who lives in the DMV, I would NOT buy any time soon. Prices have been going up steadily and there's no inventory...and interest rates are going up (which means there are only 5 offers per home instead of 10). Especially if the plan is to move out of the area in the near term. The rental market is also insane (multiple offers/no inventory) with no indication that it will get more reasonable any time soon.

My vote would be to make the townhouse livable or to get lucky and find a better rental that works for you...but be prepared to overpay for that rental.

Good point about even finding a rental, and even more so if someone wants to be selective about commute, schools, or anything else.  Word in my local military family facebook group, which is mostly just post after post of people panicking because they can't find a home to rent or buy, is that now people are offering over ask... on rentals.  And offering to pay the agent fee, if they are using an agent, when typically a buyer pays that. 

If the timing works with the end of the lease on the place OP owns, one huge thing in favor of living there is that it is a sure thing and they need not enter the Hunger Games that is finding a rental.

[rockeTree]

Option three chorus continued! You don't want the transaction costs (and time and hassle) of buying OR selling, only to have to do it again in a few years, you could drop dealing with being a landlord from your lots of kids, lots of career transitions happening list of stressors, you can save your cash for when you want that longer term home.  Pay someone to paint and carpet the place fresh and spruce up the yard (unless any of those are tasks someone in the household enjoys, kids pick the paint in the bedrooms), spend a week doing Marie Kondo style learning to love what you have and arranging it just so, and dive back into the important business of family and work and hobbies and life.

[Goatee Joe]

Joining the chorus here that Option #3 is the only real option here. Feel fortunate you have that option! At $150ish in income, that's the only thing you could afford to rent in that market. Crazy of course, because that's a nice salary outside of just about any major metro area in the US.

Just make it work with your existing condo. Millions of families do just that. As the saying goes, you can do anything, you just can't do everything. Which in this case is living in a HCOL, SAH spouse, short term assignment and so forth. You can do this!

Thanks for the words of encouragement.  I'm also starting to realize that our income from salary, which sounds decent in general, is going to be fairly paltry by DC area standards.  It's another factor making me lean more steeply toward option 3, honestly.  Maybe my spouse can find a side gig, but we have a 3-year-old and the price of daycare in the DC area tends to instantly destroy any extra side hustle cash (speaking from experience here).  Probably looking at the SAHM route for year 1, at least....

[Goatee Joe]

The DC market is very fickle, due to the ever-changing administrations and related hoopla.

Huh?  the ever-changing administrations makes for a constant source of new buyers.  Nothing really fickle about that.  The only thing I would be worried about is if democracy as we know it gets chucked.  I do agree with the rest of the post though. 

Definitely option #3 is the correct financial answer.  I'd just put some thought into the effect of moving your kids when they're in their early teen/tween years.  Is there any possibility that you would delay moving until they're out of school?  If so, then one of the other answers might end up being more reasonable.

Good point about kids.  Very unlikely we could wait until they're all out of school to move from the DC area, but if we could stay exactly 3 years, the math works out re: schooling.  This fall we'll have one kid going into 6th grade and another going into 3rd grade.  In three years, they'll both be changing to a new school anyway (high school and middle school, respectively) so it might provide a natural time to exit the area when that time rolls around. 

[Villanelle]

The DC market is very fickle, due to the ever-changing administrations and related hoopla.

Huh?  the ever-changing administrations makes for a constant source of new buyers.  Nothing really fickle about that.  The only thing I would be worried about is if democracy as we know it gets chucked.  I do agree with the rest of the post though. 

Definitely option #3 is the correct financial answer.  I'd just put some thought into the effect of moving your kids when they're in their early teen/tween years.  Is there any possibility that you would delay moving until they're out of school?  If so, then one of the other answers might end up being more reasonable.

Good point about kids.  Very unlikely we could wait until they're all out of school to move from the DC area, but if we could stay exactly 3 years, the math works out re: schooling.  This fall we'll have one kid going into 6th grade and another going into 3rd grade.  In three years, they'll both be changing to a new school anyway (high school and middle school, respectively) so it might provide a natural time to exit the area when that time rolls around.

my $.02 as a kid who moved often.  To me, moving before junior high/middle school or high school is actually the worst time to move, if you have a viable choices in the matter.  Those are already difficult transitions and doing them when you don't know anyone makes them even worse.  I've shown up to junior high after a move.  It was the last and worst of my childhood moves and that first day, having not a soul to sit with at lunch, was hard.  That move is literally something I've discussed in therapy. lol  For my sister, that move was before the start of high school.  She's a much more social person and was established in an activity (band) that gave her a way to meet people, so she struggled much less, but I think it was still a challenge. 

I sometimes wonder if the people who say that is a great time to move have actually done it, because among the families I know that move a lot (we are part of the military community, so that's most of my friends), it seems to be considered the worst time, with the possible exception of before senior year of high school. 

Also, keep in mind that some areas do middle school and some junior high.  I've seen that mean starting from 5, 6, or 7; and ending at 8 or 9, so keep that in mind if you want to move between--or avoid moving between--schools.