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Posted at 05:00 AM ET, 03/16/2012

Ask the Lawyer: Should I buy property if I’m still renting?


Kevin Ogorzalek looks southward at the Washington Monument from the rooftop deck of his recently purchased condo in Pleasant Plains neighborhood of Washington, D.C.. He decided to purchase rather than rent. He's among many potential homebuyers who are on the fence about whether to rent or buy in this market. (Photo by Linda Davidson / The Washington Post) (Linda Davidson - THE WASHINGTON POST)

My fiance and I rent a one-bedroom in a co-op in southwest DC. We’ve noticed that the studio and one-bedroom units in our building are selling for pretty low prices — some for $150,000 or less. Our lease doesn’t end until summer 2013, but we’d hate to miss out on a good investment. Is it a good idea to buy property while still renting?

— Marrio

A: Buying an investment property while still renting is a perfectly sound idea so long as the investment makes economic sense. In fact, my very first real estate investment was buying insider rights to a building that was converting to a co-op. Since you live there already as renters, you must know the fair market value of the rent you could obtain for the investment unit and how hard or easy it is to find vacant apartments to rent. If that rent will be sufficient to cover your mortgage principal, interest, co-op fee and utilities, then it sounds like a “go.”

A few points, however:

• You mention studios and one-bedrooms. While studios are less expensive to buy and maintain, the rental market for one-bedrooms or, if possible, two-bedrooms, is even better. Large one-bedroom and two-bedroom apartments are ideal for roommate situations, which provide two incomes to rely upon for the rent payments each month.

• Your mortgage interest rate and down payment percentage as an investor will likely be higher than if you intend to make it your primary residence. Also, because this development is a co-op, your universe of mortgage lenders will be severely limited. So I highly recommend finding out which lenders have loaned into your specific development and then contact all of them to compare rates and terms and get pre-qualified before even considering making an offer.

• Also, though you may know the development’s exterior condition, you should still do a thorough review of the co-op documents and budgets to make sure the development is legally and financially on solid footing.

• Finally, no prospective DC investor or landlord should purchase without becoming familiar with DC’s business licensing, landlord tenant rules and DC’s Tenant Opportunity to Purchase Act (TOPA). Here are some links to House Lawyer previous columns I have written that you may want to peruse before becoming a landlord in DC:

Know your rights as a tenant before signing a lease

Want to become a landlord? Study up on your jurisdiction’s requirements

Buy v. Rent calculator

Got a real estate question about a situation you’re in? Send it to realestate@washpost.com.

Harvey S. Jacobs is a columnist for The Washington Post Real Estate section and a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord and lender. This column is not legal advice and should not be acted upon without obtaining your own legal counsel.

By  |  05:00 AM ET, 03/16/2012

 
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