The prevailing wisdom is that it is nearly impossible to buy a single-family home in the District below $500,000. Escalation clauses, insane cash offers and multiple bids drive up prices and are enough to scare off the most hardy home buyers.
While it is true that home prices in the District have tripled in the past 15 years and affordable living spaces are becoming more difficult to find, you can purchase a house in Washington even if you don’t have a fortune in your bank account.
Sarah and Eric Gilliland are proof it can be done. Sarah, a 37-year-old librarian, and Eric, a 44-year-old director of Capital Bikeshare, bought their first home in the District in August for $350,000. What was their secret? They bought a fixer-upper in Michigan Park. Although buying a home that needed work was more involved than purchasing one that was move-in ready, they say their 1957 rambler was well worth the extra effort.
Eric and Sarah had rented in the District for several years.
“He’s lived here since the ’90s, and I’ve lived here since 2002,” Sarah said. “I’m a librarian, and he works with bikes, so it’s not like we have the capital to up and buy a house.”
The couple had been living near the U Street corridor but wanted to be somewhere with a slower pace. They moved into a rented house in Northeast Washington to be near their jobs.
“When we first moved out to Brookland, it was kind of an experiment for us,” Eric said. “We were going to be a little bit away from all the hubbub. How was that going to work out? It worked out fine.”
When they started house-hunting, they wanted to remain in the city. Having grown fond of their neighborhood, that’s where they began their search.
The first house they saw, and the only one they bid on, was the house they bought. Their real estate agent took them to see other homes, but this was the house for them, even though it was in sad shape.
The house had been in estate. Water had seeped in through the roof and the basement. But their agent, Shemaya Klar, helped them see the possibilities.
“He’s a really enthusiastic person,” Sarah said. “This is off the beaten path for a lot of people, but it was just a few blocks from where we were living, and we already liked that.”
Eric said watching HGTV helped him see the home’s potential. “Just seeing how floor plans can change really helped me with the vision for this house,” he said.
The Gillilands needed to finance not just the purchase of the house but also the renovations. They met with a renovation loan specialist, John Settles, at their bank. The Gillilands opted for a conventional renovation mortgage, spending $136,000 on renovations.
“There’s so much more paperwork doing one of these [types of home loans] because you have to have plans from a contractor before you even close,” Sarah said.
Having never been through a renovation before, they didn’t know what to expect.
“It was pretty simple,” Eric said.
Added Sarah: “It was waiting for the permits from D.C. that was crazy. The [construction] team was great.”
The Gillilands found their contractor, Impact Construction, on a listserv.
“They communicated with us a lot,” Eric said. “If they had questions, they wouldn’t go ahead and do something without asking us.”
The work done included replacing the roof, putting in new windows, upgrading the electrical system, replacing the water heater, waterproofing the basement, creating an open layout by removing a wall and updating the kitchen and master and guest bathrooms.
“You’re always going to want to make changes,” Eric said. Buying an already-fixed-up house means “you’ve already paid for them. This gave us a lot more flexibility, allowed us to start from scratch in a lot of ways.”
The Gillilands, who began their house-hunting in June 2014, closed in August. The contractors started work in September, and Sarah, Eric and their daughter Mary moved into their new home in November.
“Going through the renovation process was fun because we knew what our budget was,” Eric said. “We each had our own ideas as to how we wanted to allocate it, but the decisions kind of made themselves.”
Along the way, they learned valuable lessons.
“I didn’t realize that stuff takes time to order and arrive,” Sarah said. “I had no clue. I had no idea how much things cost and how long it takes to get here.”
Eric discovered how important it was to stay on top of everything.
“My advice would be, one, to sweat the details, because there are a lot of them and it can seem overwhelming. But it’s important that you really focus on them,” he said. “It’s also a long-term process. Everything is not going to be perfect. For us, we look at it as a long-term investment. It doesn’t all have to be done right now. That’s something I have more trouble with than she does.”
Added Sarah: “I feel like I’ve got 30 years to live in this house.”
Eric and Sarah once had worried that home ownership in the city they love might not be possible. But with creativity and a can-do attitude, they found a way. Now, they hope others will follow their lead.
“We invested a lot in the city. We love it, and we wanted to make it our home, but it was hard,” Eric said. “We found a place that we love. We found a way to make it work. We’re very happy we were able to do that.”
Klar is an associate broker with Abbott Klar Real Estate Group, which is part of Berkshire Hathaway Home Services PenFed Realty.
“I don’t think they were looking for this house at all,” Klar said of the home the Gillilands purchased. “I said, ‘Look, it needs work, but you’ll be ahead if you buy it and do the work than if you buy something that’s already flipped.’ They were very receptive to that.”
Klar said a huge turnover is going on in the District, where homes that haven’t been on the market in 30 or 40 years are now being listed for sale. They may be a bit dated, but they can be had at a discount. Of course, you may have to compete against a developer for them.
“The requirements for making a house livable or nice are just not that scary or overwhelming as people think they are,” Klar said. “If people would just have a tiny bit of vision, there’s a lot of great houses to buy. It’s exhausting. It’s sometimes stressful, but in the end you get a house the way you want it and you did not have to pay for the developer’s profits.”
Before Settles became a renovation specialist with Wells Fargo, he began his career at the Department of Housing and Urban Development. He also worked as a developer and a general contractor.
“If you’re in D.C. or the close-in suburbs and your price range is $750,000 or less, I think you really have to consider this option because it’s probably your best and only option,” he said.
“Normally, you are paying a discount for a property because of the work it needs. When you are doing renovations, you’re already walking in with some equity. . . . If you buy it fixed up, you’re paying a premium and you’re losing equity. But more importantly, you also don’t know what you’re buying behind the walls. You may be paying a premium that’s not worth it.”
In a competitive market such as the District, it can also be a way to make your offer more attractive to the seller.
A buyer “can walk in and say, ‘I’m approved for a renovation loan. I’m doing a home inspection for my purposes. Any work that needs to be done on the property I’m going to include in my renovation loan.’ Sellers like that,” Settles said.
Although the Gillilands opted for a conventional renovation loan, the most popular products are Federal Housing Administration loans — the FHA 203K streamline and the FHA 203K full. With the 203K full, a HUD consultant acts as an inspector and cost estimator.
“I actually find that more of my customers like the 203K because they like the idea of having a knowledgeable HUD consultant,” Settles said. “They like that extra layer of protection.”
The down payment is also more favorable for FHA products. But FHA renovation loans do have downsides. They require private mortgage insurance for the life of the loan, and there is a limit on luxury items.
“Most people are not going to run into that,” Settles said. “Especially nowadays, I see the opposite, where people are just trying to compress more into a tighter budget.”
For both conventional and FHA loans, six months of mortgage payments can be financed if you are unable to live in the home during its renovation.
The renovation loan process is more complex, but it basically comes down to two extra steps: identifying a contractor and determining the scope of work.
“It is more complicated — I would warn clients of that — but I think it’s worth it,” Settles said.
Justin Sullivan is president and owner of Impact Construction and Consulting, a D.C.-based remodeling and construction company that does everything from kitchens and baths to large additions and basements.
“It makes sense for people who are looking to buy a fixer-upper to bring in real estate and construction professionals at an early phase, preferably before they have put in an offer, so that they know what they’re getting into before they purchase it,” Sullivan said.
Sullivan has found that the proliferation of home-improvement shows on television has led to unrealistic expectations by some home buyers.
“What I tell people is those programs aren’t based on reality,” Sullivan said. “There’s the expectation that it’s this fun and easy thing that takes a few days. In reality, it’s a complicated, stressful, life-changing event that takes months and months. . . . It’s important for them to understand that it is going to be a second full-time job for them, if it’s truly going to be rewarding.”
According to Sullivan, the design can take between three to five weeks, and permitting can take anywhere from three to 10 weeks in the D.C. area.
“It often takes six months or more to complete a project from design to permitting to construction,” he said.
Before renovating a home, Sullivan recommends that homeowners think about how long they plan to remain in it.
“You need to come to the table with a vision of how long you want to be in that home and how you want to grow in that home,” Sullivan said. “If you can give yourself a couple months to live in it, to see how the sun sets in the month of April and what this space is giving me that I didn’t realize when I bought it, because living in a space allows you to really figure out what you like and don’t like about the house so you can make informed design decisions down the road.”