WASHINGTON — “First-time buyers are increasingly priced out of the D.C. housing market,” the headlines read again and again. They wouldn’t necessarily be, if they compromised on what they want. But experts say there’s a reason they don’t.
Many first-time buyers want a picture-perfect, move-in ready condo, and they are paying for it.
“A lot of condo buyers are first-time homebuyers, and shiny and new sells, and it sells for a 20 to 25 percent premium, but most are willing to pay those prices,” Erich Cabe, senior vice president at real estate firmCompass, told WTOP.
Those buyers are also paying the price twice — once when they buy, and then again when they sell.
“We often times list those properties when they’re being resold for the first time, and people are often pretty disappointed in the lack of appreciation in their values, because they paid a premium for something that was new,” Cabe said.
The same equation applies to areas outside of the District, where new condo construction is proliferating, from Virginia’s Arlington to Reston.
Condos that need a little TLC, and are priced to reflect it, used to be prime choices for first-time buyers, and probably still should be. Buyers often overestimate the costs of renovating a kitchen or a bathroom.
But young buyers, especially in D.C. and other big, expensive urban centers, have a conundrum. They can’t buy fixer-uppers because they can’t afford them.
“Let’s look at the stereotypical millennial. They have a decent income, but a ton of student loan debt. So they can afford the debt and they can afford the mortgage, but really don’t have a lot of disposable income to do the renovation,” Cabe said.
“Buyers like that will pay the premium to have it be move-in ready and not require anything except purchasing furniture.”
That means missed opportunities for young, first-time buyers.
“Gutting, or just doing simple renovating, and making it new — there is value there. When you sell, having it be back to sort of shiny and newish-looking can make a big difference,” Cabe said.
In D.C., there is lots of opportunity for buying condos with solid bones in established neighborhoods with desirable amenities — walkability, nightlife, restaurants and retail, access to Metro — at prices below the premiums being paid for brand-new construction.
As an example, Cabe said there is good value for buyers looking at some of the prewar buildings in Van Ness or Cleveland Park, or some of the other, older Upper Northwest neighborhoods.
The trade-off is that many of those condo units haven’t traded owners for 20 or more, and may be dated.
Buyers also have to give up certain amenities that some people view as musts. For example, many prewar buildings don’t have washers and dryers in individual units; they are shared and in the basement.
It is also not unusual for older buildings to still have window air conditioners; some still have radiator heat.
It is not as if these condos sit on the market without buyers: In D.C., it is still a strong seller’s market across the board for all homes that are priced right.
Don’t dismiss co-ops
First-time buyers are also often spooked by cooperatives — most of which in the District are also older buildings — because of their notoriously high monthly co-op fees. But buyers don’t always grasp the otherwise out-of-pocket expenses monthly co-op fees cover.
“One of the biggest expenses of homeownership is the annual property tax bill,” said Russ Rader, president of the D.C. Cooperative Housing Coalition.
Because of the way cooperatives are taxed, their property taxes are generally much lower than those on individual condo units.
That’s a big bill co-op owners don’t have to write a check for every year. Nor their Pepco or Washington Gas bill either.
“That property tax bill is split up by 12 and included in a co-op fee, along with utilities, building maintenance, building insurance, sometimes parking, and often on-site resident services,” Rader said.
D.C. co-ops have actually had resident services down for decades. The buildings may be older, but dry cleaning pickup and drop-off, package delivery, doormen or 24-hour desks, and on-site handymen are still co-op hallmarks.
Buying an older condominium or cooperative will also almost certainly mean more square footage for the buck.
The size of new apartments and condos in the District has been shrinking for years, the developer rationale being residents will give up on individual space in exchange for all the amenities new buildings offer.
Older condos and co-ops may not be able to trump roof top pools, dog washing stations, coffee bars and communal spaces, but they are worthy alternatives for first-time buyers in the District.
New condo construction in the District has spread from the usual suspects like 14th Street, Capitol Riverfront, The Wharf and Mt. Vernon Triangle to all wards in D.C., and first-time buyers will find corresponding older stock throughout the District as well.
First-time buyers should be willing to look outside of their comfort zone and know that prices vary widely.
“Location” doesn’t always have to mean “expensive.”
“Each area of the city is its own market where there’s a melting pot of different things happening, which just goes to show us that all real estate is hyperlocal,” said Larry “Boomer” Foster, president of Long & Foster Real Estate.
For first-time buyers who can come in with enough money to make the improvements they want, or are willing to live with the blemishes until they can, fixer-uppers are an option that can ultimately turn out to have been a good investment.