First-Timer's Guide: How To Buy Your Own Place In D.C.

UPDATE: It's time to start working on your New Year's resolution, so why not look into your very own abode? This story was originally published on November 28.
It’s no secret that D.C. is sorely lacking when it comes to reasonable housing options — this is a town where a Craigslist post for a tiny studio for under $1,600/month generates lines around the block, and where desperate renters are more than happy to turn a roomy (albeit windowless) closet into a second bedroom. Because really, what choice do we have?
Turns out, you've got more options than you might think. Meet Kira Neal, a Smithsonian employee and longtime D.C. renter who bought her first place after getting sick of U-Hauling her stuff around the city. Weighing the pros and cons and doing the math made the commitment easy, even for a transplant with dreams of returning to California. Neal not only owns one of the coolest downtown digs we've ever seen, but she's also a pro at explaining how to invest the thousands you're paying in rent into a place of your own (and how to recoup that moolah when it’s time to move on).
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We took a tour of her inspiring, artsy pad, then sat down with her and local realtor Lindsay Dreyer (who owns CityChic Real Estate, where 80% of her clients are first-timers), and asked all our pressing questions. The result? A crash course on what it really takes to buy a place, and how to know if you’re ready — financially, emotionally, and otherwise. Call it the CliffsNotes on first-time home ownership. Click through to read, but beware: It'll make it that much harder to write that December rent check.
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In a town known for transient careers and high real-estate prices, why buy?

Neal: “A mortgage is always a better option [than rent]. I was renting and started looking at numbers, and it became really clear to me that it would be cheaper to have a mortgage instead of rent in the neighborhood that I wanted. My dad works in commercial real estate, so [he] helped me cost it out. We sat down and crunched the numbers, factoring in everything — homeowners' insurance, fees, everything. It became pretty obvious that I was paying more for a mediocre apartment in Columbia Heights than [I would pay] for my own place on U Street.

One of the really attractive things about [when] I bought and the neighborhood I chose was that I recouped my down payment and then some. When I eventually sell, I will make back more than I put into it. In the two years I’ve lived here, the units have gone up $200,000 in price.”

Dreyer: “It’s an amazing time to buy right now — especially in D.C., because we have one of the best break-even points in the country, [which means] it takes 3.5 years to break even on your investment from when you buy to when you sell your property. In a nutshell, [it means] you haven’t lost a penny.

There are also great tax benefits: D.C has a $5,000 credit for qualifying first-time homebuyers, and mortgage interest and property taxes are tax-deductible! Interest rates are at an all-time low — being able to walk into an appreciating asset at a 3.5% interest rate is a fantastic investment.”

Neal sitting pretty in her sunny, melon-hued bedroom.
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What are some pros of owning versus renting?

Neal: "There are a lot of pros to owning my place. Cosmetically, I can do whatever I want with it. I have concrete ceilings and I can drill a chandelier up there, and it is totally okay. I own a part of the building, and as funny as it sounds, we have a banging rooftop, and it’s cool that I own a little piece of that. Everybody who lives here is really invested in this community — you get to know your neighbors a lot better, because [they all] have a vested interest in this shared investment.

I have this 8-foot-tall ice-cream cone that a D.C. street artist made that I wouldn’t have bought [if I rented], because I would have to be lugging this 8-foot-tall ice-cream cone all the time. I can nail plywood to the walls, etc. It makes it easier to make investments because they have a place to live.”
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How about the cons?

Neal: “There are pros to being my own landlord, but if stuff happens, it is on me to deal with it! Also, you care more — the floors are bamboo and they are beautiful, but can scratch really easily. I can hear my parents in my head when I'm like, ‘Don’t drag stuff across the floor!’ There are little nicks from every single party that we’ve had.”

Dreyer: “You own it — so you have to take care of it. If the plumbing leaks, you have to fix it!”

A pretty vignette on the dresser.
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How did you know you were ready for the commitment that comes with buying a place?

Neal: “I still don’t know if I'm ready for the commitment! I wasn’t looking for a place forever — at some point, I’d like to be back in California — but I knew I would be here at least five years. The numbers were there, and it was time for me to pony up and take the risk.

It’s scary, but if you think about any investment you make, it’s obviously a gamble. Investing in the stock market is intimidating to me [because] I don’t understand it. In real estate, I understand it — I can see what neighborhood will be groovy, and why my investment will grow in value.”

Dreyer: “You must consider your long-term goals when you’re considering making a real-estate investment. It’s a long-term commitment — you need to plan to own this property for at least three to five years."

Neal has filled her personal space with artwork by D.C. artists, including this painting by Decoy.
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Walk us through the math — how much do you need in the bank to make an investment, and how much does it really cost to buy a place?

Dreyer: “Let’s use an example for this. For a $300,000 one-bedroom condo in a good D.C. neighborhood, here’s where you need to be:
First, there are several different loan programs to choose from, but let’s go with a conventional 5% loan program, meaning that 5% of the sales price is your down payment. For a $300,000 sale price, you’ll need $15,000 for a down payment. Closing costs include the mortgage and title, and D.C. taxes, which are going to be around $10,000-$12,000. All together, the total cash you will need for the purchase is between $25,000 and $27,000.

Most people should have at least four to six months of reserve funds set aside, as well, meaning you can cover four to six months of your mortgage payment and expenses. The mortgage payment on this $300,000 condo, assuming a 3.75% interest rate, will be made up of four components: principal and interest ($1,320); private mortgage insurance, which is needed when making a down payment less than 20% ($297); property taxes ($213); and condo fee ($250).

So, the total monthly expenses for that condo would be $2,080 — and keep in mind that you deduct the interest and property taxes [on your annual tax forms].”
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What advice do you have for a first-timer starting the process of buying a place?

Neal: “Being in an area is really important before you buy. Even if you are renting for a year before you buy, it is important to understand the area to ensure you are making a good investment. Find a realtor that you really trust and connect with, and look [at options] all the time — even places in neighborhoods you’d never think to look.

Do your homework on the neighborhood. Find out about alcohol licenses, zoning issues, etc. Find out about the culture — for example, artist spaces and an indie movie theater are going up in my neighborhood, which is great, because that's the vibe I'm looking for. But if that's not your thing, then it’s something that you are going to want to find out about in advance to avoid it.”

Dreyer: “We have a whole section of our website devoted to first-time buyers. My grandma was a realtor, and she told me, ‘If you buy something, don’t sell it unless you have to’ — and that's even more important now, because interest rates are so low!”

Neal's airy, loft-like space overlooks her U Street neighborhood and puts her within easy walking distance of music venues, bars, restos, and more.
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How do you know which neighborhoods will be good investments?

Dreyer: “When I am looking to invest, I follow two things: commercial real estate and public transportation. Proximity to public transportation is very important. Commercial real estate is a great indicator of the future of a neighborhood. My fiancé was a first-time homebuyer who purchased a place in the Brookland/Catholic University neighborhood. In a year, the property went up $30,000.”

Neal: “I considered what the neighborhood would look like in a few years when it was time to sell the place. An important part of my search was safety — U Street was an up-and-coming neighborhood, American Ice wasn’t open yet, people were still hearing gunshots at 9th and U. But I knew it was on the cusp of becoming one of the best places to live, because I did my research. I read real estate and restaurant blogs that gave me a good indication of what this neighborhood would be like. When I was looking to buy, the Hilton brothers [were working on] The Brixton on U Street. They had already made the land purchase, and I knew that wherever they set up shop, cool things happen around it.

I really wanted to stay on or north of U Street, and my realtor encouraged me to look in Logan Circle to have a contrast to what I wanted, which was really helpful. It reinforced where I wanted to be, but it helped me decide if I wanted a studio or a one bedroom; a place with a pool and lots of amenities, but high HOA fee; or something more bare-bones. The cons became really stark and clear to me — Logan Circle didn’t have a Metro [stop] close by, and I realized what a priority it was. It helped me prioritize what I wanted in a place and a neighborhood.”
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Tell us about the process you went through, from initial research to writing the check for the down payment.

Neal: "After doing my legwork and research, I found a really great realtor who was the most helpful force that I had. I looked everywhere and anywhere for months, signed up for other realty company listservs to find out what was on the market. My final count [of units I saw] was around 60!

When I finally found the place I wanted, my realtor, the other company's representative, and my bank had tons of different meetings over the phone. We came up with a bid and submitted it, and it was turned down. So, we had more meetings to come up with a second bid, and the owner accepted it. After that, it was just a barrage of documents, making sure the title company was up to speed and the paperwork was in line. I also had two different home inspections. Finally, we were able to get the keys, and my grandparents were with me that night, which was so cool — they were immigrants to this country, and were so excited that I was able to make that purchase.”

How did you know it was your place?
Neal: “I fell in love with the floor-to-ceiling glass in the living room. I fell in love with this place like I would a boy I was waiting on to call me back. I loved the master bathroom — it was bigger than anything I had seen in D.C. I just thought, 'Oh my goodness, it is princess-like,' and I was sharing this tiny bathroom in Columbia Heights. The condo is so modern and cool, but the exterior of the building is very Miami Vice. It had everything I wanted — I was obsessed with it!”

Neal in her modern-yet-comfy living room.
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