| Real Estate & Property Management Services

I received the following email from a landlord whose property we manage at Midtown Alexandria:

"We would like to consider listing the condo for sale at Midtown, maybe for 6 month periods. It would have to be an investor type due to the current tenant lease. The price I have in mind is $425k. On top of that would be your commission added. I know it is pricey in comparison to what exists but I would just like to get an idea of interest. Perhaps putting it on the market from time to time would be one strategy. Let me know your thoughts."

Here was my reply:

I honestly can't see how it would do you a bit of good and I'll tell you why.

But first I should let you know that I work with a number of investors who make purchases with me from time to time. I've been telling several of them that Midtown is a GREAT place to buy right now. I think it's a great place to buy for an investor because the prices at Midtown are way below what I think the actual value should be. There are a number of reasons compounding on each other to create the valuation problems of Midtown Alexandria Station:

- Many owners bought at the height of the market. Some of them bailed out through short-sales and foreclosures. Many are holding on for dear life and when they see the slightest possibility of escape they do so. Every bit of demand at Midtown is swamped by owners who would love to bail out.

- They've recently built a number of large apartment buildings in close proximity to Midtown. Many Midtown buyers are first-time buyers who are weighing the choice of renting vs. buying. As long as there is a glut of rental options, rents stay low. As long as rents stay low, there are a number of buyers who will prefer to rent rather than buy. Lower demand for buyers means lower prices for sellers.

- The rental competition mentioned above keeps rents low. Most investors look at cash flow when they invest. Appreciation is something they hope for, but they do not count on. When you look at the rent vs. the cost to purchase at Midtown the opportunity does not look appealing. There are a number of options that are nearby where the ROI is much higher than Midtown. A low ROI means a lot of risk. If there is no appreciation the investor has tied up a lot of money for no good reason.

Well kept condominium — The condos at Midtown Alexandria Station are located at the Huntington Metro Station.

That said, I have told a number of investors that I think now is an excellent time to buy at Midtown. The reason is because I think the pressures I listed above have compounded to the point that the price at Midtown is I think below the value at Midtown. I think an upward swing in value is about 2 years out. Here's why:

The National Science Foundation will be completed soon. The reason all those apartments were built is to take advantage of the increase in demand that will follow the NSF. Once the NSF is complete and the apartments start to fill up, I think the apartments will jack up their rents.

This will have a cascading effect on values at Midtown. When area rents go up, then the idea of purchasing at Midtown makes more sense for a first time home-buyer. When the rents go up then the property makes more sense for investors. These both increase demand.

At the same time there is a big redevelopment project slated for Huntington and as that phases that will have a huge impact on the perceived value of Midtown. Right now Midtown is a nice newer condo directly on the Metro, but in kind of okay but grungy neighborhood. In the future Midtown will be smack dab in the center of a new exciting neighborhood.

Entrance of Midtown — Midtown offers a convenient location and an outstanding value.

For this reason I think Midtown is going to see a lot of appreciation and I am encouraging investors to buy here. That said, the reason investors should buy here is the reason that selling is a bad idea for you. Let me start by saying investors want the absolutely cheapest available opportunity. If you are priced high, it doesn't matter what your view is or if you have renters, then there is NO chance an investor will take interest.

If you are priced low there is a chance that investor will take an interest, but the investor is only going to buy if he can talk you down from that low price. In other words, I don't think there is any chance that any investor would be interested in your property.

Home buyers who are buying a primary residence sometimes buy a higher priced unit. It is true that a homeowner will pay a few thousand more for the floors they like or the view they want or to be close to a particular amenity. But home buyers are only interested in properties that look great. They are turned-off by properties with renters. So, I think there is only a very small chance that any home buyer would have any interest in your property.

So all that is to help you explain my position when I tell you that I don't think you do yourself a bit of good by listing the property for sale right now and I think you actually hurt us a bit because we'd have to do work that I don't think would have even a hope of getting us any money. If this advice finds you in a mood where you still believe that listing the property for sale at $475k is a good thing to do at this time, then I would offer to list it for you for a flat fee.

Normally we would charge a 6% commission. Instead I would list it for you for 3% plus $500. This is a savings to you of about $14,000. 3% is payed to the selling agent (most likely another company) if/when the property sells. $500 is paid to us when we list the property, whether the property sells or not. We would still perform all the services we normally perform. That $500 would include the cost of professional photography (which is about $250) to list the property.

No, I don't think the property will sell. I understand why you want out and I empathize with your position. Although we cannot do anything to change the market I do think there is finally a light at the end of the tunnel.