1. Re-emergence of an historical DC neighborhood: 2232 11 th Street NW Jessica Morefield BA 517 Mid-Term Assignment

2. Analysis of 2232 11 th Street Northwest Overview: My potential investment is a duplex built in 1912 and located in the vibrant, historically significant Shaw/U Street neighborhood of Washington DC. The duplex is comprised of two fixer-upper apartments with separate entrances, each with one bedroom and one bathroom. The duplex is located along the “Green Line” metro corridor and within a 10- 15 minute walk of two separate metro stations as well as a local university. Financing Strategy: I propose purchasing the duplex for $475,000, a lower price-per-square foot than comparable buildings in the neighborhood. I plan to contribute $94,000 from savings, and my parents have offered to make an intra- family loan for the balance at the minimum required IRS AFR long-term rate of 2.4%. Some might consider a 80% L/V too conservative given this is not a bank loan. However, my risk tolerance necessitates a conservative L/V ratio. Financial Results: The three year investment results in an NPV of $93,886, an IRR of 34.56% and an ROI of 55.22%. Planned Improvements: 2232 11 th Street is structurally sound and has a new roof and windows. The building, however, does require some additional wiring, appliances, and carpeting/tiling. In order to achieve a rent premium, I plan to invest money in landscaping the front and back yards and replace the backyard metal stairs (pictured below, rightmost photograph) with a wood deck. These improvements serve a dual purpose: they will create curb-appeal with potential renters and hopefully will foster pride-of-ownership on the block. Select photographs of the property:

3. Neighborhood Characteristics and History: The property borders both U Street and Shaw neighborhood in DC, an area that thrived through much of the 1900s and was considered to be a “pre-Harlem” center of African American intellectual and cultural life. The neighborhood declined, however, following riots in 1968, and only in recent years has a reemerged with independently owned shops and good nightlife. In recent years, moreover, the City Counsel has paid particular attention to this neighborhood's clean-up. Demographic Shift: The Green Line corridor, which is considered one of the most rapidly developing areas in the Washington DC area. According to a recent study by Robert Charles Lesser & Co. (RCLCO), this corridor added more 18-to-34-year-old households than any other Washington DC area. As high-paying private sector professionals move into the Green Line Corridor, average household wealth has significantly increased. In 2000, new household incomes in the Shaw/U Street neighborhoods averaged approximately $35,000, whereas in 2011 new household incomes in that same neighborhood averaged $100,000. While average household income remains approximately $50,000 for the Shaw/U Street neighborhoods (significantly lower than new household income of $100,000), average income is expected to continue to increase over the next decade. Increased Development: According to the RCLCO study, growth is expected to continue along the Green Line and projections estimate that the Green Line will capture 21% of all new office development and 22% of all new retail development in the DC area. Residential homes along the lower portions of the Corridor (closer to downtown) have already significantly appreciated since the early 2000s. However, residential homes in the Corridor are only now beginning to realize this appreciation in value. Walkability and Public Transportation: U Street has a walk-score of 94 and Shaw has a walk-score of 91. These two neighborhoods are rated as the 10 th and 12 th most walkable neighborhoods in the Washington DC area. The duplex is within a 10-15 minute walk of both U Street and Shaw metros. Both metro lines are on the green and yellow lines and have easy access to downtown DC and other surrounding areas. Neighborhood Analysis

4. Comps and Financial Overview AddressPriceSold onBedsBathsSizeLotYearP/SqftDist. 2232 11 th St.475,000For Sale221,0541,2671912$445N/A 2020 12 th St.$809,00010/03/12221,270--2005$637.17 1421-23 Chaplin St. $590,00010/02/12221,112--1900$530.38 348 V St.$580,00010/11/12221,6901,3401905$343.63 Comps: When compared to like-properties in the neighborhood (found on Zillow.com), 2232 11 th Street is at the lower-end of the price-per- square foot range. Comparable rents—not illustrated due to space constraints—range from $1,400 to $1,800. I chose a mid-range rent of $1,600 for the apartments and increased the rent at a conservative 2% per year. While inflation is higher than 2%, I chose a more conservative rent because rent prices tend to be sticky. Year 0 Costs: I propose a conservative down payment of $94,000 and plan to conduct only necessary renovations, or those that will significantly contribute to rents (discussed on slide 2). In sum, year zero costs—which include purchase, closing, legalization, construction, and property preparation–total $106,800. Financing: My loan amount totals $376,000. At the IRS AFR long-term rate of 2.4%, my monthly debt payment is $1,466.18. Annual taxes total $3,948.51, which brings total monthly payments to $1,795.22. Given this, the balance due at sale (end of year 3) equals $349,667.55. Depreciation: The purchase price of $475,000 depreciated over 27.5 years provides very favorable, annual depreciation of $17,272.73.

5. Cash Flow Analysis Note on Sale Descriptor: I assume a selling price of $568,456.53 and sale proceeds of $131,629.47. To derive this selling price, I divided the Year 3 NOI by a 6% cap rate. I assumed this cap rate because it is comparable to cap rates in the Logan Circle neighborhood, a nearby neighborhood south of Shaw/U Street whose properties significantly appreciated in value over the past 5 years. Note on NPV: The NPV was calculated with a 4% discount rate as that was my assumed reinvestment rate.