Expanding Our Real Estate Investments In Boston

Boston is one of the oldest and most expensive multi-family markets in the United States, and multi-family real estate on a per-unit or per square footage basis is at an all-time high. Still, investors are steadily expanding their portfolios in Greater Boston Suburbs, and are focusing on multi-family properties in particular.

Why are they doing that? Because the real estate market value in Greater Boston holds its value — and mathematically speaking, when you factor in the high rents, it’s a great city to invest in.

Boston is also an excellent city for house hackers looking to save money on rent — and for investors looking to grow their portfolio. There are many sub-markets in this area, and — in turn — plenty of opportunities for everyone, regardless of your strategy.

Property value trends in Boston

Overall, the property values in Boston tend to be consistent — which makes this market relatively resilient during downturns. For example, the median property in Boston was valued at $937,083 as of September 2021, as noted in the chart above. That value is essentially flat when compared to the property values one year prior.

The Boston housing market also bounced back very quickly following the initial dip from the pandemic, and a similar trend occurred with the housing market crash in 2008. Per the historical data, the 2008 property prices decreased in Boston — just as they did in markets across the nation — but the drop was not nearly as extreme as it was in the rest of the country. And, Boston recovered much faster than other markets, too.

That consistency in value from year to year is due to the greater Boston market being very mature, with prices that are pretty predictable. In turn, that makes it a great area for fix and flips and buy and hold. As with investments in many of the older cities, the money is made on the purchase of the property — not on the sale.

That said, if you want to make money in BeanTown, you need to buy your property the right way. Boston’s properties are some of the oldest in the county, and due diligence is crucial to the buying process.

Location and neighborhood trends in Boston

Massachusetts may be the 7th smallest state in the country, but it’s the 16th most populated — and it’s the most populous and fastest-growing state in New England. In total, Massachusetts had a population of over 6.9 million residents as of 2021 — a nearly 14% increase from the year prior. And, approximately two-thirds of those Massachusetts residents live in the “Greater Boston” area.

Boston is made up of many different areas and neighborhoods — and prices can vary greatly depending on the area. Location, location, location is what matters in the city, and many of the Greater Boston residents rely heavily on public transportation. Therefore, accessibility to the “T” — Boston’s mostly above-ground rail system — can have a huge impact on value. The closer you are to a “T” station, the more desirable the location becomes.

Property prices tend to be highest in areas right outside Boston, as the majority of properties are single-family homes. On the other hand, most of the multi-family properties are in Boston proper, and where the real investment opportunities are.

As of mid-November, there were 68 active three-family properties on the market, with prices ranging from $799,721 to $2.85 million. These multi-family properties had an average list price of about $1,524,400, per the MLS.

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Rent and market valuation trends in Boston

Overall, rents in Boston tend to be very strong — with an average of just about $3,000 per unit per month. One of the drivers of the strong rent trends — and one of the reasons we love Boston — is the reliable demand for rentals from the higher education institutions. Boston is home to a grand total of 35 colleges — including two of the top 10 universities in the United States: Harvard University and the Massachusetts Institute of Technology, or MIT.

That said, the average rental rate in Boston did dip a bit leading into the summer of 2020, and it was due in large part to economic issues caused by the COVID-19 pandemic. The pandemic forced many universities to shift to online classes temporarily, which led to the rental market in Boston having an excess supply of rental units. This drove average rents down across the board.

That said, rent prices have bounced back quickly in the time since, and are back to averaging about $3,000 per month. And, many of the surrounding suburbs now have projected average rent increases in the double digits for 2022 — averaging between 10-15%.

The abundance of highly ranked colleges and universities has also made Boston an epicenter for a highly-skilled, highly paid job market. According to data from the 2019 Census, the average income in Boston is over $94,000 — and the average income for the state of Massachusetts is just slightly less at about $85,000. When compared to the national average of just $65,000, the average Boston income is significantly higher.

In turn, the combination of high average rents in Boston — along with a highly educated and skilled labor force — makes this area a great place to invest in predictable buy-and-hold properties.

The future of the Boston market

Given the current all-time high prices, one of the most common questions agents are asked is, “Do we see another housing bubble in the future?”

While the unfortunate reality is that no one has a crystal ball to see the future of the Boston housing market, it’s hard to anticipate this happening — not in the near future, anyway.

When analyzing the data, it appears that for the housing market to crash in the Greater Boston area, a lot more inventory would need to enter the market. This would take some time to happen — and as of today, there are no indications that this has or will occur.

Furthermore, the monthly MLS data through October 2021 also shows a very strong cyclical market. There was a slight increase in Boston’s multi-family inventory in September, but it seems to have leveled off, and even decreased somewhat, in October. And, looking back at the data from 2020, there are indicators that the uptick in multi-family inventory occurred as a result of entering into the winter months and experiencing a seasonal softening.

So, based on the low number of listings and the low inventory — less than 2 months’ supply — we do not see any indicators in the data to suggest the market will be changing anytime soon.

That said, it’s important to keep an eye on how the multi-family inventory in Massachusetts fluctuates going forward. If there is a sudden or sharp increase in inventory, it could be a good forward-looking indicator that the market is softening.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.