Getting Started in Boston - What Should I Know? Will This Work?

Question

Hey everyone - looking to get started investing in the Boston area (Boston and surrounding towns, that is - i.e. Cambridge, Somerville, Medford, Arlington, etc). My wife and I are currently renting and are looking to buy our first house.

We've decided to make that purchase be a small multi-family unit - ideally 3 or 4 units, and live in one while renting out the rest. In an ideal world the rent cash flows each month and turns a small profit while covering expenses and the mortgage. What I'm expecting, however, is that we break even and it just opens up or own cash flow from no longer having to pay rent / mortgage from our own pockets.

We're ideally looking for properties in the $400-$600k range that need anywhere from $25k-$100k in reno work, and using an FHA 203k loan to fund.

Once that's all done, the plan would be to use the increased cash flow to save enough for a down payment on another property, and keep buying new properties in this way.

Thoughts? Anything I'm not thinking about? Any insights into the Boston area market?

Colin Alsheimer · Answer

@Josh Parra thanks! think we're going to be looking hard at dorchester and east boston after meeting with an agent last night. what do you think about everett / chelsea ?

James E. · Answer

Hey @Colin Alsheimer - as someone who's been looking into the same strategy in the same area, I can tell you that it's going to be tough to find a 3/4 plex in the areas you mentioned in the 400-600k range. Have you started looking around yet at the areas / prices?

You may be able to find something in Dorchester, Quincy, Everett, Eastie, Melrose, or further out in the burbs, but even duplexes in Boston proper / Charlestown / Cambridge are typically in the $800-$1m range if not higher.

Another option (and how I got started) is to buy a SFH / condo as your primary residence, but analyze it like you would an investment. See what your ROI would be IF you rented it ((rental income - mortgage payment - expenses) / invested cash). A lot of FHLM REO properties have stipulations that buyers must hold as a primary residence for at least one year, so if you take this approach you can likely get something ~30% or more below market value. If you can live there for 2 years while you fix it up and learn more about investing, and then either rent it out / sell / refi, it you should be in a good spot if you run the numbers correctly before purchasing.

I'm not a CPA, but my understanding is that you are exempt from capital gains tax from your primary residence if you're there for 2+ years, so it's a good way to start building up some capital without giving away much to Uncle Sam. You're also paying down your debt and taxing the tax write off on your interest payments during this time period - so much better option than renting.

That's just one idea though - I'm sure there are other strategies out there you may want to consider as well. Good luck!

Mike Hurney · Answer

@Colin AlsheimerWelcome.

Sounds like a solid plan, however you're in a very expensive 'hood.

Robbie Reutzel · Answer

Welcome Colin!

I suggest reading the Ultimate Beginner's Guide to Real Estate Investing as well as listening to the podcasts.

Also, since you seem to be planning to renovate, J Scott's book on Flipping houses.

Good luck!

Colin Alsheimer · Answer

Thanks Josh! I should state that goal #1 is getting a house for my wife and I to live in to get out of the rent cycle. Subsequent goals are investment related, so the way I see it as long as the property meets goal #1 and gets us on our way to meeting the REI goals, then we're happy.

Josh Caldwell · Answer

It sounds like a reasonable plan as long as your property cash flows.  Dont forget to account for vacancy, you will have some.

I cant comment on the Boston market other than to tell you that it is an expensive market and in general expensive markets are harder to cash flow.

you might want to look into my market in Pittsburgh for your next investments.   Saving your rental expense is the key to your future, so get yourself a house that makes you money instead of costing you money first.

To your success

Josh