Buy and Hold in Providence RI or Worcester, MA

[Tarcizio Goncalves]

Hi everyone,

I am pre-approved to buy my first investment property. My wife and I are looking for either a 3 or 4 multi family unit. Because we are having a hard time finding a deal near Boston (where we live) we are looking outside of our area to find deals. We have narrowed down our search areas to either Worcester, MA or Providence RI. Both locations are within 1 hour drive from us. We are even contemplating moving to the area where we invest since it’s not that far and the possibility to house hack is good.

What we know from both locations (Please correct us if we are wrong):
We shouldn't count on appreciation
Good chance to cash flow in both places
For the most part, the school system isn’t that great (at least that is what I found through my research)
According to the 2014 census, Both cities had a population growth (Worcester grew more)
The rental market seems to be better in Providence than in Worcester
Propety taxes in RI are higher than Worcester

I was wondering if I could get some advice from the community to help me narrow down where to invest. I’ve been on BiggerPockets for 4 months now gaining knowledge and I am ready to take the jump.

Thank you all in advance for the help and advice. 

[Anthony Thompson]

@Tarcizio Goncalves I'm not that familiar with Worcester, other than the occasional drive-in for a Black Diamond REI meeting. In general it has seemed like a bit of a depressed area, but it's not really my back yard. I'd be curious what the trend has been in that area for the past 5-10 years and if there's anything promising on the horizon.

Providence has a wide range of areas, and as @Patrick Wheeler mentioned there's the East Side which is a good area with college students. It's hard to find a "deal" there because everyone knows it's a good area, but it's much easier to manage tenants there and it's more or less guaranteed to stay an "A" area in general.

I think my biggest concern with Providence, as you mentioned, is the property taxes. Providence has a different tax rate for non-owner-occupied properties, and it seems like whenever they have any budget holes, the first place they look to take money from is landlords. It had gotten so bad at one point that a group formed to fight the excessive landlord tax, with some mild success - see the Providence Apartment Association.

Personally I am very concerned that various cities and towns have made financial promises they really can't keep (pensions, infrastructure, etc.), and when push comes to shove, they will choose to raise taxes instead of renege on promises or institute needed reform. And when that happens, they will look to non-owner-occupied properties since the owners probably can't vote against such increases - an idea Providence already has implemented and I expect others will as well.

So if you have your choice of properties/areas and you intend to be there for a while, I always encourage folks to research the financial stability and ability to meet future projected obligations of any given city/town. Some good sources for researching that question are agencies that rate municipal bonds.

Also it might not hurt to ask your accountant or financial advisor what your personal (income) tax burden would be if you lived in Massachusetts or Rhode Island. It might not be much difference, but it's worth asking just to know ahead of time, especially if you're in touch with her/him now due to tax season anyway.