First Time Buyer - Where do I start? - Massachusetts Market

[Matthew Cataldo]

Hello All,

I decided a few years ago that I wanted to get into the real estate business by buying and holding rental properties. Over the past 4 years iv managed to save around 150K. I live in Massachusetts near Boston and properties around here are extremely expensive and I am interested in looking more towards the central Mass like Worcester. Worcester is much more appealing because its the 2nd largest city in MA and has 3 colleges and many multi family units for sale at a much cheaper price than Boston. Iv seen prices range from 250-350K for 3 family units where as in Boston those units go for 1M +

My question(s) as a first time buyer r is how do i determine if its a good deal. What do you experienced investors look at ? The worries I have are:

1.) What research do you trust when deciding if the area is a good neighborhood? 

2.) How do i determine if i know that i can get the units rented out ASAP

3.)  What constitutes a good deal? Is there a certain number i should be trying to get to for cap rate ?

3.) what kind of financing should i do ? Is there a specific one that people typically do? i dont plan on living in this unit either.

4.) Is it a hassle to manage a building? How much should i stash away for unexpected maintence

5.) what do people do when tenants cant/wont pay - i know mass makes it difficult for the landlord to get these situations resovled. What do people do in their lease agreements in order to avoid this to the best of their abilities ?

Thanks for the help.

[Christopher Richardson]

Matthew,

Firstly I want to give you a compliment...since you have been saving for 4 years you have definitely earned the right to say that you don't want something for nothing, which believe it or not a lot of people do. Now to shed some light on your questions...

1) When investing in a property and not a note, your looking to invest in a hard asset. With that said its not like looking at stocks unless your speculating for appreciation (buy low sell high). The best research for anyone is boots on the ground or second hand boots on the ground (someone from the area). I don't know if your hoping to hop on the computer and look for all these different factors and analytics, but that's mostly beneficial when your trying to pinpoint a market. Since you have your eyes set on a specific market already and it's not far go and actually look at properties first hand. See what the neighborhoods look like, what type of tenants the properties will attract, how heavy the property management and how often the properties are going to need to be walked. You can analyze if it's "for you" depending on the level of risk tolerance and how you feel about the specific deals.

2) There's a motto that works with this day and age, and that is any unit can be rented the only variable is the price. If your really desperate to rent fast, depends on how fast you get the units rent ready (and occupancy certified in some cities), what platforms your reaching the markets tenant pool, and the time of year. If your concerned about it you can always hire help. The market is flooded with property managers and agents that'll tackle that lease up, please do your due diligence and don't get sold on sheep herders.

3) A good deal is a deal that fits the investor. Every investor has a different good deal. I know investors that think high end tenants, high end rentals, and low cap are a good deal, I know investors that think the least money down and high ROR is a good deal, I know investors that think a high cap rate is a good deal, I even know investors that think barely habitable properties with lots of "potential" is a good deal. So you'll need to figure out what your looking for and what fits you.

4) It's not a hassle to manage a building if you can expect every possible outcome and plan for it. Now with that said that's pretty unrealistic, of course there will be hassles somewhere at some point. Figure out what you have for skills, what skills your willing to learn, and how often you want to visit these properties, and network find people who can to fill the gaps, find some people that you can lean on when your in a bind, even make some friends with people who've been down the road so that you can bounce your problems off of and get input on how to handle the problems. As far as the monetary standpoint, you should have access to funds for reserves in an emergency. Cash is good, lines of credit, even a high balance credit card. How you handle the reserves depends more on the comfort level, some people want to pay for everything outright, some people want to finance everything possible and take it away from the cash flow (their mindset is I'm not paying for it out of pocket it comes from the rent from the tenant). Having a mixture is probably best, that way you have more options and versatility for how to pay unexpected costs, repairs, or capital expenditures.