Buy and hold in Boston, how does this particular market work?

Question

Hi, I'm a new member from the Boston area (looking for my first house hack later this year), and I'm starting to analyze multifamily (2-4 unit) properties in the Boston area and just outside of Boston. I'm finding the price/rent ratios make it difficult to find cash-flow positive properties (putting down 5% as a first-time home buyer and including the live-in unit's rent as part of the NOI).

My question is: Boston (and similar areas) must be a good investment for certain types of investors, how do these investors approach such markets? Is there more emphasis on appreciation over cash-flow, are they putting a lot of money down, are there simply very few buy and hold investors etc.?

Having asked that question, my first house-hack may end up being "damage control" so I can live close to work while I look for investment properties, possibly in other areas.

Charlie MacPherson · Answer

@Christopher C. Evans Welcome to BP!  A few things to know before you jump into the landlord business.

1. MA landlord/tenant laws are biased WILDLY in favor of the tenant.  Educate yourself on just haw bad they are.  Also use a good real estate attorney to review your leases, policies regarding tenants, etc.

2. Anti-discrimination (fair housing) laws in MA are no joke.  The state actually sends out "testers" to see if they can trap you into doing something they can sue you for.  And of course, the courts here have already held that "entrapment" is not a defense.  Be sure you know all 15 protected classes in this state and act accordingly.

3.  Here on BP and other places, you'll read about the 1% and 2% rules, which are simply a quick rule of thumb to help you decide if a property is even worth further analysis.   They state that gross monthly rents should be either 1% or 2% of the purchase price of the property.

Both are almost unheard of inside RT 128.  In Boston, I often see properties at 0.6% and lower.  You'll do better as you move further away from Boston, especially to the south.  North and west tend to be more expensive, with the exception of rougher towns like Lynn and Lawrence.

How other investors approach these things is strictly an individual choice.  I choose to keep my own investing restricted to fix & flip, primarily because of the risk that bad tenants can pose.  It's just outside of my risk tolerance boundaries - although thousands of landlords do it profitable.

As to damage control, i.e., commuting times, if the MBTA commuter rail would work for you, it will expand the list of towns you can consider.  The average 3 BR SFR in Boston is listed at $941K.

Now look at 3 BR SFRs on  the south shore - in Plymouth, $528K, Lakeville $399K, Middleboro $392K - all of which have good commuter rail and offer a much less crowded and much quieter lifestyle.

Lior Rozhansky · Answer

@Christopher C. Evans North of Boston can be tricky as you need to find the right kind of area that suits your needs. I own and work there, feel free to message me and we can talk!

Christopher Richardson · Answer

Christopher,

I'm in the area that you work. I can tell you that we invest only for cash flow and all the investors in my network do the same. 5% down on a multifamily, that leaves me to guessing that your going freddie mac homepossible. Although the best deals are found before the hit the market, there are plenty of multi family properties that are on the market that have rents way below market. Unless you plan on having way below market rents and never making a profit, I would run your numbers off of a conservative low end market rent. Now I will mention because this is not to be construed as safe for running your dti for the purpose of financing. Lenders use the lower of the current rent or appraisal, so on that product you'd be looking at staying under 50% dti.

To answer your question about what most investors are doing, typically 25% down. That does not count for all those that are successfully house hacking in our market, as I don't consider those actual investors and neither does any institution. From any institutions standpoint you need an investment property outside of your primary residence to be considered an investor, otherwise your considered a homeowner with rent coming out of your primary residence. I tried answering your questions/concerns with a little extra in the mix. I hope this helps!

Always with my best,

Christopher Richardson

Michael Pallotta · Answer

@Christopher C. Evans I do a lot of work north of Boston. What areas are you looking in? Feel free to message me and I would be happy to talk more with you about the pros and cons.

Dan K. · Answer

You might be able to "house hack" if you put your rent into the equation. Living mortgage free in a 2-4 family within the Boston area is extremely challenging unless the property needs extensive work. Additionally, think about living in the dingiest unit. I lived in our basement studio for 2 years while it was gut renovated because I was only there a few days a week.

Our number on that property no longer look so great because my wife, son, dog and I are now living in "premier" unit.

Charlie MacPherson · Answer

@Christopher C. Evans I don't know the north of Boston as well as south.  I'd look for a good full-time agent to help you to figure that market out.

Christopher C. Evans · Answer

@Charlie MacPherson Thank you for the detailed reply! You make an excellent point about landlord/tenant laws in MA, I was aware of many of the laws but didn't realize they even send out "testers".

As for areas, I'm actually working out of Andover and looking for a house hack to get more REI experience sooner. Any suggestions North of Boston?

Buy and hold in Boston, how does this particular market work?

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