How would you attack this situation?

Question

Hello, thanks for reading. Currently looking for multifamily properties in MA, but the numbers are looking better out of state. Have funding and can find properties in markets that interest me. 3 things holding me back are

1. Unsure of areas- Sure we can find great deals on paper, but what is "that neighborhood" like? Near me in Worcester, Ma the rents are easily $1200/mo in one spot and two streets over you would be lucky to get $900. Would agents or managers be better for this?

2. Should I just cold call property managers with good yelp reviews? haha I am not very experienced on BP. Is there a way to find property managers on here and filter down to the location I am looking for?

3. Sounds silly when I say it. I have a buyers agent working hard for me licensed here in MA, and it feels like a betrayal of trust or something if one day I'm just like "hey joe i dont currently need you to keep looking for properties, i just bought one with another agent down in TN." Is that crazy? I am all about trust, accountability, and being a stand up citizen. I feel like it would be immoral.

Thank you for any input. Be gentle, its my first post. HAHA

Brian J Allen · Answer

As a buyers agent in Worcester, i feel for the other agent.  However, there is only so much the market will bear in terms of investment.  As you rightly state, rents is $1200 in some place and $900 in another.  And it can swing even more than that around WPI where the rents might be $1800 and around the corner $1200 for the same 3 BR unit.  Keep in mind a couple of things.   Who is managing the place?  You can write off the expense of visiting your rental property, so maybe a trip to TN might be fun a couple times a year.  Also, you have appreciation.  Worcester multi family appreciation has been crazy over the last 3 years for a number of reasons and the major one is rental appreciation.  Will you get rental appreciation in TN?  Worcester rents still have a ways to go before they catch up to where they should be, especially if you only have to drive to Boston 2X a week off hours.  Why would you live in Framingham if that is the case and pay 75% more than Worcester.  Also, keep in mind that a lot of deals in Worcester are done before they hit the MLS.  If your agent is tied in to the Worcester Wholesalers, and the agents that do the bulk of the transactions then you are good.  If your agent doesn't work at an office that does at least 20 Multis a year, you will have difficulty finding anything.  There are under 5 offices that do more than 50% of the multifamily volume, and that is what you can see on MLS.  I bet if you counted what they did off MLS, they would be closer to 60% of the total volume of sales.  Best of Luck.  Worcester has great opportunities if you know where to look for them!

Paul Ireland · Answer

Welcome Nick! I love the Worcester market, but wow it is red hot right now. Most properties that sit on the MLS 10+ days do not make much sense numbers wise. You also run into the problem of assuming working class (not 'zoomable' jobs) tenants in a time when many people are being laid off. Ive looked at many things recently, only to pass because I could see how it would be an automatic eviction when I take over the property. Brian Allen is a great asset, and it's a brutal business. If your buyers agent is not getting the job done that you hired him to do, you may want to look at a more investor friendly agent.

A quick zillow / apartments.com search yeilds nothing under $1200 / month. My worst units in what I would call "the worst area" rent for $1300, and they are 2 bedrooms.

Catherine Emert · Answer

Nick - I think that I can put your mind at ease on the broker question - broker (good ones) are so used to being told no, or in this case, "hey, I couldn't find a deal here that would work but I found one in Oregon, would you like to refer me to a broker?" I can honestly say we have this happen at least once a month these days because our prices here are so high. Our feelings are NEVER hurt and honestly if you let them know now they may have a great broker in an area that might pencil better for you and a referral fee is better than nothing.

As for property managers - you can use the network tab and look by an area easily.

And finally, we have a lot of out of state buyers - what we do if they are curious about a neighborhood is we provide a rental analysis, a demographic report, a drone video of the neighborhood, get them in touch with the local PD and anything else they may have questions or concerns over. Broker/Agents have to be careful now days with fair housing and ethics, but we do what we can without crossing a line that we would feel gets us into a bad situation.

Nick Schiltz · Answer

Thanks @Toni Mo, you are spot on about Worcester. My agent has a good network and has calls out to his colleagues but nothing in our ROI range that doesn't require significant remodeling or an obscure raise in rent that wont work for the location. The out of state investing goals actually came from podcast, not sure if I know the one you are referring to but I have listened to every BP podcast for the past 2 years. You also have a good point about the landlord laws. "Making the deal where you live" is also interesting for us here in MA. We may have a unique opportunity here for section 8 with so many low income earners, high rents,  and a state that panders to those individuals.

Toni Mo · Answer

Hi Nick- I am an out of state investor from Worcester MA because the deals in Worcester dont work the last 2 years. It can work as long as you know your other market and have a good PM. Listen to Lee’s podcast on BP about investing out of state its a good one and she provides good perspective on both. I believe she invests in cash flow properties in KC and appreciation properties in LA. There are a number of other episodes on investing out of state just scroll through the episode list and you will see them. Also most any other state has better landlord laws than MA.

Lee Ripma · Answer

@Nick Schiltz

I invest out of state as do many others on BP. It’s certainly possible. Sometimes the cash on cash returns may look better out of state but the overall ROI in strong markets can be higher. Just something to consider.

Dan K. · Answer

Hi @Nick Schiltz -- All good questions. To address concerns:

1) There are a number of BP Podcasts and forum posts on investing out of state.

My two cents -- understand your and your investors' goals. If you want appreciation and a physical asset that you can see on occasion, out of state might not be a great play. You are going to be heavily reliant on third-party management for out of state investing but some people are crushing it.

2) Talk to as many property management companies as possible. You might want to "practice" talking to property managers in a geographic location that you aren't considering (but within the same state). As a newbie you want to understand the correct verbiage, fees, and market expectations. For example in Boston/Cambridge/Brookline, landlords don't typically pay realtor/finder fees, but in nearby communities like Worcester, it's expected that landlords will pay those fees.

Also understand the process for disgruntled tenants. Are you investing in an area where people are lining up to live or do you need to search out tenants? Does your tenant pool consist of multigenerational renters or are you targeting "young professionals" and graduate students? What is turnover like? How many evictions can you expect in the area?

3) Be honest with the broker you are working with. Don't see properties as a "courtesy" if you are committed to looking at different regions. Your broker has invested in you, but at the same time they want to move on if you aren't a serious buyer. In addition, your broker will see you as a potential future client.

Make your priorities clear with the broker. Why are you looking in a different region? What are the metrics, property conditions, census data, etc., about MA that concern you? Perhaps your broker can find properties within the region that fit your criteria.

How would you attack this situation?

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