North of Boston MA Advice on Renovations and Returns

[Becky C.]

This year we sold our only rental property (thanks to those who advised me on that topic) and sold our own home to move into a different one. Now we're sitting on some cash and would like to reinvest in a new rental. I'm north of Boston in Massachusetts which is a very competitive market, and am open to single families, multis, or condos that I can rent for more than the mortgage for a 15 year loan. I really wanted to do fix and flips or BRRR strategy (depending on exit conditions after updates), but the agent I'm working with seems pretty skeptical on it. People keep telling me that around here that is really for "developers" and I guess I don't rate yet (though I'd like to someday :))

The problem is the market is so hot up here, it seems like the only way I can find a deal that supports my goals is with fixing up more distressed properties that haven't sold right away, so I'm struggling with the best way to use my available capital. Say we have around $100k to put in, we could put 25% down (standard around here for a conventional mortgage on second/investment home) on either 1 $400k home, 2 $200k condos, or 1 less expensive place needing repairs (putting some of our capital against renovation).

I just saw an 1846 built victorian that was "codexed" into two separate units, on a 12,000 sqft lot which used to have a barn structure, and the agent suggested the best value for the property is a flip with the addition of resurrecting that structure (with approvals - this is a historic district) and turn it into two more condos in the back of the lot. The house is totally overpriced, and needs extensive extensive renovation as one unit is basically poorly gutted with a lot of non permitted work, and the other is just a mess. So needless to say, both (unit 1: 4 beds 1 bath 2000 sqft, unit 2: 2 beds 1 bath 1000 sqft) need to be gutted for a price much higher than I have the capital to fund.

My hope on this specific condex was that I could rent the first unit (questionable if it is "liveable" though it is owner occupied now - he's in preforeclosure) to cover the mortgage, while fixing the back unit. However after my showing I think its a much bigger project than I anticipated and likely wouldn't qualify for traditional financing, so wanted to ask the community about how larger developers are turning these big old houses into multiple condos all over Boston. Its happening a lot around here, so I assume people are making good money doing it. I'm not afraid of a big project (though my agent is), I just don't know where to start or how to finance - or if I really should just run away like my agent concluded.

The other general question I'm seeking advice on is just if anyone has opinions in general for the Boston area on the best use of my funds at this point - a little vague I know, and while my agent is trying to give me the best advice he knows to (and he works with other investors), I just want to get some different perspectives because he seems fairly against anything needing any renovation.

Anyways, thanks in advance for your thoughts!

[Ann Bellamy]

To answer your question about larger developers doing condo conversions, they fund them in one of 4 ways:

1.  Their own cash, if they've been doing it for a while

2.  Hard money:  borrowing part of the purchase price and all of the renovation funds is common when borrowing hard money.  If hard money is new to you, there are tons of threads on BP about it, and my website has lots of information pages on it to gain a beginning understanding

3.  Private lenders:  such as friends, family and other people they have made connections with.  Sometimes these funds are used as the down payment money for a hard money loan

4.  When they get experienced enough with a track record they can sometimes get bank financing

In my opinion, a condo conversion is not a good first renovation project.  There are lots of unknowns and many moving parts on a rehab project, and adding the whole condo conversion piece to it can launch the complexity into the stratosphere.  And you have 2 or more of everything:  heating systems, electrical boxes, kitchens, etc