How to determine a good deal in Massachusetts?

Question

I’m looking at multi family homes in the upcoming Worcester, Ma area and I’m finding a lot of seemingly slim margins looking at 3 unit properties. Unfortunately, Massachusetts is one of the priciest areas to buy houses in. Market rents seem to be 1500/unit (3bd, 1ba). Average price seems to be high 300’s low, 400’s. Does this seem worthwhile? After budgeting for capex, rehab, and other items. Is ~$1100/month worthwhile profit considering the high cost of initial investment? Does anyone else have experience dealing in areas near there where they see better returns?

Bernard Chouinard · Answer

No Southbridge.  Southbridge is 1 of 4 towns in central MA I would not in.  Webster does very well rental wise.  Eric Bowlin who was on the podcast is a guy I know who owns tons of rentals in Webster.  He also started the Multi-Family investment group in Newtown.  he now lives in TX but is up here all the time.  I own a home in a low-class area of Webster with a $650 Mortage (piti) and getting $1500 rent.  House values in this area are low but rentals are great.  Any town surrounding Worcester is great to own rentals.  Uxbridge, Douglas, Millbury, Shrewsbury, Northboro ect.  You can't go wrong in any of those towns.  Lots of investors are also focusing on Leominster/Fitchburg.  I personally am not a fan of Fitchburg its a town where one street can be great and the next one over has low values and higher crimes.  However, Boston based investors are focusing on this area with low acquisitions and same as Worcester rents.

Zachary Tremblay · Answer

Having grown up in Southbridge I suppose I'm desensitized to the goings-on that everyone hears about. The money is still green, and I'm still only requiring 40% occupancy to cover my mortgage on my investments, so I must disagree. My experience so far has been that if you set the expectations early, there are usually no surprises. I also live close so I can react quickly if it ever comes up. On a more micro level, there ARE certain streets and neighborhoods I wont invest in at this time, but have been building relationships with local property owners to try and change that.

Bernard Chouinard · Answer

@Gert Dervishaj focus on the towns around Worcester. itss extremely competitive in overpriced right now. You got the same returns in the surrounding towns. Even in a town like Webster which is a high rental town low acquisition and still semi decent rent.

Brian J Allen · Answer

All, I was just re reading these posts this AM.  There is a lot of upside to Worcester County and there are deals in all of these towns.  The key is to know your market and work with people who know the market.  I mainly focus on Worcester and down RT 146, if I don't know the town, I refer my clients out.  That way you avoid the issues with street by street.  Keep in mind that these areas are really small towns, even Worcester.  Most of the multifamily deals are going on behind the scenes so that people can do 1031 exchanges and move up to bigger properties.  You need to be dialed in with locals in the markets you want so that you can get a shot before things hit the MLS.  Once they hit the MLS the nicer ones are bid up by owner occupants who don't mind overpaying by $10-20k.  Once again there are lots of opportunities in Worcester, MA.  But you need to be educated and ready to make decisions very quickly to get the good deals.

Zachary Tremblay · Answer

@Gert Dervishaj I would stay away from the Cross Street/ Oliver street block, the Henry Street block, and the Mechanic Street block. A lot of streets even vary from one end to the other in terms of disturbance, but those streets I listed have just too think a crime density even for me.

On your other question, I like leaning on Rentometer.com if i have no other resources. In Southbridge though market rent is anywhere from 800-1100 depending on number of bedrooms and finishes (mostly number of bedrooms as 3 or more bedrooms are hard to come by and lots of renters bere have a lot of kids)

Justin Rank · Answer

I’m one of those investors buying in the Fitchburg/Leominster area. It all depends on your investing strategy. I don’t love WEBSTER, but that’s for personal reasons. @Bernard Chouinard is spot on with FITCHBURG, it’s street to street but lots of upside with some of the investments going on there.

Moises R Cosme · Answer

Aside from cash flow consider asset appreciation as a factor; cash flow numbers in Worcester may not look great, but multi family properties have appreciated considerably over the last 10 years.  Boston area markets often rent for very slim cash flow margins, but the value gains are considerable and make the investment worthwhile.

Gert Dervishaj · Answer

Thank you all for your input. I will be moving forward and looking at all areas in MA and just running the numbers. If a good deal comes along and the numbers support then I will go with ahead. I will take all of your advice on areas while I am in the search. Thanks again to you all for your advice!

-Gert

Gert Dervishaj · Answer

@Bernard Chouinard What are the other 3 towns you would not buy in. I think what I am going to do is continue to play the numbers game and just make sure the properties I'll consider in the areas mentioned above have excellent potential cash flow. This way I should be able to hedge for the tenant population if I can't screen properly enough.

@Zachary Tremblay Any streets in particular to stay away from in Southbridge?

Thanks to everyone for the input as well. I will start looking into the surrounding areas and see what I can do. How does everyone calculate the market rent in the areas they are looking in? If looking at the current asking prices a good indicator of market rent or does everyone other metrics/websites/data points? I'm still in the learning phase I would say so any info is appreciated!

Bernard Chouinard · Answer

@Justin Rank I personally or not a fan of the pastor as well I would never live in the town. However with its proximity to Worcester and some of the growth is gone through especially with the new plazas it's been doing a bit better but definitely a great rental town.

How to determine a good deal in Massachusetts?

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