Seeking Advice on Building an Additional Unit on Multifamily in Canton,MA

Boston, Massachusetts
General Real Estate Investing
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Seeking Advice on Building an Additional Unit on Multifamily in Canton,MA

Bala Nagarajan
Member since 2023 · 9 posts · 0 votes

I'm a first-time homebuyer and recently purchased a multifamily property in Canton, MA for close to $900K. The property, built in 1875, has two units, each approximately 1200 sqft. I have been living and renting the other. Additionally, there is around 0.4 acres of vacant land at the back of the house.

I'm considering constructing either one or two additional units on this vacant land and renting them out. After inquiring with the town, it seems the chances of getting zoning approval for one unit are higher than for adding two units. If I proceed with adding one unit, around 1500 sqft, the construction and approval costs may amount to approximately $450K, which would bring the total property value to around $1.35 million.

Given that some three-unit properties in Canton have sold for less than $1 million in the last two years, I'm uncertain whether adding this one unit and renting it out would be a wise investment.

My questions are:

  1. Is adding a single unit worth the investment considering the current market trends in Canton, MA?
  2. Would the rental income from the additional unit justify the $450K investment?
  3. Are there alternative investment strategies I should consider for this vacant land to maximize its potential value?

I would greatly appreciate any insights or advice from those with experience in similar projects or knowledge of the Canton,MA real estate market.

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  • Daniel McDonald
    Real Estate Agent · Beverly, MA · Member since 2019 · 358 posts · 308 votes
    2y

    Haven’t done this myself but I’m located in Beverly, MA and super curious about this. Couple things to thing about:

    -Not sure if the 1% rule applies in this scenario but feel like there’s no way you could get 4500$ in rent.

    -curious what your cash position is. Could you buy another house hack instead? 

    -what would the cash flow be like if you moved out? I think that appreciation is on your side here in that area but wouldn’t think you’d see that back for a long time. So have to ask yourself your holding plan.

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  • Bala Nagarajan
    OP
    Member since 2023 · 9 posts · 0 votes
    2y

    @Daniel McDonald  Thanks for your response! I appreciate your insights.

    1% Rule: I agree, getting $4500 in rent for the new unit might be challenging, especially given the local market trends. However, the rental market in Canton has been relatively strong, and I believe there is potential for decent rental income probably $3500, even if it doesn't meet the 1% rule perfectly.

    Cash Position: My cash position is fairly stable, but I prefer to hold onto this property long-term rather than pursuing another house hack immediately. My focus is on maximizing the potential of the current property.

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  • Daniel McDonald
    Real Estate Agent · Beverly, MA · Member since 2019 · 358 posts · 308 votes
    2y
    Quote from @Bala Nagarajan:

    @Daniel McDonald  Thanks for your response! I appreciate your insights.

    1% Rule: I agree, getting $4500 in rent for the new unit might be challenging, especially given the local market trends. However, the rental market in Canton has been relatively strong, and I believe there is potential for decent rental income probably $3500, even if it doesn't meet the 1% rule perfectly.

    Cash Position: My cash position is fairly stable, but I prefer to hold onto this property long-term rather than pursuing another house hack immediately. My focus is on maximizing the potential of the current property.


     I agree with the $3500 so if it's your goal to maximize this one property then i'd really think about what that will take. my guess is more rooms vs less. 

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  • Bryan Montross
    Real Estate Agent · Crownsville, MD · Member since 2018 · 102 posts · 36 votes
    2y

    This does not seem like it is that smart of an investment. First, if you spend $450K to add a unit, it doesn't sound like you are adding $450K in value based on the comps for a 3-unit property. So if you are starting from a negative equity position it takes a lot of time to build that up. It's probably not a good return on your money. Also, it is very difficult to find funding to build on a property you already own, especially if it is also leveraged. If you were building it with cash and had $450K to play with, I would look at buying 1 or 2 more duplexes for $900K at 50% or 25% down and you are probably making more cashflow and you are building equity on multiple properties instead of just the 1. If your goal really is a long-term strategy, having more properties is usually better. I would really look into what else you could buy with your money and see if it would make you more money.

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  • Bala Nagarajan
    OP
    Member since 2023 · 9 posts · 0 votes
    2y

    Thanks @Bryan Montross - sure I will look into other options as well. 

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