Should we invest in multifamily in Malden MA?

Question

We bought a multifamily property in Watertown MA last year.  It was a good decision.

If you live in Greater Boston area and pay attention to multifamily investment, you would agree with me that 2017 has seen an average of $50-100K rise in the price of multifamilies in this area - i.e. Watertown, Medford and Somerville.

I have two questions to ask for your kind input.

1. We have a small condo apartment in rural Boston. We had to pay about $50K of cash for it due to updating requirements forced through by its HOA a few years ago. The market price for it now is unfortunately the same as when we bought it 10 years ago, around $210K.

Should we sell it next year and claim that loss now, or should we hold it for 2-3 more years?

It is currently rent at $1300/month, but the cash flow is still negative considering the mortgage and HOA fees. We get about $6000 worth of value every year counting the principal that is paid. If we sell it, we will claim that $50K loss immediately, but we can get about $100K back and we can use it for MF investment in area closer to Boston.

2. Which one is better - To invest in two families in Medford or Watertown (Somerville has totally priced us out and we cannot afford three families anymore), or to invest in a potential 3 families in Malden? My husband thinks that Malden is traditionally considered a rundown area to live for young professionals. For the prior two towns, we probably will not have any cash flow.

Flipping house or converting multifamilies to condos are not something we can do. We both have full time jobs.

Thanks for your input. We really appreciate it.

Michael Pallotta · Answer

Hi @Connie H.,

I agree with what Account Closed said when it comes to the cash flow of the property. If it's negative and there's no way to value add and make it positive, it probably is better to cut any losses now and move on to something that would be better for you. Malden and Medford are both great places to invest. Although Malden has that reputation, it has begun to change for the better for sure. There are many great areas especially being close to public transportation and the orange line for people who work in or closer to the city. Prices in Medford have followed that increase that Somerville and Cambridge have seen but still have some great deals as well. Either place you choose, there will be great deals. I have a lot of people who look for deals in both Malden and Medford and would be happy to answer any questions you have about those areas if they come up. Best of luck hope everything works out!

Account Closed · Answer

If I were you and the cash flow on the property is negative, I would either find a way to add value to it to get that number positive or get it off your hands before you lose more money. Put that money towards something that is bringing in cash opposed to leaking it out. If the property hasn't increased in value in ten years, I wouldn't bank on it moving up any time soon.

Not to familiar with the Watertown market, but I was looking at Malden and Medford earlier in the year and the market is on fire there. You can get similar rents for both of them. Malden is going through a huge transformation, so even though it may have been considered rundown in the past, it is definitely on the rise. Try to get something as close to the orange line as possible if you want to get the highest rents and young professionals. Good luck though because investors are throwing money blindly at these deals. That being said, there are deals that cash flow you just have to be persistent. I was looking at multifamilies in Malden, Medford or Quincy at the beginning of the year and ended up getting one in Quincy that is cash flowing now.

Hope this helps!

Connie H. · Answer

Hi All, thanks so much! I am so glad to hear from all these informative replies. We really appreciate it.

Yes, what you all said make sense. We plan to sell the rural condo next year when the current tenant ends her lease. It is not possible to sell it when there is a tenant in it since even vacant ones are on market for months to be sold. We hope she will be willing to move out on time...God bless. We are inexperienced landlords and hope we would not get into much difficulty in that process.

Yes, we are focusing on Medford and Somerville. Thanks for your input in Malden. We are still a little hesitant.

Let's say, IF we have the money (this is too much a prerequisite), we spend up to $720K in a two family in Medford or Watertown now. That is the current conventional loan limit for 2 family, which is $543K, divided by 75%. That is the maximum usage of cash to get the most loan, in my eyes. I do not know other non-conventional loan means.

For a $543K loan, we will get about cash flow even in the current renting market in Medford or Watertown. It would be better in Somerville, but even less chance to find such deals.

In 5 years, the tenants help to pay about $50K equity in the property. These three towns - Watertown Medford and Somerville will likely see some appreciation in the coming years, slow or fast. Then it is possible that one would expect about $80-100K rise of value in the 2 family.

It is still possible to get a three family MF in Malden with the price range of $720K-$800K. The cash flow will be about $1500/month. However, I doubt Malden will see much appreciation comparing with the above three towns.

The above is all based on expectation that the economics continue to be strong.

Let's say secondly, the opposite, we may have another blow of 2008. We bought the rural condo just before the downturn started. My impression was that the property price in places closer to boston, like Brighton, Brookline etc, actually did not drop much. It just stopped growing for a while and then starts to grow crazily again. If the market crashes, I think Malden may crash faster than Medford and Watertown - Just my gut feeling.

About flipping house, yes, it is a fast way to realize the appreciation of value and may be less risky than long-term holders in some ways. However, you have to have a lot of cash to do it. You have to have the downpay of 25%, the money to pay mortgage during renovation, and the renovation money too. And you have to hold it for a year to sell. And you have to go through legal documents to convert a MF to condos. And then you have to sell it while the market is still hot - However, that is just through my narrow angle of view...haha.

Thanks for listening.

Patrick Wheeler · Answer

@Connie H. I don't have too much input towards what might be the best decision, although I would lean towards targeting Malden for MF properties. I did, however, want to nitpick something that you mentioned in your post.

Don't let a full time job prevent you from flipping/condo conversions IF that is something you want to do. I work full time, but I am currently flipping a house and should be adding a second very shortly. I simply partnered with a GC (who came highly recommended) and he handles 100% of the rehab process, while I take care of everything else.

If you aren't interested, then obviously this is irrelevant, I just know that I never really intended on flipping, but a while back I decided to do whatever the market is most allowing for.

Should we invest in multifamily in Malden MA?

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