Newbie from Boston

Investor · Newton, MA · Member since 2009 · 69 posts · 19 votes

Hi,

I've been lurking the forums for a while, but haven't considered investing until now. I have no background in real estate (I've only been investing in stocks before), but I am familiar enough with how the typical process works from reading. I have a full-time job, so I'd prefer income-producing property rather than flipping, which would be a full-time job in itself. I don't mind putting some sweat equity in, however. I was thinking of starting with a multi-family, since I don't currently own a house either (but my rent is also ridiculously low, so if there are better alternatives, I'm open to them).

One thing I'm discouraged by is that I can't seem to apply the advice from the forums to the properties I've seen here in Boston. Neither the 50% nor the 2% rule seem to hold anywhere near Boston area, and the kind of crazy appreciation we've been seeing in this area can't go on forever. I was considering looking at areas further out but I'm afraid of having to commute there several times per week. I'm also worried of buying a place in an area I know nothing about. I understand that a lot of my fears come from inexperience and hopefully the more experienced members living in Boston area can dispel them and provide some guidance.

Thanks

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Shaun Reilly

Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes

12y

I have not invested in Worcester, but I know a lot of people are in that area. The rent to price ratio is quite a bit better out in Central MA.

As far as going north that is actually where most of my local rentals are. I have several units in Lowell. Rent is fairly solid but the prices are a lot less. If you are willing to go a little farther out both areas are worth looking into.

Going the other way prices going towards the south coast seems good too. Fall River and New Bedford have pretty cheap stuff with the same kind of rents.

NH is an option too. Cheaper prices often and still solid rents. You do have a more landlord friendly state as well.

2% is still tough in any area around here. I have one place I got in Lowell that meets it. Nothing else is particularly close. Near Boston as I said you often can't find things at 1%. Most people will look at overall ROI (return on investment), CoC (cash on cash return) and the monthly cash flow. For example you buy a place (probably a condo) for like $80K and put 25% down. You are getting $1,100 for the rent. So the ratio is 1.375%. If you use the 50% rule (Use real numbers when you have them!) you would have $550 for mortgage and profit. If you get a loan for the $60K at 5% then your payment is like $322. So that would leave you $228/month of cashflow. So you have to decide if that is good enough for you and if the 13.68% CoC is good for you (CoC is cash recieved/cash in. In this case $2,736/$20,000 to get that number).

Also you would not be looking at a commercial loan. There are non-owner occupied residential loans. If you are looking at multis with 5 or more units it would be commercial and if you buy something with major renovations you could get commercial. Not where you would be looking on your first 1-4 unit rental.

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J. MartinPro Member
Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
12y
Hello AT. You came to the right place! I'm a buy/fix and hold investor in the Bay in CA. But you'll find a variety of all strategies here on the website. A few tips on the website and on meeting some fellow investors:

Search for local meetups here or google a local REI club to network with other investors. On the site, the "Learn" link across the top navigation bar has lots of great info, and so do the forums. You can tag people by typing @ before you type their name, then clicking their name when it pops up at the bottom of the message box. You can click on the 'vote' button if you like someone's post or is helpful, and there are 'awards' to earn on your profile. Good luck on everything!
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Paul Timmins
Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes
12y
@a t

Sorry @ notification works with minimum 3 letters.

Welcome. Time to build the foundation below.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having over 70 past ones to catch up on.

Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and all the cash buyers (rehabbers) you will need. South of Boston meetings are Rockland, Taunton, Plymouth, and Cape Cod.

Consider checking out HUD homes for small multi's owner occupied gets first crack.

You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.

Download BP
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Ben Howard
Investor · Somerville, MA · Member since 2014 · 15 posts · 4 votes
12y
I'm in the same boat. I already own a multi-family in Somerville that I happened to buy when the market tanked about 5 years ago. I'm looking to purchase a second property in the Boston area, but there's almost no way it will hit the 50% or 2% rule. I'm starting to consider other areas and continuing to look in/around Boston. Just like other investments, I'm not going to rush in just because I can.
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Shaun Reilly
Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
12y

Hi AT, welcome to BP.

This is a great place to learn. Make sure to listen to all the BP podcasts, read the articles on the main blog and be active in these forums to learn a ton very quickly about any topic in real estate you want to know more about.

This is also a great place to meet people that can be assets to your business. Lots of great connections all over but we also have a very strong and active contingent here in MA on here so make sure to find them (Set up some keyword alerts to find out about local topics) and get connected.

Besides doing that on here make sure to get out to some of the many local investor events we have. I'm in Newton as well and the best meeting around here is also the most convenient, so check out the Black Diamond meeting in Waltham (There is a 2nd location in Worcester as well, which might be good to check out if you are willing to go farther out to get a buy and hold). Besides that I also go to the Boston AREA in Medford and like the NEREIA in Chelmsford.

Lots more both north and south of the city if you want to really get out and network.

Not sure why people are saying that it is hard to find a place that meets the 50% rule. All that is saying you estimate that 50% of the rent goes to expenses (other than financing). You can be above or below that of course. IF you don't pay for heat it is actually not that hard to come in less than that as rents are high here. The issue is that the 50% left for financing and cash flow is usually less than the mortgage payment if you get some full retail and don't put down a very big down payment.

2% rule is very rare in these parts, even 1% is not easy around Boston.

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Alex T.
OP
Investor · Newton, MA · Member since 2009 · 69 posts · 19 votes
12y
@Paul Timmins I apologize about the name thing, set it up to my initials and then noticed I can't change it now.

@Shaun Reilly Would you recommend looking for property in areas like Worcester or even north of Boston? It seems like areas around Newton have very low returns, Brighton is a little better but properties sell very fast there and have appreciated a bit too much over the last couple years. It's also impossible to find a multi-family anywhere in this area. I was considering Everett or Chelsea, they seem like improving areas with some multi-families available and somewhat saner prices.

If 2% rule doesn't work in Boston, what other alternatives do you use to figure out if the property makes sense to buy? Do you assume you'll be taking a hit for the first few years and hope that appreciation will take care of the problem? Brandon also suggested not to count on appreciation in one of his blogs, which makes sense. Even in an area like Boston, property prices can't keep rising faster than salaries forever.

I'm hearing of people investing in NH due to better tenant laws and returns. Would you guys recommend looking in that area? I'm worried about being drained by maintenance, but if the margins allow for it, maybe I could look into property management. I'd also probably end up with a commercial loan rather than residential, might be hard convincing the bank that I intend to relocate to NH.
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Shaun Reilly
Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
12y
I have not invested in Worcester, but I know a lot of people are in that area. The rent to price ratio is quite a bit better out in Central MA.

As far as going north that is actually where most of my local rentals are. I have several units in Lowell. Rent is fairly solid but the prices are a lot less. If you are willing to go a little farther out both areas are worth looking into.

Going the other way prices going towards the south coast seems good too. Fall River and New Bedford have pretty cheap stuff with the same kind of rents.

NH is an option too. Cheaper prices often and still solid rents. You do have a more landlord friendly state as well.

2% is still tough in any area around here. I have one place I got in Lowell that meets it. Nothing else is particularly close. Near Boston as I said you often can't find things at 1%. Most people will look at overall ROI (return on investment), CoC (cash on cash return) and the monthly cash flow. For example you buy a place (probably a condo) for like $80K and put 25% down. You are getting $1,100 for the rent. So the ratio is 1.375%. If you use the 50% rule (Use real numbers when you have them!) you would have $550 for mortgage and profit. If you get a loan for the $60K at 5% then your payment is like $322. So that would leave you $228/month of cashflow. So you have to decide if that is good enough for you and if the 13.68% CoC is good for you (CoC is cash recieved/cash in. In this case $2,736/$20,000 to get that number).

Also you would not be looking at a commercial loan. There are non-owner occupied residential loans. If you are looking at multis with 5 or more units it would be commercial and if you buy something with major renovations you could get commercial. Not where you would be looking on your first 1-4 unit rental.
1 Reply
Robert AdamsBusiness Member
Real Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
12y
@Shaun Reilly mentioned "If you get a loan for the $60K at 5% then your payment is like $322. So that would leave you $228/month of cashflow."

If you are leveraging using a loan than your CoC return would be around 13%. I prefer to use CAP rates based on if I were to purchase the property all cash which in this example would give you a CAP of a little over 3%. then if you choose to leverage so be it. There are other parts of the country that will provide better CAP rates and more friendly landlord laws etc. For instance in Vegas (My other market....I am a Broker in Vegas and MA) I can get 5% CAP rates all day and if I have a nonpaying tenant I can get them out in 30 days opposed to 6 months like in MA. These types of laws and eviction processes can kill your ROI and CAP rates.

If you are going to invest in MA for buy and hold I second what Shaun said about areas like Lowell having relatively low home values with higher rental rates therefore providing much better returns than areas like Boston etc.

Just food for thought. I would be happy to discuss either market with you should you want to reach out. Welcome to BP!
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Engelo RumoraBusiness Member
Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
12y
Originally posted by @Alex T.:
Hi,

I've been lurking the forums for a while, but haven't considered investing until now. I have no background in real estate (I've only been investing in stocks before), but I am familiar enough with how the typical process works from reading. I have a full-time job, so I'd prefer income-producing property rather than flipping, which would be a full-time job in itself. I don't mind putting some sweat equity in, however. I was thinking of starting with a multi-family, since I don't currently own a house either (but my rent is also ridiculously low, so if there are better alternatives, I'm open to them).

One thing I'm discouraged by is that I can't seem to apply the advice from the forums to the properties I've seen here in Boston. Neither the 50% nor the 2% rule seem to hold anywhere near Boston area, and the kind of crazy appreciation we've been seeing in this area can't go on forever. I was considering looking at areas further out but I'm afraid of having to commute there several times per week. I'm also worried of buying a place in an area I know nothing about. I understand that a lot of my fears come from inexperience and hopefully the more experienced members living in Boston area can dispel them and provide some guidance.

Thanks

Welcome AT,

To be honest with you I still have no clue what the 2% or 50% rules stand for even tho we have been involved in hundreds of deals over the last 4 years lollol.

All I tend to follow is the gross and net rent rates when estimating returns.

IMO the Midwest is one of the most undervalued regions in the US. I also believe that great deals can be found anywhere in the US. It just comes down to the relationships you establish with key people that can assist you with your venture.

I was once told "Business is easy, people make it difficult"

Over the years I have found this saying to be very 100% true.

Get busy on the phone and email, ask questions, read books, attend seminars, (just leave your wallet at home lol).

If you keep it at eventually you will see many doors will start opening and idea's will start flashing through your mind.

Don't be afraid to invest further from where you live either. Just make sure you have the right foundation(people) set on the ground before you bite the bullet.

Thanks for reading and have a great day.
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Sheri Ulm
Real Estate Investor · Norwalk, CA · Member since 2011 · 118 posts · 25 votes
12y
Welcome to Bigger Pockets!

Everyone I have encountered here has been very helpful and you will gain alot of information here.

I am in Southern California and this market is out of my price range so I got brave and ventured into an area most people run from but it was what I could afford at the time and after a few hard lessons (read: expensive) I now have everything up and running smoothly and am now activly adding to my portfolio. I too was worried about buying in an unknown area and I ended up buying in Ohio...I've NEVER been to Ohio! I was warned about buying long distance and sight unseen but I didn't listen and I'm glad I didn't because even though it took some time and money I now am building a business and I would probably never have done that had I tried it here in Cali. Long distance investing isn't for everyone but right now it is working for me and I'm hoping to build my bussiness to the point were I can have long term passive income into retirement and/or from future sales of my rentals as well as enough cash to get into the fix and flip's where I live.

1 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
12y
@Alex T. welcome to the site.
0 Reply
Jerry Padilla
Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
12y
good luck Alex! You seem to be doing some well needed due diligence with researching and trying find properties that make sense.
0 Reply
Aaron Montague
Rental Property Investor · Brookline, MA · Member since 2013 · 1k+ posts · 777 votes
12y
@Alex T.

Welcome to BP.

Good to hear that you are renting. I highly recommend a 2-4 unit as a first purchase. It will let you know how ready you are for the RE business. Driving expense out of your life is just as good as increase your income.

I recommend looking west. Boston has some a TON of money to be made, but in my opinion it is a high stakes game that requires huge money to start. Worchester and the surrounding areas seem to have better rental prospects.

From my BP blog:

Q: I like the concept of MFH investing, where should I start?

Short Response:

1. Eliminate your rent payment
2. Bring all deals to the BP community (and be humble when doing so)
3. Stick to the returns you want

Long Response:
Learn everything you can about multi family investing. Every day you should answer a few questions and write down several new ones.

The general theory is that you need to drive costs out of your life and/or add new revenue. If you live with your parents, and they don't charge you rent, good. I'd then start forcing yourself to put $500-700 away each month as a "rental" payment towards some real estate.

If you pay rent of any kind, to your folks or to another landlord, find a way to eliminate it from your life. My suggestion is to find a 3 or 4 family property that you can purchase. FHA loans are a good way to go, but be wary of the additional percentage points you have to pay each month as PMI. Homepath loans are great as they have no PMI. VA loans are even better, but require you to have served in the US military.

Run every deal you find through the BP community. Some of the responses are harsh, but they are eye opening. There are people on this site that have been buying and selling 4x as long as I have. When I find answers to my daily questions, I can almost always find the answers here at BP.

Last one for the moment: stick to your numbers. It bears repeating: stick to your numbers. If you want $200/month and a 12% Cash on Cash return for your investment, stick to that number. If you pick 12%, 9% is not good enough, nor is 11.7%. Make your offers accordingly.
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Welcome to the world of living where investing doesn't make sense. I'm in LA, same thing here. I buy everything out-of-state. If you set up property management and such, you don't have to commute. I've never gone to any of my properties (and they are in Atlanta, about 2200 miles from LA).

Philly is a decent market right now for cash flow. That'd be the closest and you could probably drive there if you really wanted to have easier access.
1 Reply
Matthew WeiserPro Member
Investor · Flushing, NY · Member since 2013 · 175 posts · 29 votes
12y
Hi @Alex T. welcome to BiggerPockets!
0 Reply
Loretta Feeney
Flipper/Rehabber · St Petersburg Fl · Member since 2014 · 2 posts · 0 votes
12y
Anyone interested in Cape Cod Ma. properties?
0 Reply
Robert AdamsBusiness Member
Real Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
12y
Originally posted by @Loretta Feeney:
Anyone interested in Cape Cod Ma. properties?

I am. What do you have going on in the Cape?
[email protected]702-349-9175
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Alex T.
OP
Investor · Newton, MA · Member since 2009 · 69 posts · 19 votes
12y
@Sheri Ulm I'd be interested in learning more about long distance investing. Managing the property seems to be the scariest part. I'm assuming you got that part handled if you're investing out of state. Any advice you could provide? Did you visit the area first? Did you use the turnkey approach? Did you hire property management or just got an extremely good tenant? Did you buy condos and leverage the association for the management of common area and repairs?

@Ali Boone Thanks for the advice, I've actually been reading your blog posts, since your turnkey strategy appeals to me - as long as it still generates a profit (that was me sending you that email about choosing markets). I definitely would not consider myself an ideal candidate for a landlord. I haven't even thought of Philly, but it may actually be a good idea. I've lived in South Jersey for a year, so I'm familiar with the Philly area - have a few friends living there too. It is trickier than Boston in that the neighborhood quality changes very fast, especially for areas bordering North Philly.

As far as turnkey investments, you mentioned in your posts that property management isn't necessarily tied to the same company that you buy the property from, and that you often like to shop around for them. Do you decide on management company before you start looking for property in a given city? Do you have that management company help you find it, do you use some "turnkey" service and bring your own management after? Are there extra fees for not using the same company to do both?
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Alex T.
OP
Investor · Newton, MA · Member since 2009 · 69 posts · 19 votes
12y
@Ali Boone sorry, the notification in previous message doesn't seem to be working (even with editing).
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Sheri Ulm
Real Estate Investor · Norwalk, CA · Member since 2011 · 118 posts · 25 votes
12y
@Alex T. Managing is the scariest part to me especially since the area I invest in has a problem with vandals etc... Don't want anything sitting empty or or not properly secured. Just yesterday I got a call from my manager who went to clean some trash from a house I'm closing on in a few days and he tells me someone broke in and stole the hot water tank. This house has been vacant for months and was board up pretty tight and now 4 days before closing it gets broke into... Go figure.

I've never been to Ohio and bought all my properties sight unseen. The first two were turn key and #1 already had a tenant in place. 2nd was almost turnkey but the seller failed to finish the job after we closed. Both these were bought with an agreement that the seller would continue to manage both properties (same seller) but after a few months he disappeared and one of the homes got trashed by vandals to the tune of 5k in repairs. Then I hired a guy with a Brokers license and many years in real estate thinking he would be on the up and up but he ran off with a bunch of my money and never did any work. After that I got discouraged and let the house sit for awhile while I took care of some personal issues here at home. Then just over a year ago I decided I had to do something with these houses so I contacted a fellow investor here in CA that I knew had bought some homes from the same guy I got mine from and had also gotten screwed. He gave me the name of a maintenance person who they had been using to over see their properties and who they were very happy with. I contacted him and he got my vandalized house fixed and rented in about a month. He also told me there was a 'tenant' living in house #2... Only I knew nothing about this person... Turns out the guy I bought the house from rented it to her before he disappeared but he never bothered to tell me so she had been living there rent free for almost a year. Lucky she had taken good care of the home but she couldn't afford the rent so we had to ask her to leave. We gave her a couple weeks to find somewhere to go and she left peacefully. That house was rented about a week later.

After all that I decided to give it a year and see how things went. Well, my guy out there has been a godsend. I get my rents on time, properties are kept up nicely, same tenants are still there etc. So now I just bought #3 and am scheduled to close on Fri. This one is vacant and needs about $1300 in repairs, including replacing the stolen water tank, but I only paid 5k for it on a land contract with only 1k down, 3% interest on balance, and my guy says it will be ready and rented in about a week.

I don't tell you all this to scare you but rather to stress that, in my opinion, having a quality manager is key to having success in an out of state situation. If I had it to do over again I would because I learned from it all and it opened the door to me being able to be an investor... Something that seemed very out of reach here in CA. I am currently looking into 3 more potential properties and would like to buy 10 more by years end.

Hope this helps a little.

Sheri
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Mike HurneyPro Member
Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
12y
@Alex T.

@Alex T.

@Alex T.

@Alex T. basically Persistence overcomes Resistance!
1 Reply
Account Closed
Investor · South Jersey, NJ · Member since 2013 · 338 posts · 22 votes
12y
Welcome, great luck and I wish you well.
0 Reply
Scott Demots
Milwaukee, WI · Member since 2013 · 192 posts · 13 votes
12y
Hi welcome to BP! The help community here can definitely you navigate the REI waters. Search around and ask questions as needed. The information I've got from fellow members has been invaluable.

See you around the sight!
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Brianna H.
Peabody, MA · Member since 2015 · 8 posts · 1 vote
11y
@Alex T. I see that I'm a bit late in reading this post, but it speaks to the situation that I am currently in. I want to invest in the Greater Boston area - which is frustrating because any type of rule or return people discuss just does not apply to our market. You will hardly ever find a decent single dwelling property for less than 300k (generally speaking) and even apartments/duplex/townhouse units go for up to 300k (medium standard). Obviously prices vary greatly, but any area that seems nice with a great commute and decent amenities will not come close to the 2% or 50% rule, among other 'rules' and general advisements.
Did you come to any type of conclusion or realization with your situation? I too want to invest close to where I live to easy management purposes...You can charge a decent amount for rent in this area but the acquisition price is typically high as well.
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Nick Johnson
Investor · Ormond Beach, FL · Member since 2015 · 24 posts · 8 votes
11y
Glad to see I'm not the only one unable to make the dots connect in the Boston area. I am originally from Central Florida and I am going to be doing some long distance investing there because the numbers actually work and I know the area. Not super excited about being an absent investor, but Boston REI just doesn't make sense to me.
Add to that the fact that MA eviction laws heavily favor the tenants (I've heard some real horror stories) and REI just isn't an option for me here in Boston.
Anyway, @Alex T. I wish you all the best. I'm new to BP too. Maybe I'll see you in some local meetups.
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Alex T.
OP
Investor · Newton, MA · Member since 2009 · 69 posts · 19 votes
11y
@Brianna H.
@Nick Johnson
I've been a bit slow on the start up process due to a combination of analysis paralysis and good deals being harder to find. So far I have only purchased one property, but want to ramp up the process in the next few months.
My strategy so far has been looking out of state, based on simple economics. A typical house in Boston will cost around $500k and rent for about $3k, a typical house in Chicago will cost around $100k and rent for $1.5k. Applying rent-to-price ratio, it's easy to see which one is the better investment, even after factors like property management fees and tenant quality are factored in.
The counter-argument I often hear is that you make more in appreciation here, but I disagree with that. A more accurate statement is that people "made" more money in appreciation here. Extending recent historical trends indefinitely and overlooking reversion to the mean is not a smart way to invest. Who is going to buy these million-dollar houses when they are 40 times the median income? What about 100 times? Coastal cities have been appreciating because foreign investors have been parking their money here. How long is that trend going to continue?
I'm still open to investing in Boston, but my criteria here is different. I try to find diamonds in the rough, last year I saw a couple but was too scared to pull the trigger. This year I'm not seeing any yet.
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