Hello from Boston!

[Fiona Zheng]

I am looking to buy a rental property in MA. I know rental properties in Boston and it's surrounding towns are expensive. Is buying rental properties in less expensive towns (e.g., Lowell, Lynn, Fall River) a good investment? I will even consider Rhode Island but I don't know too much about it. Thanks for reading and any advice is appreciated!

[Ross Williams]

Welcome to BP Fiona.  

I own multifamily units in Dorchester (Section 8), South Boston, East Boston and Lynn.  My experience with Section 8 is that an investor needs to own multiple units (25+) to leverage operating expenses as the city of Boston has tightened its inspection standards and imposed new annual $500 fees per building for owners.  Tenant selection and an experienced, trustworthy management company are the make-or-break variables in the P&L with Section 8, as well as having a very good (read "pit bull") eviction attorney.  A well run Section 8 building should have an approximate 35% operating expense ratio over time, so while I like the 50% rule for new investors, its extremely difficult to find properties that pass it.  I target 12-15% cash-on-cash returns for these properties, given the management-intensive nature of Section 8.  I have been selling in Dorchester as the market is at or above the last peak and owner-occupant buyers (rather than investors) are coming into the market which is typically a good "sell" indicator.  Section 8 is an early cycle asset class, in my experience, and the market is well past that.  Lynn is a more diverse market comprised of Section 8 and market tenant buildings, especially near the ocean and the Swampscott line, but again, I'm selling the former for the same reason as Dorchester.  South and East Boston are two of the hottest markets in the city but would be better long-term holds in my opinion but very tough to find good deals.  I'm starting to look selectively in Chelsea which still has some value so you might start there.  Just my two cents...