Cambridge/Boston RE and the VA Loan

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Cambridge/Boston RE and the VA Loan

Adam Munekata
New to Real Estate · Cambridge, MA · Member since 2020 · 3 posts · 2 votes

Hello All! First timer here, I'm 22 years old and have a BS in Aeronautical Engineering--I'm really out of my league here.  I'm currently serving as a Second Lieutenant in the USAF. My current assignment is Grad School at MIT and I'm living in the Cambridge area.

I'm looking for some guidance regarding any investors in the Boston Metro area. SFR housing prices are extremely steep (especially for a first time home buyer), and I'm looking at a first time purchase anywhere between 400-800k. However because I am serving I have access to the VA loan, which qualifies me for a 2.5% APY with zero down.

However when I'm looking at homes in the area, it seems extremely difficult to find a good deal. Cap rates are relatively low ~<6%, and the equivalent cash flow for the properties I've looked at would only return ~100-300 for a month. And for everything I've heard from BiggerPockets, this low of a return for a 400-800k property is extremely low and seems to be not worth the pursuit. With this in mind, the cash on cash ROI is practically infinite because of the zero down payment, so a large part of me feels like I cannot pass up this opportunity.

The other variable involved is the owner-occupancy rates applied for a VA loan. To qualify for a VA loan, I must legally reside in the residence for 12 months; which is not an issue because my grad school program is 2 years. However, this limits the places I can invest in, since I need to be in a reasonable distance from MIT and Northeastern University (where my roommate is attending).

Being a naive first time home-buyer, I accidentally prequalified for the VA loan which I was unaware has an expiration (and I thought the credit hit would occur later after I've filed more paperwork). So I'd like to confidentially close on a property before the expiration of the prequalification, so I'm really working hard to do my due diligence and assure that I'm making an educated decision (hence why I'm here).

Looking for any guidance on the area, or just expensive areas in general and the logistics behind buy and hold rental properties in this highly inflated market. Also looking for guidance on how to negotiate prices down and if that's a possibility (I'm reading Trump's Art of the Deal and I'm not convinced that his way of negotiations is the best for SFR's), general guidance for using the VA loan (is it possible to refinance the VA loan with a conventional bank to use for another property down the line?), and any other indicators I can use to see the good deals in these markets (I've yet to see any properties that meet BP's 2%, and 50% rules of thumb).

I've been reading a lot into the housing bubble, potential crash, and problems with landlords and forbearance's that are making the housing market hard to deal with at the moment.  

Looking forward to hearing and connecting with you guys and being a part of this community! 

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Jonathan BombaciBusiness Member
Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
6y

Maybe look at condex's. They might be within your price range and you could get a bigger 3-4 bed one near the area you're looking for less than the comparable SFH's. If you plan to rent by the room it will work the same way with a Condex as it will with a SFH and most of them were built or converted recently (last 20 years) so your maintenance will be less than the houses in the area, many of which were built in the early 1900's.

Boston real estate is tough to negotiate down right now. The Art Of The Deal is great but might not be the best tactic for the market right now. Hold tight, keep running your numbers and when you see a good deal jump on it! 

The only thing worst than not doing a deal is doing a bad deal. Don't try to force it with the market the way it is right now. 

Best of luck and let me know if you have any questions. 

Jon

[email protected]978-710-8611
Candor Realty4.760 Reviews
WebsiteView Page
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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    @Adam Munekata You seem determined to get what you want in life! Don't let a qualification lead you to a bad decision. I don't see why you can't qualify again in the future if a deal comes your way. Your market is expensive. My friend works at Harvard and can't afford anything. He has two roommates in Cambridge with no plans to buy due to what you described. In my opinion you seem rushed and haven't answered the important questions. You can't buy real estate investments and assume anything. The numbers for a deal need to be calculated. Negotiating on the price is difficult (nearly impossible) if the product you're looking at is nice and shiny. I would connect with agents and look at distressed properties. Find the value add deals because that's how you save in today's market.  

    You don't have a narrow price range ($400-800K is not narrow).

    You don't know how long you want to live in the property or city (1 year, 20 years).

    What is the exit strategy?  

    1Reply
  • Lior RozhanskyBusiness Member
    Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
    6y

    @Adam Munekata welcome to BP man! You have a lot of points in your post, so I'll try to hit them all. 

    You're 100% right, Boston/Cambridge is very, very tough market for cash flow. You are not far off from your cash flow projections, which is just simply the return profile you can expect to get. But as you mentioned points on recession and stability, this is the reason people buy here. You are trading in monthly cash flows for much greater stability, especially when you are talking about markets like Cambridge and Boston (and especially since you are buying more or less retail product 100% leveraged, its going to be tough to have amazing cash flows). 

    Now in terms of finding "good deals" now, you just need to know how to look at the market. There are certainly listings in Camb/Boston that fly off the shelf today, but if you look closer you'll also see that there a lot of (quality) listings that for whatever reason sit on the market. Rather than getting into a massive bidding war over the "hot" properties, I would look at those that are starting to accumulate days on market. I think it's more evident than ever before. It's a numbers game, and especially now that there is more inventory coming on the market now that the rental market is hurting (which I believe is temporary), I think there is good opportunity to find a good deal. 

    And finally, I def would not use your standard BP rule of thumbs in the Boston market. The 1 or even 2% rule, or the 50% rule, are just not really relevant to a Class A market like Boston/Camb. Its comparing apples to oranges looking at investors who use these rules in markets like the mid west or the south vs Boston, which is literally one of the most attractive markets in the US. Different ball game here! Feel free to PM me if you have other questions. 

    1Reply
  • Jon McCarron
    Real Estate Agent · Salem, MA · Member since 2014 · 114 posts · 78 votes
    6y

    Hi @Adam Munekata

    You could buy at minimum a 2 family with the price range. How far away from your school are you willing to be? If you are house hacking, you should be aiming to eliminate your housing payment, or drastically reduce your monthly expenses. This doesn't mean to throw out all of the rules of thumb, but you can be a little more relaxed (in my opinion). Another key thing, will the property you buy be a good rental if you move out of the property? As you stated earlier, SFR are expensive, they will not cash flow as a traditional rental in most areas in boston and surrounding cities.

    Hope this perspective helps!

    1Reply
  • Jonathan BombaciBusiness Member
    Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
    6y

    Maybe look at condex's. They might be within your price range and you could get a bigger 3-4 bed one near the area you're looking for less than the comparable SFH's. If you plan to rent by the room it will work the same way with a Condex as it will with a SFH and most of them were built or converted recently (last 20 years) so your maintenance will be less than the houses in the area, many of which were built in the early 1900's.

    Boston real estate is tough to negotiate down right now. The Art Of The Deal is great but might not be the best tactic for the market right now. Hold tight, keep running your numbers and when you see a good deal jump on it! 

    The only thing worst than not doing a deal is doing a bad deal. Don't try to force it with the market the way it is right now. 

    Best of luck and let me know if you have any questions. 

    Jon

    [email protected]978-710-8611
    Candor Realty4.760 Reviews
    WebsiteView Page
    2Reply
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