Is the Greater Boston Area Too Hot for a First Time Investor?!?

Question

Greeting BP,Today I come to you with a question and a problem: Is the Greater Boston Area Too Hot for a First Time Investor?!?I ask this because my wife and I live in the Greater Boston area and are looking to purchase our first investment property. However, the number just don't seem to work. As a young couple, our plan is to House Hack while using an FHA Loan on a 2 to 3 unit property. We have been told that to get an FHA to work, it's better to go with a 2 unit, which are between $600,000 and $800,000 on average. Yet, even with us acting as a tenant and paying rent, the Cap Rate is around 2% and we still have extra overhead to pay. Thus, is the Greater Boston Area just not a good place to start? Are there any other investors in the area that have had better luck and have some advice for us.

Account Closed · Answer

@Stuart GardnerNo not wholesaling. What I mean is an owner who may be willing to sell but for one reason or another their property is not on a listing or they simply have a personal sign on their front yard that says For Sale By Owner. A lot of real estate agents find their deals by cold-contacting properties that look like the owner would be interested in selling. There is always risk but I strongly believe if you have done your homework, your property is up to code and you are a diligent landlord you have very little chance of having problems.

Tom Rheault · Answer

@Stuart Gardner Hey Stuart... If I were you, I would focus on a three decker if you can find the deal and if you can swing it. House hacking a three vs. a two is how I started (in Worcester), and it has many advantages: better cash flow, less vacancy issues, and still only one roof/foundation/driveway/etc to maintain all while owning an extra unit within it. Do not be afraid of the MA tenant/landlord laws, just educate yourself. Owning two units is the same as 20, you just need to stay educated and take the leap.

DJ Richmond · Answer

@Stuart GardnerExactly what Account Closed has said. You can also meet a lot of other investors at local RE meetings for networking purposes. One could be willing to unload a property or know someone else who is and it could fit your criteria to buy. It could be beneficial for them to transact off-market due to avoiding the hassle and costs to sell on the MLS with limited disruptions to current tenants.

Stuart Gardner · Answer

Hey everyone,Thanks for the advice and insight. The common consensus is work hard to find that perfect deal, but what does that look like for each of you? Account Closed you mentioned off-market deal, are you referring to wholesaling? Also, given Mass's Landlord/Tenant Laws and them not favoring landlords, would you invest in another state if you were to start over again, or do you think they are okay if you've done your homework?

Account Closed · Answer

@Stuart GardnerDon't be discouraged, the Boston real estate market has a lot of competition and is a sellers market so there is little supply and prices are high. It is a great place to invest as there are a lot of renters in the area, arguably more than home owners.Three family houses will most definitely bring in more cash flow than two family houses especially when you are living in one of the units. Locations to look around Boston are Malden, Chelsea, Revere, Waltham, Reading, Woburn, Wakefield, Quincy and New Bedford just to name a few. There are a lot of off-market deal opportunities which may produce better results than using zillow, realtor, MLS, etc.Be aware that with an FHA loan you will be paying mortgage insurance throughout the entire span of the loan, unlike other loans where the mortgage insurance stops after a certain percentage of the principal has been paid off.Prepare yourself with some financial homework on the properties you are looking at and how much ROI you are going to get and be ready to pull the trigger.Also be very aware that Massachusetts is a tenant friendly state with almost seemingly unfair laws 'against' landlords so it is best to be aware of the Massachusetts Tenant and Landlord Laws and have a very good tenant screening process. Hope that helps. Feel free to message me.

Steve Bracero · Answer

@Tom RheaultWow thats impressive!

Tom Rheault · Answer

@Steve Bracero Hey Steve, yes I do manage it myself. On top of the units that I own, my family has over 100 rental units in Central MA and all are self-managed, but we also have a construction company and de-leading company under the umbrella, so it's been a vertically integrated sort of deal since I was young. It's just how we've always done it.

Stuart Gardner · Answer

Thanks to everyone for the advice.

Steve Bracero · Answer

@Tom RheaultGreat advice, do you self manage your three decker?

Russell Brazil · Answer

A couple of thoughts. You should not just be looking at purchasing a primary residence through the prism of an investment. You have to live some place, you have to pay a monthly fee to live whether it is through owning or through renting. So would you rather build equity for yourself, or for your land lord.The other thought is that hot markets are how people build wealth. Buy now at X price....or buy in the future after prices have gone up more. Even if you purchased at the height of the bubble...if those people would have held on, that morgage goes to zero eventually. (Unless you had say an interest only negative amortization loan...dont get one of those lol)