Optimal investment strategy - beginner

[Evan Leibovitz]

Would greatly appreciate some advice and venture this may help many other folks currently on the sidelines of this challenging market.

Basics:

-I currently live, and wish to continue living, in Boston/Cambridge/Somerville/Charlestown in a “nice” 1-2 bed (w/ significant other)

-Assume I am fully extended with 20% down on a ~$900k property (or less on more, as I am willing to tolerate a negative cash flow of ~$2k/mo, inclusive of my personal rent)

-I do not presently have a contractor/“team” and am not personally “handy” thus would need to factor in significant costs to any rehab

Options, as I see them:

-Buy a 1-2 bed in an area I want to live, live there

-Buy a multi family in an area I want to live and rent the other unit(s) - may overextend myself and I will not be able to carry the nut if significant vacancies

-Buy a cash flowing rental property (single family, multi family, condo) in an area I don’t want to live (e.g., Everett, Revere, Chelsea, Dorchester, other B/C neighborhoods, out of state) and rent in my desired area

If you were in my shoes, what might you do (aside from compromising on my desired location and house hacking a MF in a B/C neighborhood)?

Thank you!

[Christopher Quinn]

Hi Leo,

I was faced with a similar situation as you a few years ago. I had been living in Cambridge and wanted to continue living in the city. I looked into buying a cash-flowing multi in places like Lowell, Worcester and Brockton, places where you can get a solid cap rate and I think are ripe for organic rent growth and appreciation (though markets like Worcester have gone up quite a bit recently).

Places in Boston hold value and tend to appreciate, and the rental market is great. I also think the biggest advantage of living in a place is the ability to put down less than 20% as an owner occupant. I ended up putting down 10% on a 2 bed condo in South Boston and using my excess cash to buy a cash-flowing asset outside of the city with a 25% down commercial loan. With rates as low as they are you should be able to come close to cash flowing the condo or at least covering your carrying costs with less than 20% down if you move out, especially if you buy in a neighborhood like South Boston, Jamaica Plain, or Charlestown where you can get a 2 bed with low HOAs for under 700k. Obviously this wouldn't work in Back Bay or many parts of Cambridge. 

For cash flow you'll have to look further out than Dorchester, Revere and some of the other neighborhoods you mentioned unless you put down 30%+. Those are more ripe for condo conversions than buy and holds in my opinion. I can recommend other towns based on your target investment metrics if you'd like, cheers.

Christopher Quinn