All Forum Posts by: John Pauler

@Account Closed I can't compare and contrast Boston to Providence, as I'm only active in the Boston area (Somerville to be specific). 

This is an interesting resource for a quick overview of prices in different areas around Boston, published in early May. You'll notice everything seems pretty expensive already, but there are a few areas where prices are lagging others. Note Malden Center and Oak Grove, in particular. These are both on the Orange line, which gets you downtown very fast. Both are not too far from you in Medford. High quality renters, as well as potential buyers, will continue to be priced out of the downtown Boston/Cambridge/Somerville markets, and this should drive solid price appreciation in Malden as folks flock here as a relatively inexpensive place to live where you can still work downtown and take public transportation. 

Disclaimer: I only own property in Somerville (but I am looking in these two areas, particularly Malden Center)

@Joe Burns

Joe, I was never actually able to purchase an affordable unit myself, but I did enter one lottery and bid on one resale opportunity (wish I had gotten that one!). 

I have a friend who has been actively entering lotteries. She has probably entered 4 total in 2 years. She was drawn as #2 in a Somerville lottery, but unfortunately for her the person who drew #1 did move forward with the deal. She was very close though. From what I hear, the Somerville lotteries are much less competitive, so you're drawing against a smaller pool of applicants. 

One detail I forgot to pass on...you don't have to move out if you later make more income or build your asset value above their limits. You just have to qualify when you apply to purchase. Then you're free to become ultra successful while continuing to enjoy your affordable unit indefinitely. 

The best way to learn more is to call up the guys from Maloney. They are the experts. I've talked to them before with questions and they were helpful. 

Get on Maloney's email list and get on the Somerville one too. Arlington also has one, but their offerings have seemed few and far between. Only seen 1 or 2 in five years or so. Newton also has an email list and a reasonable frequency of offerings. Cambridge does have a program (so they say) but I've never been able to see listed units or even find someone who was helpful to talk to. They seemed to enjoy making it difficult, in contrast to the other groups, who are wonderful to work with. 

@Taylor Johnson Always glad to connect, particularly with people doing condo conversions, flips, and commercial, all of which I am interested in getting into. To date, I have two multi families in Somerville, both near Porter Square. Previously I have had condos in Somerville and one in Boston, but going forward I am sticking to multi families, and looking to get into larger projects.

Thanks @Leslie Pappas. Unfortunately I'm not accredited yet, but working on that! 

@Joe Burns - glad to see you getting off to an early start. 

One thing any ambitious young guy in Boston should absolutely look into is affordable housing. These are income-restricted units (people over a certain income cannot buy them), which typically sell for about a third the market price initially. So you get to pay very little per month, while living in a place 3X as nice as your expenses would suggest. Additionally, in Boston specifically (it is different in Somerville and Cambridge), when you want to move, you can "appreciate" the property by exactly 5% per year. This is not a hopeful asking price, but rather the exact price you will sell it for. Example: $600k property on open market, you buy it for $200k. You live there 5 years. After 5 years, you can appreciate it 25% (5% x 5yrs). So you list it for $250k. It was a $600k place 5 years ago, so people line up to buy it at that $250k max allowed sale price, which is still a fantastic deal. Do some quick math and calculate your guaranteed ROI if you put 5% down.

You get a cheap place, with guaranteed appreciation, and no risk - you can predict with perfect accuracy what it will sell for at any point in the future. 

There are some drawbacks...

1) you can't ever use it as a rental, so it's best use for you is as a really cheap primary residence with guaranteed appreciation. This is not a way to buy an investment unit. It's a way to cut expenses and eventually build a lot of equity when you sell. 

2) obviously anyone reading this thinks "too good to be true". Well, it is true, so a lot of people apply for the lotteries. You could apply to every unit for 5 years and there is no guarantee you'll ever get one. But if you do, you're in great shape. 

Here is an example of 4 units available via lottery right now in a new development: 

http://www.maloneyrealestate.com/allele-bra-afford...

You can see the income limits - 80% AMI means 80% of area median income. 100% AMI means 100% area median income. Different units have different restrictions, so at some point you'll be disqualified from 80% AMI units, but you may still qualify for the 100% units. 

The site I linked to, Maloney Properties, handles most of the affordable housing units in Boston (maybe all of the new construction units, and at least some of the resales as well). Get on their email list. 

Other towns also offer affordable housing programs - however, the median incomes in those towns will be lower than in Boston, so you disqualify yourself at a lower income amount. You might still be okay for most of them today, but maybe not in the future, so don't delay doing your homework! The other major thing to distinguish various towns' programs is their respective appreciation rules - while Boston's 5% per year is very generous and allows folks to build wealth quickly, other towns favor keeping the costs lower indefinitely, and will dictate a TBD cost of living adjustment when you sell. This will be less than 5% per year, maybe less than 1% per year, as their goal is to maintain the unit's affordability for the next owner. Newburyport also has a 5% rule. Somerville has a TBD COL adjustment. Do some research, and figure out which towns' rules favor a young guy trying to build wealth. 

In Boston, Somerville, Cambridge, etc, you are typically going to be limited to 1 or 2 bedroom units. If you would be willing to go further out, there are often 3 bed units available. Now we're talking about buying a house that will be big enough to hold your future family, on expenses you can afford (by definition) when you're 20 years old. Talk about a game changer. 

Here's a great resource for *all (sometimes the Boston proper ones don't make it on this list, but I think all others do) MA affordable housing properties. 

Mass Access Housing Registry

Good luck! 

@Christian M., my understanding is that currently you can use a conventional loan with 5% down on an owner occupied condo or SF, but if you want to use a conventional loan on a 2F you'll need to put 20% down, and 3F/4F properties will require 25% down, even if you owner occupy the multi-families. You should confirm with your lender. This is what I have been told recently by the lenders I work with. 

If you can create some equity by buying at a discount and/or doing some rehab to add value (whether through the 203k or not) you may create options for yourself, where you can later refinance a couple of different ways to position yourself for your second deal: 

1) a cash out HELOC, which would require you keeping 15% equity in the property, and that you are owner occupying it. This can be a good way to pull cash out to buy a second property as an investment, but you probably couldn't use the FHA loan on property #2.

2) a conventional loan, with a substantial amount of equity (per requirements above, specific to the property type). If you do this, THEN you could use the FHA for property #2.

Hi @Scott Tajima. It's a great question. I will second @Kevin Brown's point that buying the property through an LLC will likely make financing more difficult. Also completely agree that you should think about why you want to hold the property in an LLC and then decide if the LLC is the best way to achieve that goal. I myself have elected to own my (only 2) properties in my own name, with liability insurance on the individual properties as well as a personal umbrella policy.

If you do really want to hold the property in an LLC, one strategy recommended to me in the past was purchasing the property in your name, and then after the closing, deed the property from your name over to your LLC via a quitclaim deed. My understanding is that technically this may be against the terms of your mortgage, but as it was explained to me, the mortgage holder likely would never even know, and as long as you make your payments, they wouldn't care even if they did.

I am not advising this as the best course of action, but rather sharing a strategy that was recommended to me previously. If you do like the idea, it's best to discuss the risks with your attorney and get their opinion. 

Has anyone out there tried this? Was it successful or did it backfire?  

Hi @Christian M. - fellow Boston investor here. Glad to hear you want to get started! 

The FHA loan is a great option for your first property, as you can do 1-4 units with as little 3.5% down. It's an excellent way to get started if you can make the numbers work. The downside is you'll be carrying a big loan, with pretty substantial monthly costs, so you need to run the numbers and make sure you can still hit your $0 cash flow goal while living in one of the units.

My (limited) experience with lenders makes me think that you might have a difficult time doing that second loan with 3.5% down. The lender may not want you to be so leveraged on two properties, both of which you are claiming as your primary residence. I am not saying it cannot be done, just that it might be tricky. Find a lender who is willing to speak in hypotheticals with you... "what if someday down the road I wanted to buy a second property, could I use an FHA loan again?" etc.

One option you might want to consider is an FHA 203k loan, if you are open to doing a rehab on your first property. The 203k loan allows you to finance not only the property, but a planned renovation as well, all with 3.5% down. If you can find a deal on a MF property that needs work, you may be able to add value through a rehab and end up with a property in which you have more than 3.5% equity, even though you only put 3.5% cash into it. If you can do that, you won't be as leveraged on this first property, and it will make using more leverage on property #2 a lot easier. If you do like this idea, Jim Bain at Wells Fargo is an excellent lender. He lives and breathes the 203k, so he's great at walking you through all the details.

Disclaimer - while I have made offers where I would use the 203k, I have never actually closed a deal with one. Also, rehab is not for everyone. This is just one option out there, IF you think adding value through rehab is attractive to you. 

Great tips @Shaun Reilly! Looking forward to attending some of these events. 

Thanks @Paul Sorgi! Any recommendations for local events you've like?