All Forum Posts by: Kyle Joseph

@Erik Pfundstein I live and work in Boston area and haven't made it to a NH REIA meeting yet, but I do attend some networking events around Boston. That said, I am actively looking for multifamily properties in a number of NH markets, including Manchester, and am happy to connect.

Thanks,

Kyle

@Vlad Denisov Assuming this multi-family is valued based on income (typically 5+ units), and not on sales comps (typically 1-4 units), then I think it's important to remember what a cap rate actually is  and how it effects the value of your proprety.  The cap rate is the initial unlevered yield that a buyer is willing to accept.  It's a reflection of the risk of the cash flows, the quality of the underlying real estate, etc.  Another way to think about a cap rate is to think about it as an inverse multiple.  For example, a 5% cap rate is a 20x multiple (1/5%).  In other words, the buyer is willing to pay 20x the income to buy that income stream.  That may true in Greater Boston where supply is limited, rental demand is high and the underlying value of the real estate is high due to its proximity to Boston and the scarcity of available land.  But in a Western Mass town someone may be only willing to pay a 8% cap (12.5x) because there's less rental demand, less chance of appreciation and no scarcity of land.  For reasons stated above, the price a buyer is willing to pay for a $1,000/mo income stream in Greater Boston is much different than a $1,000/mo income stream somewhere like Western MA.  This is all driven by risk which I'll mention below.

To address your question about what would change the value of the multi-family even if income doesn't change, I think most of it comes down to risk.  Let's just use an example and say interest rates increase, and now you can buy a 10-year US treasury bond and get a 4% yield.  A US treasury bond is essentially risk-free unless you think the US collapses and can't pay its debts (different conversation).  By comparison, real estate is a more risky asset class.    If you could buy a 4% 10 year treasury bond riskf-free, or buy a multi-family at a 5% cap, which would you do? Is that 1% delta worth the risk and potential reward of going from a US treasury bond to real estate?  At some point the market says it isn't and therefore the cap rate moves up.  In other words, people are willing to pay less for that same set of cash flows because they can buy less risky cash flows in the US Treasury bond for a similar price.

This is just one example, but the point was to illustrate that there' s a lot of factors how your multi-family will be valued.  As I said, I think most of it comes down to how the market views risk.

Hi @Nate Wilson and others, I'm based out of Wakefield, MA but grew up in southern NH and am looking for a multi-family in Nashua, Manchester and a few other southern NH markets.  I have extensive underwriting and asset management experience on large commercial deals and am now looking to build a rental portfolio,  likely starting with <10 units.  Always happy to connect.

I don't have an answer on Mattapan specifically, but I would suggest thinking about the things that make a good / upcoming market in Greater Boston.  Economic drivers / access to jobs in Greater Boston, schools, public transit, public investment and revitalization projects, news restaurants and services, etc.  You can look to see if any private / institutional money is making its way in to Mattapan.  I would caution against simply seeing cheap pricing and assuming the area will appreciate within your investment horizon, unless you have reasons to believe it will happen.

Ok thank you. I reached out to them as well to begin the process

Thanks @Steven Rubino, is this the first time you've used them?

I think the 1% rule is a good way to screen and filter deals, similar to how you might think about price per unit or micro-location, for example.  If you know market rents in that area, you can quickly determine if the property would be close or hits 1%.  If so, it may be worth digging in a bit more.   In the markets I look at, I find sometimes a property might pass a quick 1% test, but then I dig in and realize it would need XX in capex.  All of a sudden Gross Rent / Cost Basis is now much lower than 1%

Thank you all.  I will let you know if I find anyone below 25

Thank you all for the advice, it's very much appreciated.  Good to know 25% is the standard, although it sounds like it's worth checking with some local banks and credit unions

Has anyone used a lender that will allow for less than a 25% down payment on a 2-4 unit multi-family investment property?  I am looking in New Hampshire (NH) and Massachusetts (MA).  If so, are you willing to make a referral?

Thanks,

Kyle