All Forum Posts by: Matthew Wadsworth

Sorry for the slow reply. This deal (thankfully) fell through.

@christian, it was on the northern side near the large cemetery. Not a close to the river, breweries, or casino. I didn't see it as a very desirable location.

@Ryan yeah I think your strategy would have better served us. We were moving into the area and wanted to avoid getting into another apartment lease before buying.

@Rich, why would you say not to look at the cap rate? Do you think it too small a property to be an effective metric?

Thank you for the replies. 

I'm thinking it's time to back out of this. We're not developers or contractors. We're first time home buyers getting in over our heads. Summary: negotiate the price down $30k, put in $25k of updates to pull up the rent of unit 2 by $700/month. Seems risky for our experience level.

The rent estimates I was using were too high ($4k/month) the extra bedrooms in the units were too small. So, we're lowering the expected rent to ($3.2k) and we're taking a new tactic with this property. I don't think these duplexes are being priced to rent at market rates. I think they're being bought by renovators who put in strategic updates to draw an above market rent. So, after the home inspection we are budgeting for a new roof ($13k) and expecting extensive water damage ($5k for a high estimate). Finally, I'm going to use past termite damage as a risk and ask for another $10k to hedge our bets.

This will give us some wiggle room in the price + repairs where we can add some cap ex (~$25k) to update the unit we plan to rent. I'm hoping to bring the (lowered) expected from $1800 to $2500. That seems crazy though...

I think this is the right forum to post. I apologize if not. This post turned into a wall of text, I apologize for that too

So, I'm debating whether my wife and I should pull the trigger on a duplex in the Boston area. I took a new job here and we are currently in temporary housing. If we don't buy a place, we're going to end up renting and that stinks. I see owner occupying a rental property as a great alternative to subsidize our lifestyle, but I'm having trouble with the numbers here.

The housing market here has on a strong climb since '08 and we are quickly being priced out of anything within a reasonable commute. Owner occupying a duplex will provide us the benefits of ownership, the headaches of land lording, and also monthly checks written by someone besides an employer. Not a bad trade-off. However, the best deals I can find around here are  barely 4% capitalization rate. I interpret this as the market being squeezed into speculative pricing. So, here we are looking at picking up something that I had dreamed would be a home run investment, and it turns out not to be much of a winner.

Pros:

•  We are leveraging our credit to finance an investment. The overall returns won't be great, but we will generate positive cash flow. For this experiment I assume we pay the market rent for the unit we live in.
•  We gain a great chance to learn 'handy' skills. We're motivated learners and see this as a great opportunity. I hope our positive attitude sticks and we don't get tired of swinging hammers...
•  I see working around the house as an opportunity to monetize our free time while we are learning. That's like a double win.
• The rents will provide a low returning investment, and if the home valuations continue to rise, we may be able to capitalize on that in the future for better returns. 

Cons:

• There is an opportunity cost on the down payment being drawn from potential equities investments which could provide ~7% returns.
• I don't know who would buy the duplex from us in the future since it's at the bottom of acceptable cap rates. Unless there are very efficient updates to the units which could pull in a higher rent, or rental prices pick up.
• I don't feel confident with real estate yet. I've self-educated myself on the topic, but I'm still very unsure of the industry. So, not having a bigger buffer in terms of cash flow/returns worries me.

We're going at this alone and don't have any real estate gurus talk to, so if anyone cares to chime in, or even double check my numbers I would really appreciate it. Thanks for reading my wall of text!

Numbers:

$670k purchase price

1.19% property tax

1.5% annual maintenance (house built in 1920).

.11% insurance

6% vacancy rate

$4k total expected rent

These numbers provide me 3.93% cap rate. That's rough..

Yes, the house is total 3 bed 2 bath and one unit it to be delivered vacant. They are currently both occupied, but we plan to have contingencies to ensure one is vacant on close.

Hi all, 

I'm a first time home buyer looking to house hack in the Boston area, and we've gone through quite the self-education experience. There is basically nothing within a 45 minute commute (bike or transit) with a decent capitalization rate (my minimum is ~4%). The entire market looks to have been squeezed into speculative buying territory, which I'm not comfortable with. I want a healthy backstop from rents to provide passive income.

We are currently having frustrating discussions with a seller (whose mother lives in 1 unit) over a 2-plex in Everett for $522k which needs ~$30k in repairs. The units are a 1-bed and 2-bed and market rents look to be ~$1400/~$1800 . I think my numbers are conservative, but I'm looking at ~3.8% cap rate with this purchase. Is this place a steal in this market? Should I just put up with the seller and snap this up?

Thanks for the advice!