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Christian Austin
  • Medford, MA
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To buy or not to buy owner occupied multi-family in Boston suburbs

Christian Austin
  • Medford, MA
Posted May 12 2013, 18:15

Let me begin by briefly describing my scenario. I've been looking for a multi-family property in the NW Boston suburbs (i.e. Somerville, Watertown, Watertown, Medford, etc.) since the end of last summer. This will be my first investment and I will live in one unit. To my dismay, the spring market in this area has been an extremely strong seller's market, with low inventory and selling prices usually well over list. There is no possibility that these properties will meet the 50% or even come close to the 2% rule; I can get some numbers to work with a 40% rule (assuming no property management of 10%). These facts have forced me to look hard at investment strategies and formulate possible alternatives. Here are the three alternatives that I am considering. Any suggestions would be greatly appreciated.

1] Stick to my original plan an purchase a property in my desired area; use the 40% rule to evaluate a property's price and accept zero or possibly a small negative cashflow using this calculation. In this case, I would value the property based on the equity generated by the tenants and being in an area that I desire to live. There is also the possibility of appreciation, being in a high demand area, but I don't think I should bank on this. I would like to hang onto this property if I move out in the future, and I foresee a disadvantage of this strategy is the possibility having a negative cash flow property that I do not live in.

2] Try to get a better deal in a more remote region outside of Boston and achieve favorable cash flow numbers. The two main disadvantages I see with this strategy are that I will be living outside of my preferred region, and the rental market may not be as strong, making vacancies more difficult to fill. Again I would like to hold this property as a rental after moving out, but suppose I could also use this as a short term place to live and do a 1031 exchange in the future, but would take a loss on selling and closing fees.

3] This is the more extreme, but possibly financially best, strategy in my mind. Invest in turnkey properties in areas with more favorable cash flow and continue to rent in a region that I prefer to live. It seems like this has worked for some people on biggerpockets that live in unfavorable investment areas. The disadvantage I see with this method are that I would not actually own the house I live in, and I would like to own my residence sooner than later; by waiting, my local market prices may become even more inflated than they are now, but of course there is no telling, or I could bank on appreciation in 1].

I've also considered the REO route of buying cheap and investing a large amount in renovations, but I feel that this may be a risky strategy for a novice such as myself. If you feel otherwise, I'd like to hear your thoughts.

Thanks for reading through this long post, and thanks to the community for all of the valuable information you provide. If not for what I have learned here, I would not have had metrics to evaluate a property by, and may have overpaid for one by now.

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