I'm just getting started on my real estate investing journey and i'm trying to figure out where to start looking. I'd like to employ a multi-family buy and hold strategy and I don't have a lot of cash to invest right now (i know there are ways around this). In my area, near Boston, the majority of properties are more than I'd like to pay for my first place so i'm trying to develop a plan to narrow down my search. How do i become an expert in a market if there are so many markets out there, which one(s) do I choose?
I've started looking at MLS and checking where multi-families are below $150k in MA, NH and RI. Is this a good starting point or does anyone have any suggestions on how they did it?
I can't say I've looked extensively in other new england markets, but based on the greater boston market I think you'd be hard pressed to find a multi under 150k. Have you thought about single family properties?
Hi Josh -
I've been looking at multi-families around certain areas of Boston (southern Boston neighborhoods that are up and coming) and in the burbs a little south of Boston (my requirement was train accessible) for about one year now. In those areas that I've looked, it's highly unlikely to find a multi-family for <$150k.
I'm not sure what your income is and what your case reserve is, though you could try to use a FHA loan (it allows for minimum of 3.5% downpayment).
I'm not sure about NH or RI and if <$150k is a possible number. Perhaps some investors in REIAs in those areas would be more knowledgable on the numbers in those areas.
I just recently closed on my first income property (will be house hacking and got an FHA loan). My strategy was to find a real estate agent who was also an investor in the specific neighborhoods I was interested in. I decided that since I'm starting out, I should look for an income property in my "backyard". It's an area I know and should something happen, it's close enough for me to travel to the location.
Thanks for the replies. I'm in agreement, from what I've seen there is nothing inside the 495 belt for under $150k, so I've been looking outside it. Fitchburg (Worcester too) often stands out in my searching as a place with lower priced multi-families but I'm not familiar with the area (yet). I do know it's not the best area but It's also a college town so there is the opportunity for student rentals. Anyone know Fitchburg and have rentals there?
@Rachel L. Thanks for the advice on the agent/investor. I hope to be able to do that but need to figure out the markets I want first. Unfortunately house hacking is not an option for me. I currently own my single family primary residence and my wife and kids would be none to pleased to move out. I do alright in my full-time job so I could probably save up enough over the next couple of years to get the down payment levels up but as the old Chinese proverb says "the best time to plant a tree is 20 years ago the second best time is now" (thanks for that one #askbp podcast).
@Josh Robbins congrats on getting going with your multifamily search. Even though, as you stated, you don't know the exact area, I would still reach out to agents in those submarkets and talk to them about what they are seeing. That will help you determine where the opportunities are while building your team at the same time.
There are decent cash flowing properties in Lowell, Fitchburg, Lynn, Lawrence, Methuen etc.
The problem is that a lot of those are not going to be great appreciation markets and the neighborhoods in a lot of them are not great. There are good areas around Lowell near UMass that are solid but for the most part the clientele and neighborhoods can be rough.
You could try to bank on a place like Methuen, which had the highest job growth of any town in the Commonwealth in 2014, but it's risky from an appreciation standpoint.
As many have said, in markets like these, buy based on cashflow. Appreciation is just the cherry on top.
Thanks @Robbie Reutzel and @Joe Fairless . I'm in the market for cash flow and like you said, appreciation is the cherry. Thanks for the tip on Methuen, I'll give it a look. I recognize that a lot of these towns are not the best neighborhoods and I guess that's the risk with an easier point of entry. I plan on having a management company, being extra cautious with tenant screening, and paying attention to the better neighborhoods by doing my research and working with locals (I do have a friend from Fitchburg). Hopefully between that and factoring in a decent vacancy rate I can find something with good financials.
I really appreciate all the feedback. So many paths to walk down while starting out, it's nice to discuss with people who have been there.
@Josh Robbins you could always start off with a SFH "hybrid" approach... buy a foreclosure or something out of REO, fix it up, rent it for a year or two and save the cash flow, then sell or re-fi once it's back to market value (maybe even above it the market has appreciated). This is the approach I've taken with my first two rentals as I try to build up enough capital to get into the apartment building game, and it's working great so far. You learn how to be a landlord on a smaller scale than jumping right in to multi families.
The other option I could see working for you is finding deals with sellers who are willing to carry back a note - not something I've done (yet) but seems to work for a number of people.
that's a good idea @James E. . I sometimes forget (probably because I try to) that I was an accidental landlord about 7 years ago. Valuable learning experience though and helps me be a little less afraid of the landlord game. I love the concept you're describing and would love to do something similar with the small multi families. I really love the economies of scale they can provide. However I have no idea how to evaluate the costs of repairs. When doing your initial analysis do you try and get a rough estimate of house repair costs and how do you do it?
@Josh Robbins You can usually have a good "guesstimate" after you go see the house. If you're going to a listed property with your real estate agent, any good agent will know basic ranges for how much things cost (new kitchen would be between x - y, new bathroom runs about $x etc..). You can also read Jay Scott's "book on estimating rehab costs," go to the free home depot seminars, and literally just google stuff, cold call contractors to see what their range might be etc..... plenty of ways in this day in age to find any information you're looking for.
If the "guesstimate" numbers are in the right ballpark for the deal to make sense, once you have it under contract with an inspection contingency, I think it's worth the $300 bucks to have a home inspector come in and let you know if there are any structural issues you might not have seen and do a thorough analysis of the property.
Once you've done your own analysis and supplemented it with the home inspection, add a comfortable contingency (20% or so) to the total cost and run the numbers, see if you can negotiate the seller lower based on what you found during home inspection, and if the deal no longer makes sense you can just walk away.
Hope that makes sense, but it's worked out well for me so far (both places I've closed on and places I've walked away from).
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Thanks @Mark Nolan , I've been consuming about as much as I can each day from these forums and blogs. It's how I came to the conclusion I need to do a little more research on the repair costs. If I'm looking to add any balls I'll need to factor it in. I appreciate the tip.
@James E. Thank you for the detailed post, it makes perfect sense. A lot of great information and is really helpful in guiding me down a path to working this appropriately.
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