Rental Property Investor · Medford, MA · Member since 2016 · 288 posts · 171 votes
Hi BP community, this is my first post (I think) and would love to get some second opinions on a property I'm considering investing in in Boston, specifically the Ashmont area of Dorchester. The unit is only a 3 min. walk to the red line train station and I'm wondering if the numbers for the 02124 zip code make sense... bare in mind Boston is insanely expensive right now. The unit is very small, only 450 sq. ft so it would be for a single professional commuting into the city. The last tenant to live there was a grad student at BU. It's mostly updated, with the exception of the bathroom which could use a remodel in a year or two.
$195k offer price
20% down
Monthly Expenses:
HOA $100
Insurance $30
Taxes $156.75
I'm still calling lenders, but the rates I'm getting quoted at are 4.5% 30yr fixed. It's looking like my monthly payment including expenses will be $1,027/mo. Going rent for the building is $1350-$1400.
What do you all think, is this an Ok cash-on-cash return for this type of a market, and am I committing too much capital for this size cash flow in Boston?
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
9y
You're missing a lot of expenses. Capital Expenses (like that bathroom) and Repairs should each be figured at ~7% each of Gross Rent, that's almost another $200/month. Vacancy is another 6-8%. At this point, you're just breaking even.
Other things to consider:
Since it's a condo there's always the chance of a special assessment coming through. This could kill a whole year (or more) of cash flow.
Does the complex allow rentals? For how long? Some only allow subletting for 1 or 2 years max.
All is not lost though, cash flow isn't the only thing to consider in RE investing. You'll see some tax savings through depreciation. I would estimate ~$4500/year (confirm this!), so that's essentially ~$125/month in your pocket (at the end of the year). Of course the tenant's paying down your mortgage, but that won't pay off until you sell.
Lastly, is appreciation and this is where the deal may turn in your favor. Boston is really hot (for now), so you may see a lot of appreciation. At only 6%/year, that's a profit of $11,700 in the 1st year, not a bad return on $40k down.
I highly recommend doing a full analysis of Internal Rate of Return (IRR). This takes into account all of the different aspects of RE investing and compares it to other options (like index funds). There's plenty on BP about IRR.
This book by Frank Gallinelli is a rock-solid guide.
Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
9y
Christian, this is a tough one to be honest. If your true goal is pure cashflow, then this is going to be tough to achieve. I agree tat you are not accounting for any maintenance and bigger capex (like you said, bathroom remodel etc)--it really adds up quick.
That area is defintely a great rental area, you'll see a lot of grad/young professionals priced out of downtown, but its still going to be tough to meaningfully cashflow. Even if you use your numbers above (which I dont think you will realize), if you pull 200 a month or so, which is 2400 a year, compared to the 40K you have to put down is ~5-6% CoC. Yes you should look at IRR, but I think that tells you a lot of the story.
If you are really looking for cash flow, I think you are going to have get out of the "T" areas--just too competitive honestly. To really get that clean ~300 per unit CF, unless you find an awesome off market deal, I think you'll need to look a bit north (or south)---can be areas like Lynn, Wakefield etc. Not saying you can't money in Dorchester, but cashflow is tough.
Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
9y
@Christian Nachtrieb - unfortunately, even a light estimate such as the 50% rule is showing this as negative cash flow. I would say that you are probably committing too much capital into a single rental which will probably not give positive cash flow.
Fortunately, you asked the right questions before you dove in!
As @Jaysen Medhurst pointed out, the "percentage expenses" can start to stack up very quickly against you. These will be your maintenance, CapEx, vacancy, and income tax.
The next question will be: what is your goal in real estate? If you are looking to grow passive income through rentals, I would not suggest this property as a first purchase. Your best bet will be to find a positive cash flow for your first few purchases in order to start building your snowball - put the positive cash flow from your rentals back into purchasing more real estate.
Once you have a solid base of positive cash flow, you can start looking at a property like this one where you might be able to add some value to the property. If you are taking a negative cash flow, it is usually because you have a strong plan for adding value either by increasing the income or decreasing the expenses.
In the mean time, I strongly suggest finding a property evaluation tool / calculator that you like, and start evaluating a few properties each week. When you find another one that excites you, bring it to the forums and see what others think! You'll find your first property, and you can take off from there
Rental Property Investor · Medford, MA · Member since 2016 · 288 posts · 171 votes
9y
Just wanted to update you guys on what's happening since there's been some developments. I spent some more time researching the rental market in that specific area, and it turns out the agent who told me about the $1350 rental rate was off by some. It's more like $1600-1800. My closing is scheduled for later this week and here are my numbers (mind you, I have someone who is already interested in the unit, with three more coming to view it on Saturday once I have keys-in-hand).
$197k accepted offer
25% down
--
HOA $90
Insurance $40
Taxes $156.75
Total monthly payments $1,050
Rent $1,700
Also, this unit has had all major CapEx expenses taken care of in the last couple years, new water heater, roof, windows, etc. No major expenses (hopefully) in the near-mid term future.
For my first property, this is better than what I was hoping for, especially in this ridiculous market. Anyone in Boston knows how cut-throat it can get. The only reason I ended up winning this bid was because the size of my down payment outweighed everyone else's, even though some bid up as high as $217,000 for the property.
Investor · Natick MA · Member since 2014 · 214 posts · 118 votes
9y
@Christian Nachtrieb congrats! With the numbers you showed it looks like the property will cash flow well. You picked a great area for sure. I think Ashmont will appreciate a lot more moving forward.
Rental Property Investor · Burlington, MA · Member since 2017 · 34 posts · 7 votes
9y
@Lior Rozhansky Hi Lior, It's interesting that you mentioned Wakefield, since I was just to start researching that area. Would you mind talking more about it? What kind of tenants in that town (commuters to Boston, or professionals working locally), what types of property fits well in its rental market (condo, MF)? I was told that rental properties in/close enough to Boston barely have any vacancy, guessing the situation for Wakefield could be a little different? Thanks a lot!
Rental Property Investor · Burlington, MA · Member since 2017 · 34 posts · 7 votes
9y
@Christian Nachtrieb Congratulations on the closing and having candidates for tenants. It really speaks for hot Boston area. Would you mind sharing how you get the tenants?
I have a closing on 8/10 for a property in Malden (not that close to Boston, unfortunately), and am kind of worried about vacancy.
Rental Property Investor · Medford, MA · Member since 2016 · 288 posts · 171 votes
9y
@Shirley X. Thanks so much! As for the tenant who I have that filled out an application already, she was a Craigslist find, as were the 3 others actually. I have the listing on Zillow, Trulia, and Hotpads and have gotten a lot of emails, however no solid leads from those sources. Craigslist is still king. The other thing you could probably do is hook up with a city-focused rental agent and just have the tenant pay their fee which is common in this area.
Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
9y
@Shirley X. To be honest I am not ultra familiar with Wakefield (my expertise stops after Malden heading north). But from conversations with people I have heard it's also a good rental market. Not as sure about mix of tenant base.
But as to your worry about Malden vacancy (congrats by the way!), I would not be stressed at all. Malden has a very strong rental market and I really don't expect you to have much issues with renting out your unit assuming its in decent condition. With the T there you have a mix of younger profressionals as well families--vacancy is not going to be an issue.
Rental Property Investor · Medford, MA · Member since 2016 · 288 posts · 171 votes
9y
@Lior Rozhansky I also just noticed they're putting in a huge new condo building right across from the T at Malden Center. Didn't know that plan was in the works for awhile but it's going to be nice. For more: https://www.bostonglobe.com/metro/regionals/north/2015/01/16/malden-city-hall-will-occupy-condo-new-development/WDYlRvDeDfiwSGMz6CcVaO/story.html
Rental Property Investor · Burlington, MA · Member since 2017 · 34 posts · 7 votes
9y
@Lior Rozhansky Thanks for the information shared. I will look into Wakefield.
It was my initial impression that the rental market in Malden is good. However, after funds put into the deal, it just became easier to feel nervous and anxious. It's very reassuring to hear the good thing about the town from an expert. Really appreciate it :) Yes, it is basically a turnkey property in terms of condition.