I decided a few years ago that I wanted to get into the real estate business by buying and holding rental properties. Over the past 4 years iv managed to save around 150K. I live in Massachusetts near Boston and properties around here are extremely expensive and I am interested in looking more towards the central Mass like Worcester. Worcester is much more appealing because its the 2nd largest city in MA and has 3 colleges and many multi family units for sale at a much cheaper price than Boston. Iv seen prices range from 250-350K for 3 family units where as in Boston those units go for 1M +
My question(s) as a first time buyer r is how do i determine if its a good deal. What do you experienced investors look at ? The worries I have are:
1.) What research do you trust when deciding if the area is a good neighborhood?
2.) How do i determine if i know that i can get the units rented out ASAP
3.) What constitutes a good deal? Is there a certain number i should be trying to get to for cap rate ?
3.) what kind of financing should i do ? Is there a specific one that people typically do? i dont plan on living in this unit either.
4.) Is it a hassle to manage a building? How much should i stash away for unexpected maintence
5.) what do people do when tenants cant/wont pay - i know mass makes it difficult for the landlord to get these situations resovled. What do people do in their lease agreements in order to avoid this to the best of their abilities ?
Thanks for the help.
I have been an investor in Worcester, MA since 2015 and I've had great success investing there in multi-families. I currently own 6 units there. PM and we can chat further regarding all your questions.
Firstly I want to give you a compliment...since you have been saving for 4 years you have definitely earned the right to say that you don't want something for nothing, which believe it or not a lot of people do. Now to shed some light on your questions...
1) When investing in a property and not a note, your looking to invest in a hard asset. With that said its not like looking at stocks unless your speculating for appreciation (buy low sell high). The best research for anyone is boots on the ground or second hand boots on the ground (someone from the area). I don't know if your hoping to hop on the computer and look for all these different factors and analytics, but that's mostly beneficial when your trying to pinpoint a market. Since you have your eyes set on a specific market already and it's not far go and actually look at properties first hand. See what the neighborhoods look like, what type of tenants the properties will attract, how heavy the property management and how often the properties are going to need to be walked. You can analyze if it's "for you" depending on the level of risk tolerance and how you feel about the specific deals.
2) There's a motto that works with this day and age, and that is any unit can be rented the only variable is the price. If your really desperate to rent fast, depends on how fast you get the units rent ready (and occupancy certified in some cities), what platforms your reaching the markets tenant pool, and the time of year. If your concerned about it you can always hire help. The market is flooded with property managers and agents that'll tackle that lease up, please do your due diligence and don't get sold on sheep herders.
3) A good deal is a deal that fits the investor. Every investor has a different good deal. I know investors that think high end tenants, high end rentals, and low cap are a good deal, I know investors that think the least money down and high ROR is a good deal, I know investors that think a high cap rate is a good deal, I even know investors that think barely habitable properties with lots of "potential" is a good deal. So you'll need to figure out what your looking for and what fits you.
4) It's not a hassle to manage a building if you can expect every possible outcome and plan for it. Now with that said that's pretty unrealistic, of course there will be hassles somewhere at some point. Figure out what you have for skills, what skills your willing to learn, and how often you want to visit these properties, and network find people who can to fill the gaps, find some people that you can lean on when your in a bind, even make some friends with people who've been down the road so that you can bounce your problems off of and get input on how to handle the problems. As far as the monetary standpoint, you should have access to funds for reserves in an emergency. Cash is good, lines of credit, even a high balance credit card. How you handle the reserves depends more on the comfort level, some people want to pay for everything outright, some people want to finance everything possible and take it away from the cash flow (their mindset is I'm not paying for it out of pocket it comes from the rent from the tenant). Having a mixture is probably best, that way you have more options and versatility for how to pay unexpected costs, repairs, or capital expenditures.
5) I suggest having a large lease that covers everything and complies with all the laws, then explaining it carefully to the tenants to hopefully scare away any professional tenants. If a tenant doesn't pay you can issue a 15 day notice to quit to start the process, I would suggest doing that sooner than later (probably no more than 5 days into the month). A quick note mass laws are funny in that a tenant isn't late until they are at least a month late. With all that said there isn't much that you can actually do to make or give incentive to a tenant to pay on time in a lease without breaking any laws. There's more and more property management companies and real estate agents getting sued every day for trying unique and crafty ways, steer far away from it, all you'll succeed in is to anger the judges and get bad PR. Laws change and it's hard to stay up to date, keep in touch with professionals and/or subscribe to local real estate groups that issue up to date legal issues and information on the laws.
Updated 3 months ago
Quick note, It is a 14 day notice to quit not a 15 day.
@Matthew Cataldo Congrats on saving that much money! You could definitely get a lot out of your reserve investing in Worcester. The answer to a few of your questions could be solved by talking to some property management companies in Worcester. They can tell you from their experience, what neighborhoods are good/bad and how likely you are to get your units rented quickly, as well as an idea of vacancy %'s to factor into your analysis.
As far as a "good deal" you'll likely need to decide that for yourself (10%+ COC return, $200-300/unit cash flow, etc), while you should reach out to some Worcester investors and see what their criteria is.
Lastly, I would suggest not being afraid to get creative and look for off-market deals that may need some work. You'll be able to do a lot more with that 150k if you can implement the BRRR strategy.
Hope this helps. Feel free to ask any additional questions!
@Matthew Cataldo Hi Matt, if I was in your shoes I would look to leverage your hard-earned money. You can find great tips in the BP book The Book on Investing in Real Estate With No and Low Money Down. In 2010 I purchased a 2 family in Somerville using creative financing. I was able to purchase a 450k house that is worth 950k today with 3k down payment. The monthly rental revenue is currently high than my down payment. I waited a few years refinanced that property and was able to use the cash from the refinance on purchasing a 16 unit in Springfield. I also negotiated 5 percent seller financing to keep more money in my pocket. Always remember the best investment you can make is in yourself. I hope this helps….
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