My girlfriend and I are first time home buyers in the Rhode Island area and we are looking to owner occupy a multi family as our first home. We recently found a three unit in the city of Woonsocket that looks appealing. The units are large and I think the rents could be increased by quite a bit. The downfall is that the price is quite high and it looks like the current owner has paid more than the listing price of the house according to the tax assessor's database. However, I believe there are a few advantages at play with this house.
The house seems to have less competition due to the high price for the area. We've looked at several other houses in the area and have been beaten out on a few offers, one which was over the asking price. The house is also built out of brick which to me means less maintenance than most homes. No repainting or replacing of siding to worry about. It may need re-pointing at some point but I think that's something I could do myself. The house also has a slate roof which seems like it may be one of the better roofing options out there. As far as I've read it seems I may never have to replace the roof, though if I did it would obviously be at a much higher cost than normal.
My questions are, does the lack of big ticket items (siding, painting, roof) make the case for paying a higher premium up front? Are brick multis attractive to tenants? Does anyone have experience renting in Woonsocket, and has it been good or bad? Am I wrong about brick and slate being less work than other materials?
Please take it easy on me as I am new to this.
Thank you very much,
I do have experience in this city, and in my experience, a good or bad experiences being a landlord here all depend on your process and ability to service the needs of the property and tenants. It is a city where if you do not know what you are doing, it can turn into a nightmare, but can work out well if managed properly. Also, take into account that property taxes are divided by 4 and then a 5th quarter is added on. Depending on the condition of the brick and slate, these are nice features. Would I potentially pay a little bit more if they were in great shape as opposed to a traditionally weather proofed house? If the numbers allowed it, I would consider it.
Thanks for the reply @Brandon Ingegneri ! When you say it depends on the process and ability to service the property and tenants, what do you mean exactly? I've never been a landlord before and certainly need as much advice as possible on how to develop good systems for property management.
Also, I didn't know about a 5th quarter for taxes. I know the tax rate in Woonsocket is something like $29-$31. If I am factoring in the yearly taxes into my analysis and lets say the taxes listed on the MLS for a property are $4,500/ year, does this account for that 5th quarter? Or is there an additional expense there?
The annual taxes should reflect this. There is also a separate trash removal fee that is billed not included with the property taxes.
With regard to what your overall experience will be, your efficiency as a landlord, screening process, leases, attention to detail regarding the managing of your property, timelines with lease enforcement, efficiency with repairs, snow removal, overall property management/maintenance, and the physical condition of the building will all be factors.
@Brandon Ingegneri Thanks for the heads up, I didn't know about the trash removal fee! As far as managing the property goes I'm hoping that what I've read so far in books and on the BP forums will help me out but, just as most other experiences in life, I won't really know until I'm actually a landlord. I know there will be headaches with any property but I hope to start establishing a system with whatever house becomes my first property to avoid the future headaches.
@Colleen F. Like you said, I don't know that tenants would ultimately pay any more for a brick apartment than another type but I liked the fact that it seems to be a very sturdy building material. Also, while I could be wrong as far as the rents go, all of the units are quite large (over 1,200 sq ft) 3 bed 1 bath units and they are all renting for less than $1,000/month. I looked at the house today and the neighborhood seemed nice and quiet. Do you think that $1,000/month is high for Woonsocket?
Used to live in Providence, Fox Point (just off Wickenden) and Wayland Square (Gano and Angell St.) areas.
A slate roof, depending on how much hail an area gets or whether tree branches are hanging over it or high winds (this is Woonsocket), will fail in 80-120 years. Yours might be ending its working life. That is, of course, not good. However, slate roofs do not fail catastrophically all at once. You'll have time after you figure out if its leaking, and you don't have to replace a slate roof with a slate roof -- you can shed the slate and use cheaper 30-year asphalt. I own a slate-roofed property here in Southwestern PA built circa 1905 that's still going strong.
Neatly repointing brick is not as easy as you suspect it is, and doing it well has really gone out of style because of how much skill and time it demands. The best you're going to get if you do it yourself is a rather ugly patch job, the worst is a smeared mess. I've seen both in my area, and I own four brick-veneered properties here. However, if you don't repoint, you risk water getting into the air gap between the sheathing and the brick, and that's really bad in wet areas (Woonsocket). It leads to large section of the brick bowing out, and you go from having to repair and repoint 400 bricks to 10,000 in a hurry.
No exterior repainting is a tall order, but hey, you're new, so I won't bark at you. What about the gutters, the soffits, the fascia, and the rest of the trim? You still have box gutters on the thing? Were the fascia and the soffits ever covered with vinyl-clad aluminum? If not, you've got a major, expensive repair coming up and if you try to DIY it you're going to need a lot of scaffolding and probably a building permit.
Tenants don't care about whether their multifamily is made of brick or not, in my experience. Little Rhody, from what I remember, has all kinds of tenant-friendly laws. Somebody local will be able to answer that better.
@Jacob Gelinas lots of factors to consider here and the previous posters have given good advice. Remember that there’s a lot of other things that can happen - as a new investor you’ll want to account for vacancies, repairs, and a lot of those repairs could be expensive - water heater, burners, plumbing stacks etc. The costs add up quick.
As a side note - what’s the endgame for this property in your mind? Keep it in mind, as you can self manage it (practically) forever but that time is money, and you should account for that - nobody wants to work for free.
At the end of the day if you’re confident in the fundamental numbers of what this asset will return, then you’ll be fine.
DO NOT GET EMOTIONALLY ATTACHED TO A PROPERTY!!
DO NOT GET ANXIOUS BECAUSE YOU HAVE LOST BIDS!!!
RUN THE NUMBERS ON THE CALCULATOR - FIND YOUR PRICE AND STICK TO IT.
The worst thing you can do is jump into something because you want it too bad, and its a bad investment that cost you money! There will always be a deal, find the right ones and go for them. This is a numbers game. When the numbers make sense, the deal makes sense.
@Jacob Gelinas I think one of my signs of the real estate apocalypse (i.e., market top) is going to be when people start getting excited about properties in Woonsocket again.
What @Brandon Ingegneri was being polite about saying, is that most of Woonsocket is a tough area.
I would strongly recommend visiting the property in the daytime, evening, and weekends, and talk to neighbors and people in the area to get a sense of who you'll be dealing with.
Woonsocket has a lot of tenants who get rental assistance (section 8 or RI housing vouchers), which is not necessarily a bad thing but you must screen them as well as you would any other tenant - and in Woonsocket you must screen thoroughly.
I would venture to say that a not insignificant portion of the the state's "professional tenants" (who move in to one property, pay no or partial rent to string the free ride along as much as possible - they love new landlords - then get evicted and repeat the process) reside in Woonsocket.
Others have spoken to the peculiarities of the building well so I won't repeat that, but as a general rule if the property deviates from the "usual" in some way, like a slate roof or geothermal heating, you want to be extra careful that you understand what you're getting into, even if it means paying a professional for a real inspection/evaluation. Asking on BP is nice, but to be honest I wouldn't say it's enough due diligence for big ticket items.
Historic properties are another good example where getting into specialized skills and materials, and deviating from the "standard" way of doing things, might look aesthetically pleasing but can cost a whole lot more when repairing or replacing.
Based on what you've said, and without seeing specific numbers, the property sounds overpriced and I would be cautious about buying it. I don't think the items you mentioned make up for the price being "quite high" and @Jim K. explained that those items could actually end up costing a lot.
And I agree with @Colleen F. that you should not assume you can increase rents. Always buy on current rents, never "potential" or "pro forma" rents. If you can increase the rents, great, but if the assumption that you can do so is the only thing that makes the deal work, walk away.
And if that means you walk away from every property, then either start doing the grind work to find and make offers directly to owners (without an agent), or just acknowledge that of the deals you can find, they are overpriced, and sit on the sidelines until numbers become rational again.
When a listing says "rents could be higher" I say, "why aren't they?" That's like the current owner asking you to pay her/him now, for work you're going to have to do in the future (improving the property and raising the rents). No way. If they want the higher price that comes from higher rents, they can do the work and raise the rents. But if I'm going to do the work, I get to keep the increased value, not pay them for it up front and then have to work to get my money back.
Anyway, if you check out the property, the area, the rental market, and the potential tenants thoroughly, and you're still happy with everything you see, then go for it, and let us know what happens of course!
I know woonsocket only slightly but do know areas of the town vary in tenant quality and consequently I woud think rents. If you go by rentometer they sometimes include rentals that arent comparable. Make sure the rent roll shows if tenants are paying and length of tenancy. I will comment that I believe MA is more tenant friendly them RI if you are choosing between the two. On the construction note check they have windows or it can be a lead compliance issue. Message me if you need more RI info on that topic.
Hi Jacob. There are so many good advice here already. I have only invested in a few multi-families and here are my top rules now (may change later.. who knows).
1) Always assume current rent is the best rent the place can get. The previous landlord is just like any of us and got the best rent he/she can. So unless you plan to spend a lot of money upgrading the units or the area is turning fast, rent will stay the same.
2) Don't inherit tenants if you can. If you do inherit, get the leases earlier and confirm their identity and payment before closing. I ran into an issue where after I closed, the person living there isn't the one on the lease and I couldn't even serve eviction papers because I don't know their names.
3) It's OK to pay for good neighborhood, good bones, good layout. Even if it seems high now, as long as the cashflow is positive, the price of the house should rise or at least maintain over the years.
I looked into Woonsocket a lot when I was buying and honestly feel like the good areas are worth it. Especially if the Worcester-Woonsocket-Providence train line opens up, it should bring life into the city. Good luck and keep looking!
I agree with @Jim K.
I used to be a mason, re-pointing is a skill, it has to be done right to come out good/uniformed. You can’t just slap mortar in the existing joints. If you pay someone to do it, you’re either paying a lot for someone who can do it right, or youre paying an amateur to do a s*** job. Brick lasts a very long time, but I suspect the building is very old to begin with. Once it starts to go, it goes.
Wow, I’m not even sure where to begin! Thank you all so much for the great advice! Based on many of the factors mentioned here in the comments I couldn’t justify making an offer on this house. As @Jim K. and @Brian Ellis mentioned, although the brick appeared to be in decent shape, it may end up costing me in the long run since it takes a lot of skill to do this type of work.
@Anthony Thompson @Colleen F. and @Robert Chen you all mentioned basing my analysis on current rents and it would not make a good deal at current rents or current price. And as @Anthony Thompson and @Derrick Gordon mentioned, I can’t justify the numbers on this one so I think I’m going to have to let it be. I think I was too fixated on the idea of having sturdy building materials but in today’s day and age they may come at more of a cost that it’s worth. Especially since this house is over 100 years old. Just have to keep on searching for a real deal! Again, thank you all so much for the help!
Brick is great, if it was done right. If it was done wrong then the walls behind it could be rotted and you won't know until you see the issues inside and it costs a fortune to fix. Slate roofs are great, but the nails holding it and the flashing eventually fail and the slate sometimes breaks causing leaks. Then you need a new roof that costs about 2 - 2.5x a normal roof replacement. If it is on a rental, it is probably original and on its last leg. It *might* last another 10 or 20 years, or it could be leaking now and you don't know because they're harder to inspect than asphalt. So IMO brick and slate aren't that much better than wood and asphalt unless you know how it was done, when it was done, etc. I would expect above average repair costs for those two items just in case something bad happens and you're not whacked for a $10k surprise out of the blue with not enough reserves.