New Investor Worcester, MA

8 Replies

Hi BP,

My name is Sam. I am a 25 year old born and raised in the greater boston area. I'm just getting started and I’ve been trying to absorb as much information as possible, books, podcasts, blogs etc. 

My plan is to start with a buy and hold method with small multi family properties. I have spent some time scanning through the Worcester, MA market, and think it may be a good fit for me.

I have been analyzing deals, but seem to be stuck on this hypothetical situation. Currently I am renting, but have ~$30k of my own money to work with. I am not sure whether or not I should wait until my lease is up (in 10 months) to purchase a property and house hack with a low down payment using a FHA loan, or use a higher down payment and a conventional loan in the meantime and rent out the all units. Any advice would be greatly appreciated!

Are there certain Worcester neighborhoods/suburbs that you prefer or avoid investing in?

Would love to talk to anyone about their story or any pros and cons they have come across investing in this area!

Samuel,

When your looking to invest in your local market you can reach out and network with appraisers and real estate agents. Getting into a solid networking group locally or in general will help keep you in the loop and up to date on market analysis. Studying the market and the rent schedules for each area is a good idea and will help when locating the first property. You can use online public records to look at properties tax bills, Last sold date, increase in comparable values with or without renovations. Comparing renovation costs versus sale prices and either avoiding certain renovations or following a profitable trend. Work with a bank/lender that will get you pre-approved and work with you and your agent to help guide through the process working as a team.

Hey Sam, welcome! 

I recently bought a duplex in Worcester and am house hacking it. I had many of the same questions you do. I have a spreadsheet I can share that I used to compare different mortgage options and estimate cash flow. Also, I can point you in the direction of good neighborhoods to buy in and ones to avoid. Direct message me and I would be happy to help!

Michael

@Jason Wray

Jason I think you are absolutely right, things can be a little difficult to decipher looking from the the outside in. Networking with local individuals should help me organically answer some of these questions! Thanks for pointing out all of the moving parts that are involved in the process. 

Samuel,

There are a bunch of us who go out a couple times a week looking at multis if you would like to join us let me know.  The key in Worcester is to know the neighborhoods and the traffic patterns as that is huge once people go back to work.  Saturday is the big day to do Open Houses to get an idea of the quality you are looking at since most of the houses are over 100 years old and some have had more extensive rehab then others.  Best of luck and let me know if I can be of help in your search.

Brian

@Samuel North welcome, it's nice to see other east coast guys on here! I would continue saving money and analyzing deals for the remainder of your lease, at that point you'll be ready when you find the right property. If you use a conventional loan to purchase something now, it would eat into your $30k savings rather quickly. Not to mention you still have your rent payment every month and any other living expenses such as a car payment, food, etc. However if your in a strong place financially and you feel like you can handle a few months of potential vacancy plus all of your living expenses on top of that, then finding something now might make sense. House hacking is definitely the best strategy for anyone looking to significantly reduce their living expenses. By the time your lease is up you'll have a nice cash savings allowing you to use an FHA loan and still have plenty of money left over in reserves. At the end of the day if you're able to achieve the same result but keep more money in your pocket, that'll allow you to scale even faster.

@Samuel North

I’m fairly new and am currently buying my first property (duplex in Worcester). A few points that haven’t been mentioned yet that you can take with a grain of salt based on my experience:

1. A two family that needs less than 30k rehab in Worcester is going to be 350k+ easily in a good neighborhood. Keep in mind that $30k will need to cover closing costs as well.

2. The Worcester multi family market is incredibly competitive and most homes go to cash buyers - so getting there fast and/or finding off market deals is more advantageous.

3. Depending on your income, I'd HIGHLY suggest looking at the Masshousing loans. In Worcester you can qualify for first time home buyers loan if you make less than $101k or the Masshousing conventional loan which has an income limit of $128k I believe. Both are so much cheaper than FHA as FHA has so many fees.

4. I went the more extreme route for my first property and am doing a Masshousing rehab loan. I would recommend that as an alternative way to get into the Worcester market as you'll be able to broaden your scope of properties to more distressed ones. Note: Itll be very hard to make a profit as the homes will be pretty well priced and not leaving much room. But if you plan to live and rent the other unit(s), I think it's way better than spending $1200+ on rent and setting yourself up for capitalizing on the appreciation.

5. There are a plethora of people in the Worcester community that are incredibly nice and are willing to take the time to teach/guide you. (Even those that have already posted in this thread) Take advantage of that. Also, join the FB Group "Black Diamond REI Insiders" if you haven't already. It's a FB group for MA folks.

Best of luck!

To add to Steven here on #4, don't bet on appreciation in Worcester. Historically the appreciation in Worcester has come from 2 distinct factors. 1 Rising tide lifts all boats= all real estate went up for MACRO Economic Factors, supply/demand imbalance, Low interest rates, increase in money supply. or 2. MICRO Economic Factors, and this one is simple in Worcester. RENTS go up PRICES on MULTIS go up and they almost match. Rents in Worcester have gone up 30% in the last 3 years at least, which has driven leveraged real estate to go up. The huge run up on these prices has been a COMBO of both the MACRO- Low supply, low interest rates, and MICRO, the run up in Rents, specifically the increase in SECTION 8 allowed rents. When buying in Worcester look for 1 LOCATION and 2 QUALITY, these are the long term factors that allow you to ride out the dips!!!!!

@Samuel North and @Steven Caligaris ,

Lead Paint!!! Every house you two are looking at WILL have lead based paint in it. (Everything built before 1978 probably does.) This isn't a bad thing, it's actually a great negotiation point. 

MA law says you need to delead every rental property built in 1978 or earlier within 90 days to avoid liability from any past tenants that may have been lead poisoned while living there. Yes, you're responsible for people that lived there before you owned it, crazy, right? They have basically taken the liability and transferred it to the property and it stays there until someone deleads it. If you don't delead it, you can be sued by people you've never met and you'll lose. 

Also, by law you cannot rent to a family with a child under 6 unless you have a lead cert on file with the state, and you also can't discriminate against a potential tenant because they have kids (even if it's to protect that kid). So you really have no option except to delead. If you don't delead it when you buy, you will have to when someone with a kids wants to rent it or when a tenant gets pregnant, so you might as well do it while you can get the seller to pay for some, or all of it, in negotiations. 

Again, this isn't a bad thing!! Assume $5000 per unit to delead and count the exterior as a unit, so a 3 family is 4 units = $20k to delead. I've never seen a job go over that, most come in around half that, but they could go high depending on if it needs windows and exterior doors, those can get expensive. Use that $5k per unit number to negotiate during your purchase if the property hasn't been deleaded. There's a database I can run addresses through to see if the property has ever been inspected and deleaded for you if you want me to. It doesn't cost anything and can save you thousands on a purchase. Sometimes they've been inspected but never deleaded, this prevents you from being able to rehab that property until you get a lead certificate. It would be illegal if you did and the property would be flagged for unauthorized deleading (UD) and you'd never be able to get a lead cert., only a Letter of Environmental Protection stating you did UD and then had to hire a pro to fix it. Knowledge is truly power!

Good luck on your investing!!

Derreck