$50k in Worcester, MA / western MA, what would you do?

24 Replies

I recently came into some money and want to put it to good use. I currently have a 3 family and plan to spend some of it fixing up heating system, painting, and remodeling 3 bathrooms. The rest I plan to put into another house. With all the different strategies out there (BRRR, Flip, Buy/hold, etc) I'm wondering with some of you might recommend. For some background, i'm in my mid-30s and looking to grow my portfolio with financial freedom/retirement being my ultimate goal. I live about 20 miles away from Worcester and i'm attracted to that area due to it's high volume of multifamily homes and decent pricing compared to anything closer to Boston. I know $50k doesn't go very far these days, so that's why i'm reaching out this awesome community to see what creative ideas there are out there. I'm thinking maybe hard money to purchase an "ugly" multi family, put my $50k into a "renters quality" rehab, and then rent it out and do a refi. But maybe others have better ideas.
 

Hey Nate!
I have been interested in Worcester as well. I haven't been able to make it out there yet but I heard that it varies a lot street by street. Is your 3 family in Worcester or do you have any experience out there?  

You guys are correct, it is street by street due to geography in worcester.  There are deals to be had, and places you can improve.  The small multi family houses in good locations can throw off good money since they are cheaper to fix and there are lots of tenants who want small, efficient and SUPER CLEAN.  The housing stock is so OLD in worcester that anything NEW gets lots of potential tenants.  But as you know Location, Location, Location.  Lots of action in worcester now.

Originally posted by @Brian J Allen :

You guys are correct, it is street by street due to geography in worcester.  There are deals to be had, and places you can improve.  The small multi family houses in good locations can throw off good money since they are cheaper to fix and there are lots of tenants who want small, efficient and SUPER CLEAN.  The housing stock is so OLD in worcester that anything NEW gets lots of potential tenants.  But as you know Location, Location, Location.  Lots of action in worcester now.

Very true, one street in either direction can make a big difference. Brian, any suggestions on my original question? What strategy would you suggest for someone in their 30s looking to build a portfolio? $50 would be enough for a down payment on most multi-fam properties in Worcester, but I'd like to go into it with a good strategy. Are you a fan of the BRRRR strategy? Seems like it could work pretty well in that area. I think using hard money to purchase the place, then my liquid cash to rehab, then cash out refi might be the best approach, but i'm curious to hear what the seasoned vets think would be the best approach.

Thanks!  

Hi Nate, 


I'm also an investor looking in the Worcester County area. I think the BRRRR strategy is a good one to get into, but remember that the many of the multifamily properties in Worcester were built from 1890-1920's (at the latest) so be prepared to see possible asbestos, lead paint, old roofs and siding. These expenses could blow away your $50k rehab budget so make sure you do your due diligence and have a good contingency buffer (10-15%).

I suggest speaking with a local real estate agent to get a list of zip codes and neighborhoods where rentals are more desirable. Start your search there and just keep running the numbers.

Have you looked into using private money as opposed to hard money? You would be able to negotiate the interest rates much more than with hard money, and it takes the same amount of analysis.  

The typical 3-family property in Worcester goes for between $320k-$380k, if you were going to use a conventional mortgage to buy these as investment properties you would have to put 20%-25% down. The $50k you have earmarked my not be enough for this strategy, but if you were flexible in where you lived you could owner occupy the property for a much lower down payment (3.5%-10%) depending on what program you want to use. I'm using an FHA/203k loan to purchase a 3-family in Millbury, fix it up and live in one of the units for a year. I will then move out, completely rent out the property, and then refinance to get my initial investment out. This could be a viable strategy for you, but I suggest you do your research on these owner-occupying programs to see if they work for you.

Worcester just announced a program yesterday to provide grants to both de-lead, and improve 2-4 unit properties. In order to get the $ you need to give a 10 year deed restriction on the property. It is pretty difficult to navigate but it may be worth it depending on circumstances. You can do 3.5% FHA, 5% Mass Housing loans, you can also get downpayment assistance from the city and closing cost assistance from Mass Housing. The key is to figure out what you want to own, in parallel with finding the correct lender to help you navigate that process. The good ones go quickly so you need to be ready to jump and have that funding piece in place. The rents vary by neighborhood as well, so you have to have good fundamentals about what you are buying both short term (cash flow) and long term (appreciation).

Originally posted by @Daniel Lopez :

The typical 3-family property in Worcester goes for between $320k-$380k, if you were going to use a conventional mortgage to buy these as investment properties you would have to put 20%-25% down. The $50k you have earmarked my not be enough for this strategy, but if you were flexible in where you lived you could owner occupy the property for a much lower down payment (3.5%-10%) depending on what program you want to use. I'm using an FHA/203k loan to purchase a 3-family in Millbury, fix it up and live in one of the units for a year. I will then move out, completely rent out the property, and then refinance to get my initial investment out. This could be a viable strategy for you, but I suggest you do your research on these owner-occupying programs to see if they work for you.

Thanks so much for the helpful answer. My current 3 family is an FHA loan, which is part of why I was looking at hard money. I don't want to have to live in the property for a year, or write a heartfelt letter to the bank about why I need a second FHA loan (family or job changes). There is quite an appeal to the 203k loan though... I may take a look at that and see if I can just tough it out for a year. Thanks so much!

 

Originally posted by @Brian J Allen :

Worcester just announced a program yesterday to provide grants to both de-lead, and improve 2-4 unit properties. In order to get the $ you need to give a 10 year deed restriction on the property. It is pretty difficult to navigate but it may be worth it depending on circumstances. You can do 3.5% FHA, 5% Mass Housing loans, you can also get downpayment assistance from the city and closing cost assistance from Mass Housing. The key is to figure out what you want to own, in parallel with finding the correct lender to help you navigate that process. The good ones go quickly so you need to be ready to jump and have that funding piece in place. The rents vary by neighborhood as well, so you have to have good fundamentals about what you are buying both short term (cash flow) and long term (appreciation).

Hi Brian, I was just reading up on that.  Sounds like Worcester is about to get a lot nicer!  This could actually be a good time for me to start getting involved in investing in the area.  

 

There are plenty of hard money lenders, along with some interesting local lenders in Worcester who are willing to hold extra paper on certain transactions.  You just need to make sure you understand the terms.  

@Nate Mullen If you wanted to reuse the FHA/203k loan, you will have to first refinance your current FHA loan to a conventional loan. You are only allowed to have one FHA/203k loan in your own name at a time. If you have a spouse or business partner, they can have an FHA/203k loan in their name so you can do it that way as well if you don't want to or can't refinance. Of course they would have to live there for a year and as long as its been over a year you do not have to owner occupy your initial FHA/203k property.

Originally posted by @Daniel Lopez :

@Nate Mullen If you wanted to reuse the FHA/203k loan, you will have to first refinance your current FHA loan to a conventional loan. You are only allowed to have one FHA/203k loan in your own name at a time. If you have a spouse or business partner, they can have an FHA/203k loan in their name so you can do it that way as well if you don't want to or can't refinance. Of course they would have to live there for a year and as long as its been over a year you do not have to owner occupy your initial FHA/203k property.

Thanks Daniel! I learned about bigger pockets and house hacking after I got married and purchased my 3 family. So when I learned that you can technically have one FHA in my name, and one in my "soon to be wife's" name, i was a bit bummed I didn't think of that in advance. I think refi to conventional or 20% down is my only option at this point, which is why I was originally looking to use hard/private money.

I think i'll reach out to you once i'm ready to 203k and pick your brain about the process.  I've heard finding a contractor who will work while waiting to get the checks from the bank can be a pain.  But I don't have an firsthand experience with that yet.  

 

@Nate Mullen I recently bought my second live-in flip and went through Cross Country mortgage. Instead of the 203k loan I got a Fannie Mae Homestyle loan which gives the contractor a little cash up front for materials, unlike the Standard 203k loan. I also found a terrific contractor. PM me for his info. He should be done with my project by February.

Worcester is one of those markets that are last to rise, and first to go down, during a RE cycle.  Currently, the city is in the midst of a mini-boom driven by people who cannot afford to invest closer to Boston.  This makes Worcester a good place to flip but not buy-and-hold.

If you want to invest in the vicinity of Marlborough, consider locales with easy access to Rt.2 or MassPike.

Originally posted by @Tamara Taylor :

@Nate Mullen I recently bought my second live-in flip and went through Cross Country mortgage. Instead of the 203k loan I got a Fannie Mae Homestyle loan which gives the contractor a little cash up front for materials, unlike the Standard 203k loan. I also found a terrific contractor. PM me for his info. He should be done with my project by February.

Thanks Tamara, are the requirements the same? live in for one year? Is it technically an FHA? What are the downpayment requirements? Similar to FHA @ 3.5%?

*EDIT* So I just did some quick research and this sounds very interesting. It's not technically an FHA so there is a chance I could qualify and not have to refi my current FHA loan (which I will do eventually anyways). My only remaining question is if this can be used on a 2-4 unit property? Everything I'm reading on their site looks like it's only geared towards single family homes. But still may be worth checking out. Thanks!

 

@Nate Mullen I'm not sure about the single family vs. multifamily for the Fannie Mae Homestyle loan. I did only put down 3.5%. I have to wait a year before selling but I plan to stay in the house for 2 years and then sell in order to avoid capital gains tax. That's what I did with my last house and it worked out great. But I'm also considering using this house to do a BRRRR, we'll see how I feel about it in a year or so.

Justin,

i have found the most success going with mortgage brokers as they have more options.  There are tons of credit unions in MA, but the are very conservative so they are not always the best choice.

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