Looking for duplex outside Boston (Medford, Malden, Somerville)
MA · Member since 2017 · 36 posts · 21 votes
Hey BP,
My brother and I (27 and 31) both live separately in the Boston area, and have an idea to buy a rental property within the next few months. We plan to but a duplex and live in one unit, renting the other unit out (finding a deal that keeps our out of pocket monthly costs minimal). In a perfect world, we would find something in South Medford / Somerville MA. We plan on living there, so using an FHA with 3.5% down, therefore PMI will be involved. Any suggestions?? I'm guessing we will be looking at the 600,000-900,000 range, but I'm a first timer, so this is all just my most educated guess... coming here for advice first.
Any help is appreciated!!
-Alex
@Alex Johnson Hey great idea on the house hack. I did the same thing with a two family back in 2013 in Union square and without doubt the best decision of my life. But, a few things to keep in mind that might add a few extra challenges...
@Dan K. brings up an excellent point with the purchase limits. I don't know what they are for FHA but 881K sounds about right. Unfortunately whoever makes these limits for the government clear don't live in an expensive coastal city.
Here's the other problem that you'll run into quickly with an FHA, especially in a "hot" market like Somerville. No one will accept them. We were going to use one when we bought but every reasonably priced property in Somerville is going to have multiple offers. Especially since a developer can turn a 900K two family into 2 - 1 million dollar condos. So you're making offers with an FHA and others are offering cash. You'll lose everytime which is what happened to us. We eventually had to go back and beg borrow and steal to get a larger downpayment together.
Also in general you'll run into developers trying to scope up any Multi family in Somerville. You can try for it but I really like Medford and Malden center. Everett is a good option too and there I'd focus on this small little neighborhood that's close to the casino and right near nightshift brewing. Google night shift and look at that area. Malden center is gonna be big in a few years and a lot of people are already moving there and Malden schools aren't bad where as Revere or Everett still have a ways to go.
Here is one little tip that might give you the edge in Somerville and might even make a single family just as good as a house hack. Here is the link to the Somerville proposed zoning changes: https://www.somervillezoning.com/
If you read through everything carefully it basically looks like they are proposing that if you have a large enough lot size or enough frontage you can build an "accessory dwelling" behind your house. This means that you might be able to build a single family behind another single family in the future. You used to be able to do this and you can see these types of houses all over Somerville but they outlawed them at some point... Considering that there is barely a SFH in Somerville for under 1.2 million and new construction is maybe $250 a square foot in the city, that's almost a 600K new build profit... Now they've been trying to pass this for years but... things are moving. This info might help you in finding something that might have real future potential. Medford and Malden might have their own versions of this.
Also, Airbnb is BIG money in Somerville and although they are very lax on their enforcement of the code, technically you can't Airbnb a stand alone unit but you can Airbnb a room in your house, making a SFH Airbnb-able and a 2 family less so FYI. You kinda need some creative options to compete against developers there. Good luck!
Also, just a prediction but in ten years I think we are all going to be talking about "remember the time when Mattapan was sketchy". That's the most underpriced area of the city if you can't find numbers that work in Somerville/ Malden/ Medford.
Alex, let’s connect I live in the area and have a real estate brokerage firm, and I specifically focus on investors and first time home buyers. Your plan is a solid one, but I’d try and go three units so it will allow you to house hack ( live for free ) . Shoot me a message or pop on my site in my signature and we can connect.
Hi @Alex Johnson,
In general it's a great idea -- "house hacking" can help to launch you into real estate. Keep in mind that there are limits for FHA loans. For a two family the property is going to need to be under about $881,000.
You need to think about how you are structuring the purchase. Are both you and your brother going to be on the loan? What if one of you meets somebody, gets married and wants to sell the property? The cleanest option is for one of you to buy the property and the other to pay rent. Another option -- if you find a two family you could turn it into condos and you each own one unit.
As @Seth Williams said, there is no reason to limit yourself to a du-plex. If you can afford it get 3 or 4 units.
Rental properties are the way to go, especially by house hacking it! Somerville and Medford are super competitive and flooded with investors willing to pay cash with no contingencies so I would suggest also trying to find something off market.
Good luck on your search!!
@Alex Johnson Hey great idea on the house hack. I did the same thing with a two family back in 2013 in Union square and without doubt the best decision of my life. But, a few things to keep in mind that might add a few extra challenges...
@Dan K. brings up an excellent point with the purchase limits. I don't know what they are for FHA but 881K sounds about right. Unfortunately whoever makes these limits for the government clear don't live in an expensive coastal city.
Here's the other problem that you'll run into quickly with an FHA, especially in a "hot" market like Somerville. No one will accept them. We were going to use one when we bought but every reasonably priced property in Somerville is going to have multiple offers. Especially since a developer can turn a 900K two family into 2 - 1 million dollar condos. So you're making offers with an FHA and others are offering cash. You'll lose everytime which is what happened to us. We eventually had to go back and beg borrow and steal to get a larger downpayment together.
Also in general you'll run into developers trying to scope up any Multi family in Somerville. You can try for it but I really like Medford and Malden center. Everett is a good option too and there I'd focus on this small little neighborhood that's close to the casino and right near nightshift brewing. Google night shift and look at that area. Malden center is gonna be big in a few years and a lot of people are already moving there and Malden schools aren't bad where as Revere or Everett still have a ways to go.
Here is one little tip that might give you the edge in Somerville and might even make a single family just as good as a house hack. Here is the link to the Somerville proposed zoning changes: https://www.somervillezoning.com/
If you read through everything carefully it basically looks like they are proposing that if you have a large enough lot size or enough frontage you can build an "accessory dwelling" behind your house. This means that you might be able to build a single family behind another single family in the future. You used to be able to do this and you can see these types of houses all over Somerville but they outlawed them at some point... Considering that there is barely a SFH in Somerville for under 1.2 million and new construction is maybe $250 a square foot in the city, that's almost a 600K new build profit... Now they've been trying to pass this for years but... things are moving. This info might help you in finding something that might have real future potential. Medford and Malden might have their own versions of this.
Also, Airbnb is BIG money in Somerville and although they are very lax on their enforcement of the code, technically you can't Airbnb a stand alone unit but you can Airbnb a room in your house, making a SFH Airbnb-able and a 2 family less so FYI. You kinda need some creative options to compete against developers there. Good luck!
Also, just a prediction but in ten years I think we are all going to be talking about "remember the time when Mattapan was sketchy". That's the most underpriced area of the city if you can't find numbers that work in Somerville/ Malden/ Medford.
@Adam Sankowski brings up a great point. It will be very difficult to get an offer accepted with a FHA loan. I would highly advise going with traditional financing especially now that rates are dropping quickly. I purchased a duplex in the exact area you are looking, near Assembly Row, in 2016 and has been one of my better purchases.
I have no idea how your numbers are working with today's prices though... especially with the high PMI payments that come with FHA loans. I would look into a 3 or 4 family building in that area to cash flow.
You're on the right path! Keep looking, you'll find a deal if you have patience.
Wow. Thank all of you guys so much... Really great information!
@Adam Sankowski - Thank you for all of that detail. I just saved the zip code by Night Shift and will definitely be checking out that area. I kind of had a feeling Somerville was saturated at this point... I was living in Scottsdale for work the past two years, and figured by the time I got back it would be tough to find something good in Somerville. I live in Melrose MA currently (renting) , so its not like it has to be Somerville or Medford. I am literally open to any good opportunity to house hack (or at least live for cheap while renting), anywhere in the Greater Boston Area (although I would prefer the North Shore, and not TOO far north.
@Dan K. - That is great information about the 881K, I did not know that... We were going to probably put the house under an LLC that we both own 50% of. I would like us both to be on the loan, since we are very close and I don't see any BS happening between us. I like the condo idea, but I would really love to have someone renting and at least paying SOME of our debt for us. I agree it would be nice to get a 3 or 4 family, but according to @Joe DeFarias , @Justin Rank , and @Adam Sankowski ; it seems like we would need to go in with traditional financing in order to land anything... and we definitely don't have enough for that right now. Do you guys have any suggestions for raising additional capitol / investors for something like that?
@Seth Williams - Thank you for such a quick reply this morning, sorry for the delay. I just added you and followed your BiggerPockets page. Would love to connect and learn more.
Really happy I decided to post - you guys are awesome and really knowledgeable!
-Alex
Keep in mind the FHA Underwriting guidelines will make you take this house in one, or both your names and you would be foolish to do the latter. You won't be able to close with loan money down in an LLC. Set up An informal partnership where one gives the other money and close in one persons name, and no worries !
@Seth Williams that is great information, thank you very much! We will definitely do that. We are starting to realize though that we don't have the money to NOT use an FHA loan... so we might have to just look at SFH right now and maybe rent a portion of it out to a friend or something like that... or airbnb a portion of it. Would we have a lot easier of a time closing a large single family with an FHA loan? If so, does Somerville / Medford still sound like an Ok place to do that? Sorry for all the questions, but just taking advantage of the great info!
Thanks again,
-Alex
@Alex Johnson -- Plain and simple, if the house is going to be held in an LLC you aren't going to get an FHA loan or any other conventional financing. Any bank is going to require the both of you to be personally liable for the loan. FHA loans are for owner occupants, not LLCs. Additionally, LLCs are so opaque that unless you have a track record, a bank is going to require personal guarantees.
I hate to be negative, but raising outside capital / investors isn't really going to happen unless family wants to pitch in some money. If I'm willing to give you $250,000 how are you going to make me more money than a simple CD? You want to hold onto the property forever and collect rents. If I'm an investor I want to hear about massive renovations and a cash out option via a sale or cash out refinance.
If you are going to go the short term rental / Airbnb route, just please make sure to look at local regulations before buying. Personally I would only buy something with an Airbnb angle if the town has already discussed how they are going to handle short term rentals.
@Alex Johnson Glad it was helpful! The FHA loan thing was really specific to Somerville at its a "hot" market these days. I think if you set your favorite RE app to a higher days on market setting, and only look for the properties that have been sitting there for bit (probably with somekind of issue) you'll have a much better chance of finding one that would accept an FHA offer. Keep in mind though the other trick is that the property has to be in decent condition to use an FHA, I don't believe you can use it on a fixer upper. Maybe you could look into a rehab loan- like a 203K or Homestyle for that. I'm not an expert on any of these things but just mentioning some things that I would be researching if I was in your position.
There was also a BP podcast a while ago, with a Boston investor, who gave the excellent advice (sorry I'm forgetting who it was) that you look at a MBTA map and figure out where all of the commuter rail stops are and target properties that are a bit farther out but within walking distance of a stop. Not a bad idea either... good luck! Stay with it and just keep your eye on things. Even with how "hot" everyone says the market is I'll notice random months or several months, especially in the winter, where a good deal pops up and just sits on the market for a while. Part of the key is just keeping an eye on the entire greater Boston market for a while so that you know when you've found a good time to buy or deal. Def. doesn't hurt to look for investor friendly agents on here either. And yes, also an LLC probably won't work for any type of financing. If you're worried about asset protection just load up on umbrella liability insurance!
@Dan K. @Adam Sankowski thanks guys! That's good to know about the LLC. I just remember reading rich dad poor dad and he talked about protecting homes under llc's, but obviously he was just buying cash so its different lol. I should have probably known that. We will just have one of us put it in our name and then get insurance, and next time we get something, the other one will put it in their name.
That's good to know about the FHA situation. I got a little discouraged yesterday because I really wanted to buy a 2 or 3 family home, but the absolute most we could put down is 70K up front (right now at least). Finding something in the 800K area that we could put 3.5-8.5% down would be ideal... but like you mentioned, we just need to look in the right areas that arent getting scooped up too fast. My best friend's dad is a loan officer and just told me on the phone that they have plenty of products that could get us into places without using FHA for under 20% as well, and knows a TON of the listing agents in the area.
Learned a lot more than I thought I would in just a few days... thanks again!
-Alex
@Alex Johnson, perhaps you want to look beyond those areas. I don’t know him personally, but you might want to talk to @Charlie MacPherson about areas on the South Shore. I believe you will find better values MFPs south of Boston.
@Alex Johnson I am happy you decided to house hack. I have house hacked 4 times in 9 years. I would not be where I am with out it. With that said, somerville is tough market. We have a lot of great hungry investors. Please reach out if I can help in anyway. I will see you at the top my friend.