Looking for Advice in Boston area

Multi-Family and Apartment Investing
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Looking for Advice in Boston area

Phillip Dixon
Member since 2020 · 18 posts · 8 votes

Hi there!

New in town & tired of renting! I am a hotel manager, and have been for a long time. I’d like to try my hand at being land lord as well. I’d just like to possibly meet an agent, or better yet, friends and a community! I love talking shop & it seems some of my experience seems to translate!


Rather than getting super hung-up on price. We have been laser-focused on potential Cap Rate & NOI. We have funds to rehab, but don't want to bite off more than we can chew with deep rooted issues.


Specifically been eyeing Chelsea, Quincy, areas of Dorchester, south Boston, and possibly Salem.

To make the numbers work, it seems as though duplex is out of the question in the area while turning a live-in profit? We have been eyeing triplex mostly. If we are in the smallest unit, I only see that being in our favor!

Thank you in advance!!

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Lien VuongBusiness Member
Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
6y

Hey Phil! Welcome to the BP Community and specifically the Boston forum! Where did you move from? You were speaking singularly then as plural - who is the we? 

You're entirely correct - 3/4 units will be the most fruitful investments because you have economies of scale and you tend to have larger units increasing your rental rate significantly. If you're looking for value add properties Chelsea/Everett is more common with that type of property as there area a lot of 'tired' landlords there. 

South Boston will not yield any multis as the majority of that inventory has been turned into condos. Quincy and Boston (Dot) will have an abundance of multi in all different type of conditions as these cities are really vast and even tenant classes change from street to street. Lastly, Salem has a large amount on two families but not as many 3's. That will be an absolute rarity. 

How are you proposing financing this? With your FHA owner occupied loan initially then cash out?

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    Hey Phil! Welcome to the BP Community and specifically the Boston forum! Where did you move from? You were speaking singularly then as plural - who is the we? 

    You're entirely correct - 3/4 units will be the most fruitful investments because you have economies of scale and you tend to have larger units increasing your rental rate significantly. If you're looking for value add properties Chelsea/Everett is more common with that type of property as there area a lot of 'tired' landlords there. 

    South Boston will not yield any multis as the majority of that inventory has been turned into condos. Quincy and Boston (Dot) will have an abundance of multi in all different type of conditions as these cities are really vast and even tenant classes change from street to street. Lastly, Salem has a large amount on two families but not as many 3's. That will be an absolute rarity. 

    How are you proposing financing this? With your FHA owner occupied loan initially then cash out?

    [email protected]
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    WebsiteView Page
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  • Phillip Dixon
    OP
    Member since 2020 · 18 posts · 8 votes
    6y

    Hey Lien! Thanks for reaching out!

    It’s myself, my partner & my father. We’ve been eyeing getting into real estate for some time now.

    Was planning on using a FHA loan since we'd live in it. We were also planning on possibly starting up as an LLC?

    0Reply
  • Lior RozhanskyBusiness Member
    Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
    6y

    @Phillip Dixon welcome man! For the most part I'd agree you'd want to look at 3 fams, as cash flows typically are higher with scale. But depending on your goal (since you mentioned you are looking to rehab as well, it could be more of a BRRR play?), there could be some 2 fams out there that could make sense, especially those with larger bed counts.

    In terms of markets, love the selection, though I'd say Southie is pretty tough to make numbers work; a large % of people buying multies there are either developers gutting buildings to make condos or cash/buyers looking for storage for cash; hard to cash-flow there well. Chelsea, Dot, and Quincy are all very solid markets, as you can cash flow pretty well there while still having good upside. Plus depending on the neighborhood, not too bad to live in! Also FHA is the way to go, though note you cant close with an LLC on a residential mortgage. You'd have to buy the property and then transfer the deed, but if you just get umbrella insurance you're good. Good luck!

    2Reply
  • DJ Richmond
    Real Estate Agent · Quincy, MA · Member since 2015 · 144 posts · 65 votes
    6y

    @Phillip Dixon There are a couple things to be aware of on an FHA loan. First, you've mentioned you're looking for 3+ units as the 2 families you've seen aren't cash flowing enough for your goals. But, 3-4 units have to meet what is known as the "self sufficiency" test meaning that the rents of 2 of the 3 units or 3 of the 4 units have to meet 100% of your monthly PITI payments. In the areas you've mentioned, there are very few properties that meet that cash flow. The one's you will find will likely need some type of rehab, which is where the FHA 203k renovation loan can be helpful.

    Additionally, FHA can be a costly product. While its great that you can get in for 3.5% down payment, but there is also a funding fee (upfront mortgage insurance premium) of 1.75% of the loan value. Most of the 3-4 units in those cities referenced will start at about $750k. That will mean an extra $12,665 will need to be paid up front or added onto your loan balance.


    Another drawback on the FHA loan is the monthly PMI is going to be extremely high. Typically its calculated at .85% of the loan balance, divided by 12 months and that will be your monthly PMI. When your loan exceeds a certain limit (I believe $625k) the PMI is calculated at an even higher rate. Your PMI could be in the $600/mo range. This PMI will stay with you for the life of the loan, so the only way to remove this would be to refinance - another expense.

    Lastly, you'll be competing against other investors with 20%, 25%, 40%, all cash, etc. Typically sellers prefer those type of buyers over FHA due to fewer hurdles to jump through (ie. appraisal). In this type of market, buyers are paying premiums to use FHA loans.

    All that being said, I'm a huge proponent of a first time buyer using an FHA loan cause I think its a great starting option. However, one should be aware of the possible negative effects they could have. I've worked with many buyers on FHA products for their first multi families. I've also worked with other buyers doing conventional and Mass Housing loans. My advice would be to speak with a few different lenders to see what they can offer you. Not every Lender or bank has the same products available to them.

    One last thing, I am not a loan officer but I do try to stay as educated as I can on these products. I might not have all the information 100% correct, if not, feel free to chime in!

    1Reply
  • Ben Simon
    Real Estate Agent · Member since 2019 · 32 posts · 11 votes
    6y

    @Phillip Dixon - Welcome!  I think you are well on your way.  I think you still need to define more specific criteria to help you find the right fit.  What cap rate are you looking for?

    I have found it super helpful to narrow your search by things like access to highway, public transportation, etc. 

    0Reply
  • Phillip Dixon
    OP
    Member since 2020 · 18 posts · 8 votes
    6y

    Wow! Thank you all for the info! Definitely solidifies my belief in chasing after 3 or 4 unit properties.

    Interesting info! Is having umbrella insurance just as good as pursuing an LLC? Since there are a few of us, we thought LLC would be a great way to join together and protect from risk.

    Does using an FHA loan only help minimize down payment? I am not super well researched on them yet. Any good reading material for me? Books? Articles?

    We have the upfront cash to afford a down payment above that of the FHA as well as a Reno fund. Would it be more favorable for us to pursue a different type of loan? Should we be prepared for a 30-40% down payment to stay competitive?


    Also, is it worth focusing on a neighborhood, or should we keep our options open? 

    Thank you all!!!

    0Reply
  • Avery Heilbron
    Realtor · Raleigh-Durham, NC · Member since 2018 · 324 posts · 218 votes
    6y

    @Phillip Dixon Welcome to Boston! It's a great market to invest in! Having an FHA loan minimizes a down payment and allows you get into REI the best way possible(in my opinion) - through househacking. As mentioned there is PMI involved and your loan amount will be larger (because you put less down) than if you bought it as a conventional investment property. That being said I wouldn't turn your back on FHA. You should let less of your money work harder for you rather than putting a big payment down so you can cash flow more or be competitive. If you find the right people and network you can find a great deal.

    I run a meetup at Bone Up Brewery in Everett if you're interested in attending. The next event is 3/16 from 7-9.

    I would also say focusing always allows for more action to get done as you're less scatterbrained. I wouldn't limit yourself to a neighborhood, but I would try to focus on a strategy and a few key areas that allow you to execute that strategy.

    Brandon Turner has a good book on investing with no and low money down. 

    1Reply
  • Phillip Dixon
    OP
    Member since 2020 · 18 posts · 8 votes
    6y

    @Avery Heilbron Wow, yes that sounds super interesting! Whats the name of the group? I've been poking around for folks on meetup with an interest in real estate. 

    0Reply
  • Avery Heilbron
    Realtor · Raleigh-Durham, NC · Member since 2018 · 324 posts · 218 votes
    6y

    @Phillip Dixon It's called "Network to Grow Your Net Worth". Feel free to send me a PM and I can get you the link

    0Reply
  • Dan K.
    Rental Property Investor · Boston, MA · Member since 2012 · 257 posts · 139 votes
    6y

    Hi @Phillip Dixon and welcome to BP. Depending on your finances, I personally wouldn't be too concerned about an FHA loan.

    We are currently in a very competitive real estate market -- investors are competing, but lenders are competing as well. If you income can support a loan and you have the necessary cash for a downpayment, FHA loans are likely not your best option.

    0Reply
  • Ben Simon
    Real Estate Agent · Member since 2019 · 32 posts · 11 votes
    6y
    This is a great event!

    Originally posted by @Avery Heilbron:

    @Phillip Dixon It's called "Network to Grow Your Net Worth". Feel free to send me a PM and I can get you the link

    1Reply
  • Dan K.
    Rental Property Investor · Boston, MA · Member since 2012 · 257 posts · 139 votes
    6y

    Hi @Phillip Dixon

    I also meant to add, as a lawyer, I'd say that setting up an LLC is putting the cart before the horse. Your lender will require the three of you (if you are all putting equity in and want to be on the deed) to be personally on the loan.

    Rather than an LLC, you can put together a partnership agreement or other operating agreement outlining how the three of you will work together, the financial and other expectations and a hopefully never needed plan for dissolution (breaking up) of the group.

    0Reply
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