Your perspective on this deal?

Question

Hello All,

We recently moved from Boston (MA) to New Jersey. We always have MA in our mind for rental properties because we know its a student/tenant friendly state.

We recently saw a new construction coming up near to where we used to live.

Pros:

1) Its right next to local subway/train station

2) Grocery stores (Stop and Shop, TJ Maxx, Chipotle etc) are within walking distance to this place

3) Pretty close to Boston downtown. Its like 20 mins via local train)

4) Lower property taxes (its around 2500 per year)

Cons:

1) New construction, so its right away selling at top dollar. A 2 Bed 2 Bath is around 380K

2) There are quite a few rental apartments in the neighborhood (Avalon, 2-3 rental properties apartment complexes). But these are older construction and none has 2 bed 2 bath concept yet.

Few questions:

1) Does it make sense to buy new construction properties for rent purpose? Again, idea is to "buy and hold" for now.

2) None of the other apartments nearby have 2 bed 2 bed (they all have only 2 bed 1 bath) arrangements.

Confusion is, with all those rental properties neary by, will someone still pay for new construction rental because it might be higher monthly rentals?

Am I over thinking or missing something entirely here?

Josh Parra · Answer

@Harpreet Walia No problem! With an investment property you'll have to put at least 20% down. If condo fees, taxes etc. aren't too high and your mortgage payment is under the market rent you should be good to go. If you are breaking even and the neighborhood is up and coming it also makes sense to invest because the rents will rise.

When I first moved to Boston I lived in Southie and was paying $1400 for a 2 bedroom. The neighborhood was on the up and up and a few years later rents of similar properties were breaking $2K. Now you're lucky to find a one bedroom in South Boston for UNDER $2K with the majority of 2 beds avg. $2500. :)

Donald Morrison · Answer

Personally I do not like new construction. I like 100 year old brick, but that's just me. Based on what you said originally I think I know where you are looking. That area is up and coming however new construction in areas where people traditionally didn't live is more of an experiment than a continuance of growth. @Mike Hurney is right regarding the beginning of sales as properties need to sell x % to get qualified for FHA loans, but they are only going to give away so much.

Harpreet Walia · Answer

Thanks for input. I need to check further on numbers that are involved here. I guess this is the hardest part......the start......this is again a big mortgage and we just hope it is ok. Lets see

Mike Hurney · Answer

@John B. is right, @Harpreet Walia what are the numbers?

I'd check with the Sellers/Developers, sometimes the first few units are sold low to get momentum.

John B. · Answer

To me, this all comes down to numbers.    I assume you're looking for cash flow?

What are your expected rents?     What are similar new construction apartments renting for these days?    What are your expected expenses?   How are you financing, what sort of terms?

I believe there is a shortage of rental apartments in Boston right now, so you shouldn't have trouble finding tenants especially for brand new construction, assuming the rents are within reason.

Maybe try the Bigger Pockets Rental Property Calculator..