HELOC to Purchase Triple-Decker In Boston

4 Replies

Hola guys! 

I'm a new investor reading, listening, soon to be writing and still learning a whole lot. My mother owns a small house to which she has added a couple of big ticket item improvements. We have not had it appraised since the home was purchased three years ago. I've tried planting the seed of having her ask for a HELOC for the sake of helping me buy my first triple-decker (what we in Boston call a three-family) or at least a two-family in the Boston area. She's weary of the act but IS slowly coming around to the idea (THANK GOD!). I wish I knew a little more about the pros and cons to purchasing a home, specifically a multifamily with a HELOC so as to put it into plain English to ease her trepidation further. I'm also pretty nervous as I do not want to say/do something dumb, as we're BOTH still learning.

Furthermore, one of Boston's burrows is undergoing fierce gentrification. I'm all for it. The burrow is called Jamaica Plain and while it's real estate prices having been steadily increasing over the years, along with neighborhood amenities such as shopping centers, the quality of the population has increased ten-fold and will only continue to crowd out whatever bad apples are still left. This place is the holy grail (seemingly) for landlords thanks to these high-quality renters. If you've ever heard of Boston's Back Bay, they're turning "JP" into it's backyard. Local magazines have even endearingly coined Jamaica Plain "Baby Back Bay" (Lots of yuppies. What landlord doesn't love yuppies, right?). The facts are that while you'll predominantly pay at least 500K for a triple-deckers that's in not-so-great conditions, rents start at around 2K based off proximity to public transit and LOCATION alone. With mortgages being around 3K a month. You can make your typical 50% rule with some ease. 

So here's my standpoint... With prices reaching historical heights, my hang up is on three things:

A: Should I keep pushing for that HELOC from Mom and dive in?

B: Should I wait... until this bubble bursts? 

C: Use the HELOC to buy in Boston's suburbs and "wait" that way instead?

(I may have just answered my own question, but I still would love to hear what anybody has to say.)

I wouldn't worry your mom with the details of the deals you look into. The specifics are irrelevant and can be complicated. What I recommend stressing it that if she borrows 100k from the equity in her house, she'll be charged a certain percentage, say 4% for 15 years (comes out to $740 a month in this case). You would get the money and pay her say 6% for 15 years on the money. So she writes a check for $740 to the bank and she gets a check for $844 from you. She can have this set up to be an automatic payment and it's an easy $104 every month, a small latte every day for 15 years.

I wouldn't wait to jump in but I would pass along some advice that my mentor told me. You can't afford to buy anything but a great deal. So basically, buy smart. 

Buying outside of town means driving to outside of town, and back. Does your lifestyle allow for that kind of time spent? Also, the saying that the three most important factors in real estate: location, location, location.

Hi Oyoshy,

I know exactly the area you're talking about but never really figured to look there to invest. I figured the area was already out of my league due to the rising prices but I might have to take another look. I live in the Dorchester area and I am in a similar situation as you (except I will be taking over the house in my name). It is fully paid off and I plan to take a heloc out on it to invest in multifamily properties. I was thinking of looking for a fixer upper to see how I can fix it up, force a little appreciation and then refinance.

There are many things to look into when shopping around for a heloc besides the rates. I might decide to go for an interest only line during the initial draw phase. Hoping to utilize the buy, rehab, rent, refinance method to replenish the line before that variable interest rate gets too high.

As far as your question of diving in: I would dive in if the numbers looked right. Getting the appraisal done will let you know where you stand and either motivate you going forward or help you revise your plans. I have also thought about waiting until the bubble burst but I have no idea when that will be so I try not to let it weigh too much on my decision. Looking forward to your progress on this journey.

Hi Oyoshy,

Like you this is actually my first post, so welcome to both of us ;-). I am looking at duplex though in the DOT.

As a newbie like you I unfortunately can not offer any advice regarding HELOC .

But please do keep us inform on how your search and hopefully successful investment turns out in JP .  Because I was of the  same view as Manuel Diaz, in terms of thinking that 500 K triple Decker in JP were a thing of the pass but would love to hear how your experience turns out.

Personally, I looked at one last week before it went on the market in JP it needed complete gutted renovation work and the  asking price was 650 K.  Which I am guessing is to do to the fact that decent converted condos from 3 decker in JP are going for 400 K plus.

 From what I have seen I would say keep the Egleston SQ area on the JP/Roxbury line on your radar. It is the last  area near JP where you can probably find a two for around the 500K in my experience I have not seen any 3 around that price but maybe you will have better luck.  Also, with the removal of the bridge near Forrest Hill the Rosindale area near  JP is already heating up.

Good luck and let us know how your experience turns out.