Is the Boston area too expensive?

Question

Hello,

Is the Boston area too expensive for rental properties? I am from Southshore Mass and I'm looking to invest in my first rental property. I am looking to use an FHA loan which means the PMI will make it a little tougher to generate cash flow. I've also been keeping an eye on the Amherst market near where I go to school, but that seems just as expensive. For other buy and hold investors in Mass, do you still look for deals in the suburbs around the city? Or does anyone focus on areas such as Fall River, New Bedford, or Providence where prices are much cheaper? I'm interested to hear what anyone has to say.

Thank you.

Patrick Flynn · Answer

@Kyle Marsh

Those are all different markets that come with their own pros/cons and different factors to consider. Boston area is tougher to cash flow due to how high your mortgage payment is likely to be especially using an FHA mortgage, but this does not mean you should not do it. The appreciation in the Boston market is also higher compared to the other markets you mentioned, so if you are planning on holding onto the property for the long term that is something to consider. If you are worried about PMI you could always look to find a property that you could put some sweat equity into and refinance out of FHA and after at least (6mo-1yr) into a conventional mortgage when it appraises higher and you have 20%+ equity in the property. There are some requirements for FHA the property, it cannot be in terrible condition to qualify for that mortgage program, but it is a strategy to consider.

Avery Heilbron · Answer

@Kyle Marsh Deals can work anywhere whether it is an expensive or inexpensive market. As @Russell Brazil said you will get strong IRR in Boston. I've seen this to be true. My 2 family I bought in Everett in 2019 is up ~$130k-$150k based on a recent assessment by my agent. If you bought a $100k duplex that won't happen to you. You may cash flow more, but also maybe not. That same duplex cash flows $1100/month. So it is all dependent on your goals, your ability to finance a property, and your appetite for taking on debt.

Mike Buckley · Answer

@Kyle Marsh Hey Kyle, we focus primarily on the Fall River market. It is actually one of the best options for using an FHA house hacking strategy. As long as you are willing to get your hands dirty and take on some of the maintenance you can cash flow really well. Living in the property also allows you to choose your own tenants how you would like which adds a layer to the screening process. The prices down on the south coast are starting to rise to crazy levels with anticipation of the commuter rail project which may provide an appreciation factor to a mostly cash flow market. Feel free to PM me if you have any further questions.

Gary Kline · Answer

@Brian Dano. Thanks for the Binghamton shout out!  Deals are harder to find but they are still out there...

Russell Brazil · Answer

Boston is where you will get the highest IRR.

Brian Dano · Answer

@Kyle Marsh Boston is very expensive. Even New Hampshire is in to 100k / unit range. I personally like the Fall River/ Providence markets however, one has to do proper due diligence. Are you targeting work force housing or students? How much deferred maintenance are you willing to take on? Those are the questions I would ask. MA real estate investment association has plenty of contacts in the Fall River/Providence area. Amherst MA is a good student play. I personally invest in Binghamton NY, but my model of reach out to landlords that are worried about covid affecting universities and buy from them has yielded some deals for me this year. As a broker I work with a lot of people priced out of Boston, looking in western MA, New Hampshire or southern Maine. Your money goes further but the rents are lower. Generally, Appreciation isn’t nearly as high either.