Getting started... Hillsborough, Franklin, Rochester, Pittsfield?

Question

I'd love to get some insight on how other investors feel about these markets. I've been looking around and these areas have lower property values, but will most likely have a lower quality tenant.

I'm struggling with how I should get started with roughly $30k. The routes I could take is in these markets with a conventional loan, find a property in a more desirable area that needs with and try to go hard money, or save more to get into a conventional loan in a more desirable location, or a partnership with someone that can bring equity to the deal.

This would be a second home for me, so unfortunately FHA house hacking isn't an option.

Thanks in advance,

-Mike

Ann Bellamy · Answer

The OP is in NH and I live in and lend in NH.  The lending laws in NH were changed at about the same time that Dodd Frank was passed, and the regulators responded to our own version of Bernie Madoff.

Investors lost millions in a ponzi scheme facilitated by a few individuals operating a local mortgage company Financial Resources, and many of the investors were recruited through the church connections of the founders.  Multiple complaints had been filed with the Banking Commission, who ignored them all, until it all came to a head and the FBI raided the company.  The Banking Commission was blamed for inaction.  The knee jerk reaction was new laws going significantly above and beyond the restrictions of Dodd Frank.

As a result, they are much more restrictive than many other states, including our neighboring  MA. (Which is surprising in the Live Free or Die state)  While I have no doubt that what you are saying about your personal situation is true, in NH, the situation is quite different.    There are no private lenders in NH who are licensed to do residential lending anymore (at least not that I have been able to find) and virtually no one will lend to a private individual, unless they have not gotten any local legal advice.

Changing title from an entity to your own name requires a 1.5% transfer tax in NH, with only a few exceptions allowed, so that adds a significant cost of $3000 to a $200K property.  In addition, that means that the loan has no seasoning, because lenders factor in only the time that it has been in the same name.  That in itself kills most refis.  It's certainly not illegal, but most local institutional lenders won't do it.

One of the challenges of real estate is it's extremely local nature.  One of the challenges of BP is that while you can get advice from people all over the world generously willing to help, those people are not always aware of local laws and conditions, and can unknowingly give erroneous advice.  And in fact, the OP shouldn't listen to me any more than any other poster, he should get his own legal advice.

Jody Schnurrenberger · Answer

When I'm looking at new places, one thing I do is look for cities that have more than 1 draw such as it's a state capital and has a university or it has a military base and a large national manufacturing facility that has been there for years.

I also look at www.BestPlaces.net in the crime stats and housing stats, among other things.  (You have to actually hit Search when you put in the city name.  When you just hit enter, it won't find your city.)  The housing stats tells the number of people renting in that city as well as vacancies.  Just tonight a friend tried to talk me into buying in a specific town.  I looked it up and it only had 1 draw, 32% of the community rents, and it has double digit vacancies.  I don't care that he thinks it's an up and coming city.  I'm willing to lose out in order to sleep better at night.  None of those numbers sounded good to me.  I want at least 40% of folks renting with single digit vacancies.

Good luck!

Ann Bellamy · Answer

I have input on those markets, since I live in Nashua and buy rental property exclusively in NH.

I would not buy in Hillsborough or Franklin.  I don't even lend in those towns.  Tough tenant base, and in Hillsborough, although it does fine when the economy is roaring along, at the first sign of a recession, people move closer to jobs and it tanks.  Pittsfield I have no input on.  Rochester is improving, you have to be careful to not overpay.

If you buy something that needs repair with hard money, you'll need to take title in an entity, so a refinance out of the hard money will also be commercial funding, so the residential funding you are discussing won't apply.

Also, I don't know how many properties you looked at on leased land, @Jeff S., but I know of only a few - Trestle Brook, and a few condo developements.  And Trestle Brook area is not a good investment anyway.  Maybe it is more prevalent than I know, but anyone selling a property on leased land must make that clear.

In your shoes I would focus on a market close to me and farm the area with direct marketing for off-market or seller finance deals.  Find wholesalers.  Ignore the MLS.  Do your own marketing and stay close to home so you can manage it yourself.

James C. · Answer

Mike,

Those are all bedroom communities to Manchester/Concord. What about Nashua, Salem, Derry or Windham? They give you the added advantage of being able to draw the 495/128 or Boston commuters. Even Manchester/Concord directly might work. You'll have to search, but you should be able to find something along the way.

The NH market is tough, it's the property taxes that kill you. With no broad based income or sales tax, you have to fund through property taxes. You might want to consider going to another state to get better returns.

Good Luck!

Jim

Michael Victor Cutter · Answer

@Jody Schnurrenberger That site looks like a good resource, seems similar to www.city-data.com. The multiple draws to a location is also a good thing. Thanks!

Nghi Le · Answer

Not always true.  Some hard money lenders will allow you to take title in your personal name.  I know this because my first flip was a hard money loan in my personal name.

In this case, you can do a cash-out refi with a conventional lender.  Even if you purchased something in an entity, I believe you can still change title to your own personal name and do a rate and term refinance at the same time.

Anne T. · Answer

@Michael Victor Cutter. Welcome aboard! And I have to agree with Ann Bellamy's cautions. Hillsborough (the town, not the county) relies primarily on Osram Sylvania for employment. I live in a pretty nice neighborhood, and even I wouldn't purchase an income property here for a first purchase. There are a lot of "opportunities", but you don't want your first investment to be in something that will likely cause you financial (or emotional) headaches. Were you just looking for a turn-key multi-family opportunity?

Ann Bellamy · Answer

Keep an eye on the events page here on BP - there is normally a meeting in Nashua on the 3rd Wed, @Gal Peretz hosts it.  He lists here and on Meetup.  Also New England REIA in Chelmsford meets on the first Wed, it was 11/1.  I saw recently on Meetup where someone started another one in Manchester NH, although I don't know anything about it.  It's tough to keep too many NH meetings going because we are fairly rural and spread out.

Ann Bellamy · Answer

Yes, it's improvement.  We're in an expansion.  Hillsboro always improves during an expansion.  Doesn't mean it won't sink like a stone again.

As for wholesalers, please understand that if a deal is a good one, a wholesaler sends it out to his list, and it gets picked up quickly.  If he still has it in inventory  it's been picked over and rejected.  That's what you get to look at when you "see what they would have to offer".

Wholesalers prioritize by 1.  Who pays the most and 2.  Who they can count on to deliver what they say and 3. Who can close quickest.  These 3 priorities can shift depending on how close it is to closing day.

So the reason I'm telling you this, is you have to show them you can close (cash) and get on their lists so they send you stuff when it comes available.  While there are sometimes deals for sale at NHREIA, it is not always so because of the large number of new investors attending.  You need to attend as many meetings in the area as possible and get the word out what you want to as many people as possible.  An occasional showing up at one meeting isn't going to produce a bunch of deals to consider.  Just a heads up.

Getting started... Hillsborough, Franklin, Rochester, Pittsfield?

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