Investor · Cambridge, MA · Member since 2014 · 92 posts · 87 votes
I'm really glad to see local sub-forums and wanted to kick off the discussion here. Hopefully some keyword alerts for Boston, MA and Cambridge, MA draw folks in.
I'm a new investor based in Cambridge. My wife and I want to build a portfolio of buy-and-hold rental properties.
We've spent about a year looking for a viable strategy in our own backyard and are almost convinced that we'll have to "trade up" to investing locally in 5-10 years after an out-of-state portfolio has been seasoned a bit. We just can't find single-family homes that pencil out, and the multi-families are at relatively prohibitive price points.
If your focus is cash flow, it seems like East Boston and Chelsea have some potential. But as an inexperienced investor, I'm not eager to jump into a "C" neighborhood. Similarly, I see a few folks promoting Dorchester and Roxbury.
And I've heard Malden and Medford mentioned too for their growth potential. I've looked as far away as the Portsmouth, NH and Salem, MA areas, but still haven't found much that fits our target of 10%+ cash-on-cash.
The local investors that seem to be most active (like @Shaun Reilly and @Justin Silverio) seem to be fix-and-flippers, which seems much more viable than our preferred buy-and-hold approach. When I recently met @Aaron Montague, he echoed my observation that it's tough to find viable buy and hold properties in Boston.
So -- are there local folks with a strategy I'm totally missing? I realize the market dynamic here may dictate that we get more flexible on our strategy, but we're likelier to invest out of state than try flipping, notes, etc. locally.
I closed on a 3 family in a tougher part of Dorchester in August. It was an MLS deal and was competitive, but even with that, I'm cash flowing almost 20% after all expenses are paid including the mortgage taxes etc. Two of the units are section 8 and I get a direct deposit form the government on the 1st of each month (amazing) and the other unit is a regular market tenant. I'm new to Dorchester and in the big picture, I'm a new investor as I only have two rental properties, but I'd say don't be afraid of the B/C neighborhoods. It's all about finding good tenants. Good tenants live in bad neighborhoods too, not all of them are bad, most just got themselves into unfortunate situations, divorces, had kids too young and got in over their head etc. there's slot of money to be made in these areas if you're smart about it and do enough research.
Keith, the keys, in my opinion, to finding properties with decent returns are
1. Look in areas outside Boston/Cambridge or
2. Consider condo conversions or
3. Do your own marketing for off-market deals or buy from wholesalers expecting to both rehab and rent out
There are lots of buy and hold investors in Boston and surrounds, but if you limit yourself to Boston and Cambridge, the deals are much harder to find and require deeper pockets.
Also do some searches on the forums for your keywords, looking at other posts, there are plenty of them
Thanks @Ann Bellamy. Have been searching/browsing here daily and have attended a few REIA meetings. Always looking for more success stories and perspective.
Hi Keith, I know what you mean. I am also living in Cambridge at the moment and having a tough time finding any potential Buy&Holds in this area. All of the one's I am analyzing, I don't quite break even.
I think the key to this market is to skip the MLS and find deals by using a Wholesaler or being one yourself.
@Paul Brockmann I think many investors in coastal areas learn not to over-emphasize positive cash flow in year 1 (assuming they're buying the right properties in the right neighborhoods).
It seems like the much more commonly discussed rules of thumb on BP and elsewhere would lead one to conclude that nothing makes sense in these markets, and yet... somebody owns all of that property! When I first began researching & learning I thought, "What a shame that so many fools bought property in Boston that doesn't cash flow," but I soon realized their definition of success must be different.
But I never really see anyone publish criteria or strategies for successful investing in these markets, aside from going out-of-state with turnkey operators or similar. The closest I've seen is in a book on building wealth one house at a time, in which the author looks back at people that wavered over $5-$10k swings in the purchase price of homes in CA 30-40 years ago -- homes that are now worth 8-10x what they were then.
I suppose your suggestion to look off-market for deeply discounted properties might be one way to do it, but I suspect that there are lots of investors that are OK buying at fair market value and finding that the appreciation and equity build more than satisfies after 15, 20, or years. Maybe "losing" a few hundred dollars in cash outlay to feed these properties every month ultimately pays off big, if that's your strategy?
In investing, you need to take risks. However, being a successful one, you know the risks and can prepare for it.
You make some good points. If it doesn't quite cashflow, maybe that's good. With rent appreciation, mortgage ammortization, and property appreciation, maybe it is worth the "negative" cash flow. A 1% gain in value in a year on a 50k property is only 500 dollars, while an increase of 1% on a 200k property is 2k. That's like another $125/month in theoretical cashflow. I guess it could go down just as much. (Sorry, I'm thinking out loud and working this out.)
Looking back at my analysis, my budget usually breaks with the property management 10%, where I would be paying myself. I would still have enough for expenses and budgets, just nothing left over for me. A possible plan could be to manage it myself until I am able to get a positive cashflow out of it due to a refinance or rent increases.
I have to do more thinking on this but maybe this is what I have been missing. Maybe this market is too rich for cashflow, but great for appreciation.
For what it's worth, here in Scituate SF rentals are scarce as hen's teeth. I just checked MLS and there are 19 total, 3 of which appear to be long term.
The rest are either weekly / summer or winter only.
That's a strategy you might consider. Weekly summer rentals here frequently fetch between $2000 and $3500, depending on proximity to the water.
It's a lot more work keeping them rented, cleaned and turned over for the next tenant, but the income may justify it.
Interesting idea, @Charlie MacPherson . We were looking at a similar strategy on the Cape and finding that the income potential may not pan out, but well check this out.
It's also worth noting that long term rentals are so scarce here that they command a pretty good price. Often as much or more than a mortgage payment in a nearby town.
Consider concentrating on 3+/1.5+ in towns with good schools. Homes with 3BR or more are great targets for families with kids. Those families tend to want to rent in towns with low crime and very good schools.
On the south shore - Scituate, Cohasset, Hingham and Duxbury are good targets. All will command premium rents.
www.GreatSchools.org should be helpful in evaluating schools.
Keith if your willing to take a little bit of a risk and want to be close to the city look at where the money is being spent. There is a lot of public and private money being spent in Dorchester and Roxbury right now especially in TOD's. New buildings going up, new transit lines, improved streetscapes, and revamping of municipal codes. These are C areas that could become B's or better. It might take a few years, but if you want to own the really nice inner city residence you have to get in there on the ground floor in the infancy of the transition. I'm always looking for the next davis square in what use to be known as slumerville, but now has every younge professional battling to get a spot there.
Thanks for the input @Patrick Kelly. I'd probably be able to handle some risk if the neighborhood and property had high potential, but I'm probably looking for B/B+ properties before I start investing in C+ with B potential.
@Keith Anderson It can be a little scary investing in these "bad" neighborhoods. I say that as someone who use to live in Boston around Roxbury and would frequently walk through there and have friends that lived in Dorchester or in Milton just outside the Mattapan stop and have never had any issues.
A TOD is a transit oriented development. You have probably noticed them without even knowing it. They are usually vibrant, mixed use, compact, walkable areas, they will have a lot of shops and restaurants/ live work space. Transit tends to be an economic and development driver. In places where there is a good transit hub and the city and private money spend to develop that area you will see a rapid appreciation. This is what happened at Davis Square, assembly row, charleston navy yard, mission hill, and jamaica plain. They are not beacon hill or back bay, but they are a far cry for what they use to be and still on the up and up. There are plans and development already happening at the wonderland T stop in Revere, Chelsea is about to have the silver line extended through it. Development is out pacing the transit line just based on the plans that were set, that is evident with things like 1 north in chelsea and the investment in the box district.
Dorchester and Roxbury are so interesting because they already have access to the red and orange lines, but the city is in the process of planning and developing the indigo line which will put almost all neighborhoods with in a 10 min walk of a transit line. Large developers have already noticed this opportunity and started developing the Dudley Tower, plans for the DOTblock, and a residence at Jackson Square.
I closed on a 3 family in a tougher part of Dorchester in August. It was an MLS deal and was competitive, but even with that, I'm cash flowing almost 20% after all expenses are paid including the mortgage taxes etc. Two of the units are section 8 and I get a direct deposit form the government on the 1st of each month (amazing) and the other unit is a regular market tenant. I'm new to Dorchester and in the big picture, I'm a new investor as I only have two rental properties, but I'd say don't be afraid of the B/C neighborhoods. It's all about finding good tenants. Good tenants live in bad neighborhoods too, not all of them are bad, most just got themselves into unfortunate situations, divorces, had kids too young and got in over their head etc. there's slot of money to be made in these areas if you're smart about it and do enough research.
Hi Keith, buy it right and when a market precludes you from doing so then look elsewhere. Here's the good news, you don't need to look far. You have good instincts looking into New Hampshire and I'd ask have you considered Providence? I'm an investor and a realtor in this market with several dozen buy and hold units. Cap rates here commonly range from 8-12%....a far cry from Boston. There are some downsides which I could review for you but they aren't significant enough to dissuade me from continuing to invest here myself.
I am also in Boston, and there are the following scenarios:
1) Property was bought 20+ years ago, so now the numbers make sense
2) Person is losing money, or just trying to pay the mortgage (bad idea)
3) Invest out of state
I do #3, I invest where there are better returns and only "invest" in my primary residence! You can't make the 1% rule here without going to a bad area, and I'd rather get a higher return out of state than gamble on appreciation.
I meant to add, the only person I met that was making money that bought a property recently here in Greater Boston was charging by the BED. They filled their apartment up with bunk beds and charged a flat monthly fee to individual students, that way they could meet the 1% rule (and were actually making great money).
Kind of late to the game in terms of response as I just joined BP, but I figured I may be able to provide some helpful information none the less.
Speaking from the perspective of a former Boston real estate agent that specialized in rentals/income property, I'd highly advise speaking with managers or agents with good track-records at some local rental companies, mainly for 3 reasons.
1) Unlike MLS for sales, no central database for rentals exists, period. I'm aware there were attempts with some websites to centralize listings (not sure if I'm allowed to name them on this post), but they were largely ineffective. They only picked up the over-priced listings from the larger landlords/property management companies, not the multitudes of smaller landlords which more accurately gauge market price. It's therefore imperative to find a company that not only specializes in rentals, but also one with a large and accurate database to get accurate information that would attribute to your return on investment.
2) Rental agents deal with rentals every day of their week. That is their specialty. The successful ones know their markets extremely well and can tell you about rent trends such as where rent is increasing the most, what/where is becoming popular, as well as what kinds of tenants you'd get in a given area, and what those tenants are looking for in a place as far as amenities or layouts.
3) Most importantly, rental agents are constantly talking with landlords regarding showings, availability, price drops, tenant screenings, etc... They know if a landlord may be looking to sell, upgrade, or whatever which could mean a cash flow opportunity for you. I realize sales agents do this too, but rental agents (the good ones) typically do this at a much larger scale and as a result (hopefully) have better working relationships with these landlords.
As an example I know/knew a landlord that told me he was willing to unload a property for a certain amount, that I knew would rent at about a 7-8% cap rate. I knew another landlord that (through his son's rental company) found a 3-fam property, bought it for 1.2mil, sunk another 200k in renovations, and rented it for $14k per month.
My word of caution however, is that you need to find a rental company and rental agent that's worth his/her salt. This industry is over-saturated with people, often college students, trying to make a quick-buck. Do your due diligence and find a company with tons of rental listings first, then find an agent in that company who makes a living off rentals full-time, and who has been around for awhile (really anyone who's been around for more than a couple years).
With all this said, my personal recommendation (though somewhat dated as I've been out of the Boston area for a couple years) would be to look into the Fort Hill area (Roxbury) and East Boston. From my understanding, Fort Hill is supposed to be the next "Mission Hill" given its proximity to several colleges.
East Boston seems to be the next "South Boston" where many young professionals are going. Jeffries Point is already increasing in value, and it's likely the surrounding areas will see an increase in value as well. Jamaica Plain may also be a good place to look into too as it's convenient/popular for both young professionals and students alike, though it may be too late to get into that market as far as investment, unless you manage to find a really good deal.
Hope this information helps. I wish you the best of luck!
As a newbie also looking in the Boston area, I would agree with the general sentiment that the key is to catch on to a formerly B/C neighborhood right before it starts to jump in value. My wife and I own a condo unit in South Boston that cash flows extremely well for us today, but only because we bought it at a relatively low price 10 years ago before rents started jumping through the roof.
Right now we're looking for a two or three family home in the Boston area which is cash flow neutral or slightly positive. I believe that if we buy in the right neighborhood (gentrifying but not quite there yet, close to public transportation into the heart of Boston) that the rents today will allow us to hold it for a few years until rents and prices start to appreciate.
Though I will add that the approach that we're pursuing works for us because we intend to live in the multi-family and formerly lived in the condo that we now rent out. I have no doubt that investing for pure cash flow is much more lucrative in the short term in places outside of the Boston/Cambridge area.
@Keith Anderson a year is a long time to be looking and not find anything. I think you may need to change your strategy to Buy-Fix Up-Sell rather than Rent and go directly to Owners.
@Patrick kelly, you know quite well on those location being build. Dorchester, a lot of taller building, being build, and approve to build, Dot block is one of the biggest one.
@Keith Anderson, the strategy is research, do your homework where you target the market.
my base is Dorchester, doing, brrrr, it so expensive now, hard to find deal, but if you can see potential deal, that not many people see that the key. I recently closed few deals on triplex.
Great info here. I am from the Greater Boston area, and am looking to invest in multi families as well as small apartment buildings. Dorchester seems to have many listings on Loopnet and other sites. Is anyone currently investing in apartment buildings in or outside the Boston Area? If so, what type of cash on cash returns are you getting? Thanks!
Thanks for starting this thread Keith Anderson interesting read for a hopeful newbie Boston investor. All this begs the question tho, "Who is buying all these duplexs and triplexs off the mls that seemingly aren't even close to cash flowing?" House hackers who are ok with no cash flow? Bad investors?
Dorchester seems to have some of the best returns. Each month, I download all the Boston three-families from MLS and then sort them by ROI and then potential ROI. There are quote a few in that 15%-20% range. Let me know if you want me to send it to you.
Neil is right. I've been dealing with Dorchester triple deckers for about 15 years and not only are there a ton of them, even at 600k, they make solid money.