I'm a first time home buyer looking to house hack in the Boston area, and we've gone through quite the self-education experience. There is basically nothing within a 45 minute commute (bike or transit) with a decent capitalization rate (my minimum is ~4%). The entire market looks to have been squeezed into speculative buying territory, which I'm not comfortable with. I want a healthy backstop from rents to provide passive income.
We are currently having frustrating discussions with a seller (whose mother lives in 1 unit) over a 2-plex in Everett for $522k which needs ~$30k in repairs. The units are a 1-bed and 2-bed and market rents look to be ~$1400/~$1800 . I think my numbers are conservative, but I'm looking at ~3.8% cap rate with this purchase. Is this place a steal in this market? Should I just put up with the seller and snap this up?
Thanks for the advice!
Is one unit vacant, the one you are looking to owner occupy? It looks like you are looking at 3 bed 2 bath for 522k and 30k repairs, right?
Yes, the house is total 3 bed 2 bath and one unit it to be delivered vacant. They are currently both occupied, but we plan to have contingencies to ensure one is vacant on close.
Where in Everett is it? I always keep my eyes peeled over there cause I'm in Medford and it'd be nice to have something close by but I'm just never able to find anything that's either in an area I like or where the numbers work. If you're living there, you're kind of in a good place between having good shopping plazas nearby, highways, the new casino, if you're able to live for free (in this market especially) it's a good deal in my opinion.
My suggestion @Christian Nachtrieb would be to start meeting local real estate agents and let them know what you are looking for and see if you can find something off market.
I get MLS listings sent to me daily and it is rare to find anything that has any meat left on the bone. Everything seems to be going above retail pricing where the rent don't even come close to breaking even, let alone making you money and cash flowing.
I would not worry about cap rates with a property of this size. Additionally if you are trying to house hack just make sure one units rent can pay all or almost all of the piti. I will tell you right now i would not pay 522k for a 2 family. But then again im only looking for properties that have significant value add potential. everett is on the up and up and every contractor is trying to flip them into condos for a quick return. But they will pay more for a multi than a brrrr guy would.
Sorry for the slow reply. This deal (thankfully) fell through.
@christian, it was on the northern side near the large cemetery. Not a close to the river, breweries, or casino. I didn't see it as a very desirable location.
@Ryan yeah I think your strategy would have better served us. We were moving into the area and wanted to avoid getting into another apartment lease before buying.
@Rich, why would you say not to look at the cap rate? Do you think it too small a property to be an effective metric?