What returns are possible in Boston Real Estate Market

8 Replies | Boston, Massachusetts

Hi Guys,

I am a new investor in the Boston, MA, SouthShore area. Trying to see what types of return you have been targeting and seeing. Most properties seem way too expensive to invest in.

Would begreat to connect.

The return metric is totally depends on what you're looking to invest in. Are you trying for your first house hack property or going straight to commercial? What rental classes are attractive to you? 

A fair metric my clients use is 7-10% Cash on Cash return on their money with min. repairs. If they have to do renovations they will increase that for time and effort. 

If you can narrow down your metrics, I can help provide you some feedback on local Boston market. 

Hi Lien,

Thank you for your response. I am looking for a potential house hack in the South Shore Dorchester through Braintree area. 

I am therefore looking into residential real estate to start my journey. I was starting to review properties based on the following numbers:

Positive Cash Flow: 200 - 300 USD / unit

Cash on Cash ROI: 10 - 12% (Total Annual Cash Flow / Cash Investment)

Total Return: 12 - 15% on a 5 - 10 year avg.

(Total Profit / Total Cash Invested) / number of investment years

%of monthly rent to cover expenses:

5% for vacancy

7% for repairs

7% for Cap Ex

3.5% for Management fees

Let me know what you think about these numbers. I am particularly uncertain about the repairs and CapEx as home values are quite high in Boston and South Shore, so the % might be high.

Thank you so much for your kind help. Highly appreciated.

Have a great day.

@Florian Kuehne

Hi Florian,

I think those cash flow and return numbers are definitely attainable for a house hack, especially if you force appreciation through the initial renovation. Just remember to stick to your numbers during the bidding process!

One tip is that if you put low money down (i.e. 3.5% for an FHA mortgage), it will be easier to hit your Total Return target but more difficult to hit your Cash on Cash ROI target. If you put more down, you'll see your Cash on Cash ROI improve and your Total Return compress.

In terms of your variable operating expenses, I use the following:

Vacancy:  8%

Property Management:  8%

Repairs:  $50 per unit, per month

CapEx: $150 per roof, per month

I think it makes more sense to use a flat amount per unit for repairs since repair costs aren't necessarily correlated with rent collected.

I use similar thinking for CapEx, except it's a flat amount per roof rather than per unit.

Are you planning to self manage to some degree? I'm not sure where you can find 3.5% for full service property management, but if you've found it please let me know!

Regards,

Eric

Hi Eric

Thank you very much for your numbers and insights.

I will check with my property management partner to see on the extent of property management.

Using your numbers does that come out to 4800 dollars for a duplex per year on repairs and capex? 100 repairs + 300 roofs x12

Or are you facotoring that as 1 time 150?

Thanks much Eric

Sorry for the delay - 

@Eric Rosiello is on the ball with the management fee. I think there's an average of 5-7% rate depending on the company's portfolio but nothing less than that. Your Cap Ex and Repairs seems fair and definitely differs depending on the condition of the property itself. Your cash flow expectations are accurate but Cash on Cash is too high in my opinion. Due to the fact that you're going with a very low payment for acquisition the largest benefit here would be that you get to live free or very close to it while the tenant is servicing most of your debt. 

The area you chose most certainly has good rental potential esp. in the area of Randolph where prices are more reasonable and you can still commute to Boston in a timely manner. Quincy is very hot and competitive because of it's train and highway access. Another area I would have you consider is Brockton that's experiencing some great growth and has more affordable homes. 

Hi Lien,

Thank you for getting back to me. No need to apologize. Totally agree with the Cash on Cash comment when there is low money down. I can play with that.

I am definitely looking in Quincy and feel there are quite a few good opportunities out there. Brockton is not something I would consider at this point as I am not that experienced and living close to that area I know its a rough rough town.

Thank you for the comment on the property management. I have a person that does it for me at 3.5% but only if the property is purchased through him, so I will factor in that higher number moving forward. 

Appreciate your insights. 

I would consider looking at the SouthCoast market. A quick 50-mile drive south of Boston in the Greater Fall River area are some great investor deals. Several 3-family units priced under $350k with great rental income and low availability.