Cap rate goal for Malden/Everett for first time buyer

3 Replies

Hi all,

My name is Faris, I'm a marketing professional working at a 3D printing company in Somerville. I'm brand new to real estate investing, and plan on buying my first property so that I can stop paying rent. Goal is to get a multi-family unit, not have to own a car, and be a (max) 20 min uber ride away from Fenway or Cambridge. 

I plan on using FHA. I've been doing some back-of-the-envelope analysis's on properties every day. I *just* factored PMI into my model, and am realizing how much of an impact it's making on my yearly NOI.

I'm seeing that I probably need to aim for a cap rate of atleast 11% to be in the green YoY. Does this seem right? If I'm investing in Malden/Everett/Medford, what cap rate do you think I should be aiming for?

Would love any guidance and tips on this new journey. Excited to get to know you all.

@Faris Sheikh PMI is certainly a large expense, but it won't be forever. In my current househack, my mortgage (with PMI) is $5,000 and my rental income is $6,000. When I refinance to a conventional mortgage, I'll increase cashflow by an additional $725 by removing PMI. My point is, it's good to include PMI in your analysis, but understand if you're playing the long game - you'll eventually have that removed.

Aiming for that cap rate is not going to be realistic in the Greater Boston Area as people are generally aiming for 4-5% purchase. A more effective method is evaluating the cash/cash return of the asset and see how hard your money is working for you. Given that you're using the FHA purchasing avenue, your valuation of the asset is going to be very different than a typical 25% investor.