Providence investors: which neighborhoods are most promising?

[Austin Shute]

I live in SE Mass looking to purchase, occupy and hold a small multi in Providence RI (first time.) I’m priced out of most anything on the very desirable East Side (Brown U, India Point, etc.) Most other neighborhoods, it seems, are plagued with vacant storefronts, for-sale commercial spaces, and incredible amounts of litter and vandalism. Which areas are “up and coming” or worth considering? Which neighborhoods do you live / would you live? I’ve toured properties on the West End, Mt. Pleasant, Charles and East Providence. Input and opinions much appreciated.

[Anthony Thompson]

@Austin Shute it's hard to say what you personally would find palatable. I wouldn't live in Olneyville, but if you're OK with that area then you can probably find stuff cheaper there than the East Side.

There are also no "hidden gems" that somehow the market hasn't found out about. It's a market full of intelligent people all looking for a deal and an angle, so information doesn't stay secret for long.

The West End has been up and coming for a while, but it's priced in at this point and those properties are selling for a lot.

My general recommendation is to find a neighborhood you like but feel priced out of, and then go in any direction and find where the neighborhood ends or starts to change - where it borders with another area. Then see if it's more affordable for you. Repeat as needed until you find something that is both acceptable and affordable.

Note that "affordable to you" is not necessarily the same as "positively cash flowing" based on the mortgage and other expenses. In addition to figuring out if you can fit the property into your own budget, you should also make sure it cash flows on its own.

If you had to move out and rent the unit you were living in, would it be cash flow positive? If so by how much? The annual net operating income (income after property expenses including taxes and insurance) should be at least 20% more than the annual mortgage payments (i.e., a debt service coverage ratio or DSCR of 1.2+).

If it's not, you'll be running pretty tight and running a risk of losing money any year that something unexpected comes up - and you'll find that's more often than you might think or like.