First Real Estate Deal in Cambridge MA

[Andrew C.]

Hi BP Communtiy, as promised, I want to discuss how i fell into the real estate industry with my first family "deal"

My grandparents have lived in Cambridge, MA (10 min walk to Harvard Sq) for 50+ years in a duplex. Anyone who owns or rents in Boston knows that the houses are not senior friendly. My grandparents lived on the 2nd floor unit making the situation worse. Over the 50+ years of living in the house, the value of the land has exponentially appreciated (Numbers discussed below). My family urged them to relocate to a senior friendly home. This year, my grandparents wanted to sell their home with the intentions to use the proceeds to purchase a new home and put the left over money in a trust to pass down to my mother and her sister. This is where I saw an opportunity.

I saw the potential for my grandparents to leverage the equity in their two unit home to pay off their new purchase in full and have the rental income cover the debt service. I went head first, connecting with everyone in my network. I spoke with attorneys, accountants, advisers and anyone who would listen to me to make sure i was thinking crazy (i thought i was). I learned about the Step up in Basis tax rule, LTV ratios, and the value of real estate. I presented all this information as a pitch to my grandparents. The numbers showed them the unique opportunity available and the low risk they had (when word spread about the potential sale, my grandparents received 7 cash offers). After many conversations and much thought, they agreed to 'test' the waters and turn their home into a rental property.

We have since transferred the property into an LLC (Assets protection), cash-out refi and rehabbed the property. Our next step is partnering with a property manager and renting out both units.

Now the fun part, here are the numbers:

Original Purchase Price 53 years ago: $35K

Appraised value 2018: $1.75M (LTV 42%)

Cashout refi: $730k fixed 30yr 4.875% ($640K covers new house & $90K is other misc exp and fees)

PITI: ~$4.5k

Tot. Op exp: $5.0k

 Estimated Rental Income 2 units: $6.5K/month 

Cash Flow: $1.5k

There is still ~$500k of equity in Cambridge house to tap. My main goal from this endeavor was to keep an invaluable asset (the house and land) in the family to create trans-generational wealth for my family. There is a great opportunity to grow in the near-future but i am eager to get this first property up and running. We look to have our first tenants Sept. 1st!  

I would enjoy hearing your feedback and recommendations for future  learning and growth opportunities. I have seen the power of real estate first hand and have become obsessed with understanding this industry more to continue leveraging my families opportunities.

Thanks for reading and hope to connect!

[Jason Muth]

I think what's so interesting about your story, Andrew, is that this situation is completely normal around here and I'm entirely immune to finding this shocking, even though it should be!

I realize that you're in Texas and people from other markets might look at this story as complete crazy-town.  But in the Boston market, and especially in such neighborhoods as Cambridge, Charlestown, Southie, Somerville, and many others that have had multi-family buildings held by families for many decades, this is normal.  Multiple developers with insane over-asking cash offers, properties well-outpacing the appreciation rates of even statewide averages, and renters / buyers continuing to pay these figures due to the scarcity of housing within an hour's commute of downtown Boston.  

Sounds like you have a great plan to set your family up for many years to come with this one property.  Congrats!