All Forum Posts by: Tom Wagner

Interesting to see supply start to shift. Will the trend continue and will inventory start to drop? Or will it jump back up?

I think it will start to drop seasonally, as it usually does this time of year, and this drop will continue to prop up prices. 

Hi Mike, you should be able to check the zoning online as well, though going to city hall is definitely still worth your time as the code can be complex.

Regarding cost, it is very difficult to say what it will cost but I would guess your all-in costs (soft + hard) would come to at least $175/sqft and more likely >= $200/sqft. I would consider finding some builders in your area by pulling building permits online / from city hall.

I would echo what others have said and caution you on losing the 2.25% rate. If your payment jumps $600, that means it is going to jump $7,200 -- not a small amount!

You'd also be exposing yourself to some risk with the 5/1 ARM vs 30-year fixed.

Has anyone bought, sold or been involved in 3-4 property transactions inside of I-95 / within 5-10 miles of Boston recently? Prices have not really moved and with interest rates >= 5% basically every property fails the self-sufficiency test.

So my question is: who is the buyer in 3-4 unit transactions at these prices? Both owner-occupied conventional and non-owner-occupied on 3-4 unit properties requires 25% down ($250k+), and there aren't many investors or buyers with that amount of liquid capital.

Where is the bid coming from? And why hasn't there been a modest correction in pricing to reflect current interest rates?

Hi Tim, it is really tough to make the numbers work with interest rates near 6%, particularly with 3.5% down. It becomes paramount to make sure you have the best available FHA (or other low down payment loan product) rate available on the market.

Additionally, very few want a cashflow negative rental (especially as your first property) but if you can get to cashflow neutral I'd encourage you to think about your return as a combination of four things: cash flow, principal paydown, (potential) appreciation and tax benefits

The first three can be quantified easily on a hypothetical $600,000 duplex.

$0 cash flow + $8,000 principal paydown (rough calc) + $12,000 appreciation (2%) = $20,000

Initial investment = 600k x 3.5% + $5,000 closing costs = $26,000

So you'll on average, over the long term, even with $0 cash flow generate a return of $20,000+ per year on a $26,000 initial investment. Still blows the stock market out of the water. 

In my opinion: any agents posting on a day other than Tuesday or Wednesday are doing their clients a disservice. The goal should be to maximize open house interest for the first weekend, and Tuesday or Wednesday are the best days to do that.

Hi Brendan, some great questions in your post so I'll take them one by one:

1) For an accurate mortgage calculator I would agree with others who have said that you should work with a mortgage broker. You can estimate FHA MIP payments by taking your loan amount and multiplying it by 1.05%, then dividing by 12, but this number won't be exact. More info on this can be found in HUD 4000.1

2) Acknowledgement of the risk you are taking on with a 96.5% leverage loan is *really* important and not discussed enough on Bigger Pockets in my opinion. If you buy a $1mm 4-unit and the market drops 20%, you'll be "underwater" on your mortgage by over $100k. Related to this, I think one of the most important metrics is Debt Service Coverage Ratio, which compares a properties Net Operating Income (NOI) to your monthly payment. This metric can be used to stress test your property and make sure it will still cash flow if there is a 10% or 20% rent decline.

3) Yes using an FHA loan is an option in Boston. My colleague Andrew Freed shared the graphic below earlier this year toshow that buyers are in fact closing FHA loans in Massachusetts. Sure, it may be hard to compete against an all cash offer for the same amount, but people are still house hacking in Boston and the surrounding area using FHA loans.

4) I would recommend having about 5% saved for a 3.5% down payment, and slightly more if the property you are buying is <= $500k.

5) Your loan amount will depend on the rental income (or projected rental income) from the subject property and you can work with your lender to get pre-approvals written for specific properties. You will also need to pass the FHA self sufficiency test on 3- and 4-unit properties, which can be difficult in Boston. Feel free to DM me if you need a lender recommendation, or take a look at the FHA 203(k) endorsement report to see which lenders are doing substantial FHA volume.

Good luck and please keep us posted on the progress of your search!

This is a great question! I think it is important to look at it from both a return-on-cost and risk perspective.

ADU: While you may be able to get it done for $80k, I would recommend adding a buffer for cost overruns so let's use $100k. If the new ADU costs $100k and brings in $2,200 in rent, the annual incremental net operating income (NOI) will likely be ~$20,000 ($26,400 x 12 months = $26,400 x 75% (25% expense ratio) = $19,800). Your *unlevered* yield to cost / return on investment will be ~20% (20k / 100k), which is virtually unheard of in real estate. Finally, your true ROI will be infinite if you refi the entire property and pull out $200k+ (perhaps suboptimal because of increased interest rates) or if you due a HELOC / home equity loan.

Jacksonville investment: Hard to quantify this one without more details. I took a look at Redfin and it seems unlikely that you'll be able to find a turnkey 2-unit for $120k, but if you can that seems like a pretty good investment as well. However, you could also do this after the ADU project, and realistically I would be exploring financing sources that would allow me to tackle both of these projects at the same time.

Building on vacant lot: I cannot stress this enough --> this type of ground-up development project is significantly more complicated, time consuming, and risky. It will likely be stressful and challenging throughout, and if you haven't done ground-up development before I would start with the ADU project as a training-wheels version of what this project would be. Some other options with the vacant lot include selling it off to a developer (what I would probably do) or finding a partner and rolling the lot into the project as your contribution to a joint venture. If you are going to do the latter make sure the lot is fairly valued, spend significant time vetting potential partners and retain a great attorney for the paperwork.

Good luck and please keep us posted on what you decide!

 

Canceling this, will pick back up in the fall/winter

Looking forward to chatting Boston real estate and house hacking later tonight!