All Forum Posts by: Tyler Munroe

@Brian J Allen Thanks for posting this, great to hear different perspectives on this issue! Funny, I was advising a friend heading into retirement on your exact same question and we came up with a solution that hasn't been discussed yet. They've lived outside of San Francisco in an extremely HCOL area for the past 30 years. I would estimate they're looking at cap gains in the range of 2-2.5M when they sell, and this is just a traditional SF home. What we decided is to have them rent the space for at least two years (there's no mortgage so this is nice income for them) and then after that make the decision to sell OR 1031 since it's technically an investment property and they've lived in it for 2 out of the last 5 years. It looks like there may be ways to utilize both the primary residence exclusion and a 1031, but we'll talk to a CPA down the road about that (or if anyone here has insight on that please let me know).

 Don't think any value will be destroyed, but rather created. This is a high priced, highly desirable area with a dire need for additional housing. Allowing multi-unit buildings on SF lots only increases the value of that land since it's now the best-and-highest use. There is a question of how much this will change character, though, so that's something we'll have to wait and see about.

 Thanks for clarifying this! I had heard that anecdotally, so it's nice to get some insight from someone directly involved in the process. I hope we see more pro-housing initiatives pick up after Cambridge led the way.

Cambridge, a high priced area neighboring Boston, has just passed some of the most aggressive zoning reform seen in the state, and possibly the country. Summary of the changes are:

Elimination of Single-Family Zoning: The amendment removes zoning districts that previously permitted only single-family or two-family residences. All residential zones now allow multifamily and townhouse residences by-right.

Zoning District Consolidation: Former "Residence A-1, A-2, B, and C" districts have been reclassified under "Residence C-1," which permits multifamily housing.

Increased Housing Density: The amendment removes minimum lot area requirements, minimum lot area per dwelling unit, and lot width restrictions, allowing for denser residential development.

Reduced Yard Setback Requirements: The minimum required setbacks (front, side, and rear yards) for residential properties have been reduced, allowing for more buildable area on lots.

Elimination of Parking Requirements: The amendment removes all minimum parking requirements, reducing the obligation for single-family homeowners to provide off-street parking.

Subdivision Flexibility: The definition of "subdivided lot" has been updated, making it easier for homeowners to subdivide their land for townhouse or multifamily development.

Height and Floor Area Ratio (FAR) Changes: Floor area ratio (FAR) limitations for residential properties have been removed, and height limits have been increased to permit:

Up to four stories in Residence C-1 districts.

Up to six stories for inclusionary housing projects on larger lots.

Anyone who's familiar with Cambridge knows that this is one of the most prestigious, elite, expensive, restrictive areas in the whole state, and for zoning of this magnitude to be passed is truly historic. There will be some massive development pushes in this area which will undoubtedly change the character of some neighborhoods, but also provide much needed housing inventory. My opinion is that these builds will be super high end and expensive, but with affordability guidelines will bring online many income restricted units to add to the mix.

Overall, I think the message is now resonating with public officials that we need SUPPLY over any other approach to address our housing crisis. This was an extremely unpopular measure with the current residents of Cambridge, but change like this is necessary to address the affordability issues that plague our state. If Cambridge can pass this, I'd hope and expect that other Boston-area cities use them as an example and start to adopt similar changes.

I see a lot of newer investors getting into the market thinking flipping houses is easy money. TV shows and social media make it look like a fast track to financial freedom—but in reality, it's a tough game, especially in a market like Boston.

Even if you have a down payment, you're likely using hard money loans at 10-12% interest for the purchase and rehab. That means on a $500K single-family flip with a $200K rehab budget, you're paying $40K-$50K in carrying costs alone. And that's before factoring in competition from seasoned investors who often have the cash reserves to avoid these costs entirely—allowing them to outbid you and still make a solid profit.

If you don’t have significant cash reserves or can’t find a true off-market diamond in the rough, I wouldn’t recommend flipping as your first real estate strategy in Boston. You might get lucky, but chances are, you’ll spend a year or more just trying to find a deal that actually works.

Curious to hear from others—have you successfully flipped in Boston as a newer investor? What strategies have worked for you?

RI or NH seem like solid options these days as a Boston alternative. If you consider going north, the Manchester market has been seeing some extraordinary gains (similar for RI, though). You may be able to get into a reasonably priced house hack in these markets and benefit from some nice appreciation. If you have the ability to relocate, I think house hacking is a tried and true strategy for any new investor. 

I've been analyzing a lot of two-family properties in the Boston area lately, and almost every one that is rent-ready turns out to be negative cash flow or break even at best. If you were to buy one of these with traditional financing—20% down at a 7% interest rate—you would actually be paying out of pocket every month just to own the property. The rents simply do not cover the mortgage and expenses.

That raises an important question: who is actually buying these properties?

The fact is, these properties are selling, and there are several key groups making these purchases.

1. Developers Converting to Condos

In high-priced areas like Boston, Cambridge, Somerville, and Brookline, many developers buy two-family homes with the intention of converting them into condos. If they can expand the square footage—whether by finishing a basement, adding an attic space, or making other improvements—they can increase the value and sell at a higher price. For them, cash flow is not the primary goal; it is about appreciation and resale value.

2. 1031 Exchange Investors

Another group purchasing these properties includes investors utilizing 1031 exchanges. A 1031 exchange allows an investor to sell an investment property and reinvest the proceeds into another property, deferring capital gains taxes. Since these buyers often have large sums of money from their previous sale, they can put down a significant amount of cash, keeping their mortgage payments low and making the numbers work despite high purchase prices.

3. Foreign Investors Buying in Cash

Boston is considered a stable real estate market with strong appreciation, making it attractive to international investors. Many of these buyers purchase properties in cash, meaning they are not concerned about monthly mortgage payments or short-term cash flow. Instead, they view real estate in Boston as a safe place to park their money while benefiting from long-term appreciation.

4. House Hackers

Some owner-occupants are still using the house hacking strategy, where they live in one unit and rent out the other to offset costs. This approach used to be a great way to build wealth, but with today’s higher prices, it is becoming more difficult. That said, some buyers still choose this route because it can be cheaper than renting or buying a single-family home, and they hope that rental income will improve over time.

If you are looking for cash flow in the Boston market, the numbers may not be in your favor right now. However, there's definitely areas just outside the city where deals are starting to pencil, so that's great to see.

I’d love to hear from others in the market—what are your thoughts? Are there other types of buyers I missed? Is there still opportunity in Boston’s two-family market despite the challenges?

1205 Mass Ave, Arlington – Mixed-Use Investment Opportunity - $1.6M

Back with another one here! 7-unit mixed-use property with some interesting angles. It has 3 residential apartments, 2 street-level retail spaces, and a garage/office combo in the back.

Currently vacant, but after running comps, I estimated a stabilized rent roll of $13,500/month across all units, including strong comps for the residential, retail, and even the garage/office setup.

With a commercial mortgage at 25% down, 25-year amortization, 7% rate, and $25K in operating expenses, the estimated cash-on-cash return is 7.5% when fully stabilized. I even built about $150k of renovation expenses into this number, but I did assume you'd self manage the asset.

What I like about this deal: The cash-on-cash return is decent for a straight rental property in an appreciating market. There’s potential for a commercial condo conversion in the $600K–$700K range. I found comps for new garage/office condo units in Waltham selling for ~$850K each, with most already sold. Arlington is a better location, though this building isn’t new construction, so I still think $600K–$700K is reasonable as a comp. You’d have to look into zoning and permitting, but it seems possible.

Commercial/residential deals typically eliminate smaller investors, meaning less competition and more room for negotiation. The tradeoff is needing more money down and tolerating a bit more risk.

How would you structure this deal? Keep it as a rental or try to split off the garage/office as a condo?

Hi @Dina Onur - what a great project! Would you be able to tell us what town it was in? How is the house hack working out for you? I don't hear too many investor doing ground up multi-family for house hacking in the area, so this is definitely interesting. Are you planning on eventually selling them as condos?

Good point, I should've probably title the thread "greater Boston" area, because the truth is there's no cash flowing properties close to the city at current prices and rates (at least nothing on market). I'm looking at areas within the 95 beltway that have direct access to the city via public transit or a short-ish drive. Boston is still the main economic hub for these areas, so I can consider that "greater Boston". With unaffordability at all time highs in the city, these areas are becoming more desirable so we're seeing rents that allow for cash flow at current prices and rates.

What's interesting is that multi-family is very much alive in the city, as properties are trading despite no cash flow potential at current rents, property prices, and rates. I think most of the buyers are some variation of the following:

1) Condo conversions

2) 1031 exchanges looking to relocate equity to a high appreciating area, able to buy down the mortgage enough so that the property produces cash flow.

3) Owner occupants looking to offset a portion of the mortgage (even though the numbers aren't great for house hacking, I still think people are doing this to some extent)

4) Foreign money all-cash transactions

Since inventory is so low, there's enough of these types of buyers to keep transactions happening at prices that don't make sense to average investors, in my opinion.