This month, Nick takes a look at the multifamily market and offers tips for investing in Boston’s real estate market. As the months turn warmer and the spring season is upon us, the time may be perfect to look for investment opportunities. He also looks at changes in Boston’s multifamily market over the past few years and predicts what we can expect to see in 2020.
For someone looking to make their first investment purchase in Boston, what tips would you give them?
The first thing you should do is talk to a lender who has experience with investment properties to find out what you can afford. Investment properties require higher down payments and the mortgage rates are typically higher than those used when lending on a personal residence. This can mean a big difference when it comes to what you can actually afford to buy. One of the other things than many first time investors are unaware of is that you can actually use a percentage of the projected rental income from the property as your income when applying for a loan which might allow you to afford more than you expected you could.
Once you’ve figured out what your budget is, the next step is to talk to a real estate agent who has experience working with investors. They can help manage your expectations for cash flow and the returns you can expect with different property types and locations around Boston.
One mistake I see first time investors do is not consider certain properties or locations because they aren’t something they would live in. You also have to mentally prepare to keep your opinions of what a property looks like, etc. separate from your investment analysis. How would you feel if your financial advisor only bought companies based on products he personally liked to use rather than doing an actual financial analysis? You’d fire them on the spot. Don’t get caught up in the emotional aspect of real estate and try to remain unbiased as possible.
What trends and changes have you seen over the past few years in Boston’s multifamily market?
One of the things we’ve seen over the past few years is more and more multifamily buildings being converted to condos. This has slowly reduced the amount of inventory to purchase and also creates new competitors who are looking at these properties with a different exit strategy than your traditional buy and hold investor. A developer looking to convert a building into condos looks at entirely different financial proformas and can oftentimes pay more for a building than if you were to buy and hold which makes it tough to compete.
What do you expect to see this year?
I think we will see more of the same in regards to the competition for multifamily properties in Boston. There are a lot of developers who want to be a part of this market so any listings which are priced well should go extremely fast.