With the current volatile state of the stock market and crypto, real estate investing can certainly look even more attractive than usual! It’s also a better way to grow capital than simply investing and waiting for passive returns to come in.
We’ve written several articles and blogs that discuss a variety of real estate investing strategies for beginners to intermediate investors. However, if you’re new to this type of investing and looking for some websites or other resources to help get started, then this article is for you!
It’s no secret that investing in real estate is a great way to build passive income and grow your wealth over time. And, with interest rates at all-time lows, this can be a game-changing investment opportunity if you play your cards right.
The two major options for real estate investors are single-family dwellings and multi-family properties. Let’s take a look at some agent tips for buying multi-family properties in Boston.
Understand the Pros of Buying Multi-Family Properties
The benefits of having a multi-family property for your investment strategy are many. However, the most common question on the mind of those who would like to invest in a multi-family complex is “How do you get started?” You may have already done some research, and it is likely that the majority of what you have read or heard indicates that financing multi-family properties is a complicated business
The success of any undertaking – but especially an investment venture that requires a lot of time and money – depends on a solid commitment to what you’re doing. And when it comes to buying multi-family properties in Boston, that typically means understanding the outstanding benefits, asking lots of questions, and networking with other multi-family investors.
At first sight, it might seem as though securing a loan for a single-family property would be a lot easier than trying to raise money for a million-dollar complex, but the truth is that a multi-family property is more likely to be approved by a bank for a loan than the average home. That’s because multi-family real estate consistently generates a strong cash flow every month.
EASIER AND FASTER TO GROW PORTFOLIO
Buying Boston multi-family properties is also better (and easier) for investors who want to build a large portfolio of rental units, presuming that you are able to identify properties to purchase in today’s tight market. Why?
Acquiring a 12-unit apartment building is a lot easier and much more time-efficient than purchasing 12 different single-family homes. With the latter option, one would need to work back and forth with 12different sellers, and conduct inspections on 12 houses that are each located at a different address.
PROPERTY MANAGEMENT FINANCIALLY FEASIBLE
With multi-family properties, investors can take a more hands-off approach because property management makes financial sense. Some investors prefer to keep their hands more involved by being the manager of the complex. Others realize the benefit of outsourcing these duties to a property management company.
The amount of money that multi-family properties produces each month give their owners room to take advantage of property management services without the need to significantly cut into their margins. But you will need to factor property management into your numbers for an accurate evaluation of your true return.
And depending upon the asset class, you should plan for 10-25% of the gross rents for property management (this number can be much higher for Short-Term Airbnb rentals). If you’re buying multi-family properties as an investment, you must look at the expenses related to property management if you plan to own the investment for the long haul.
Understand the Financial Aspects
For buying multi-family properties in Boston, agents advise that you first take the time to understand the financial aspects and do the math. Here’s what you should take into account:
DETERMINE YOUR 50%
The first step is to get a rough idea of how much a particular property can earn for you, which is done by calculating the difference between expected income and expenses. For a quick way to get a rough idea of a property’s earning potential, you can simply calculate the 50%.
If you do not have access to information about clear neighborhood comps, then you can use the 50% rule. Simply take the expected income and HALVE it, this then becomes your estimated expense number. The difference between your estimated monthly income and estimated monthly expense is your net operating income (NOI).
To get a more exact figure, especially with respect to neighborhood comps, contact a Boston agent at (617) 657-9811.
CALCULATE CASH FLOW
You have to have cash flow to stay in business as an investor. Otherwise, you can’t pay your bills or buy more properties. But finding high passive cash flow multi-family properties is hard.
So the next step prior to buying multi-family properties in Boston is to figure out what your cash flow will be. In fact, as a real estate investor, you should always be looking for ways to increase your cash flow.
You can at arrive at a cash-flow estimate by subtracting the monthly mortgage payment from the net operating income (NOI) you found in calculating the 50%. This will also let you know whether a particular property will actually be a worthwhile investment.
DETERMINE THE CAP RATE
The third important calculation among the financial aspects is the cap rate (or cap). This will let you know how soon you can expect to begin realizing a return on your investment.
To calculate the cap rate, take your monthly NOI, and multiply it by 12 to get the annual number. Then, divide that number by the property’s current market value. The key thing to understand about the cap rate is that higher is not always better. A higher cap rate generally denotes higher risk and higher returns. While a lower cap rate, conversely, indicates a lower risk and lower return. A good rule-of-thumb is to shoot for a cap rate in the 5%-10% range.
Know What to Look For
You simply must know what to look for – that is, what makes a good investment property – when buying multi-family properties in Boston or throughout Massachusetts.
As always with any real estate, location is paramount. Is the property in a desired location? Is it in a high-yield, high-growth area? Is it in a good neighborhood? Is it near a college or university? Is the population growing? Are more renters and young buyers looking in the area than five or ten years ago?
Our agents at NextHome Titletown Real Estate can help you make these determinations. (Just call (617) 657-9811 to find out more.)
NUMBER OF UNITS
The number of units in a multi-family property (as well as the number of rooms in each unit) is another important consideration. The most common advice from investing experts is for beginning investors to focus on properties with fewer units such as duplexes, triplexes, and four-plexes. These are more affordable and pose less risk and are plentiful throughout Massachusetts. (Plentiful doesn’t mean that they are 1. For Sale or 2. For Sale at a reasonable price, but there certainly are plenty of multi-families throughout the area).
An often overlooked but important consideration in buying multi-family properties is the seller. The purchase price can vary greatly depending on the seller and their motivation. So, it’s important for real estate investors to gain a full understanding of what drives sellers when attempting to purchase a multi-family property. Bank-owned properties are dealt with differently than for-sale-by-owner properties. This means there’s potential for cost savings.
The Common Thread in Buying Multi-Family Properties
If there’s one common thread that runs throughout all the advice and tips for buying multi-family properties, it’s that most investors are better off using a good agent. It’s a complicated matter, and there’s quite a bit of risk (but also the potential for great rewards). So don’t take a chance by trying to go it alone. If buying multi-family properties in Boston is your goal, contact us today at (617) 657-9811.
Boston and Beyond – Just Hit the Market!
The property listing data and information, or the Images, set forth herein were provided to MLS Property Information Network, Inc. from third-party sources, including sellers, lessors, landlords, and public records, and were compiled by MLS Property Information Network, Inc. The property listing data and information, and the Images, are for the personal, noncommercial use of consumers having a good faith interest in purchasing, leasing, or renting listed properties of the type displayed to them and may not be used for any purpose other than to identify prospective properties which such consumers may have a good faith interest in purchasing, leasing or renting. MLS Property Information Network, Inc. and its subscribers disclaim any and all representations and warranties as to the accuracy of the property listing data and information, or as to the accuracy of any of the Images, set forth herein.