I’m looking to buy a rental property in the Boston, MA area. I’ve been looking at listings online and after running the numbers, they are all negative cash flow or just barely positive (not enough to justify buying it at that price).
I’ve learned from reading the posts on this fantastic board that you want to estimate that operating costs (debt service is not included in operating expenses) will run 50% of the gross rents. I’ve also learned that the maximum that you want to pay for a house are the market rents for that house multiplied by 50.
Most of the homes that I’ve been looking at yield rents of 2,500-3,200 per month which means that I should be looking to pay 125,000-160,000. Most of the homes I’ve been looking at are 400,000+.
My question is how do I go about finding a property in the Boston area for this price? Do I need to track down foreclosure leads and contact owners directly? Or just look for very run down homes and fix them up? I think that if I could get into a home for around 250,000 (which is very low) I could still be cash flow positive.
I’m not sure what you mean by “looking in the neighborhoods”. I’m focusing on homes in areas where there is a strong rental market. As for where I’ve “looked”-- I’ve just looked at online MLS listings in these areas.
I am fairly familiar with MA rental laws…I was a tenant for a year in college and did some research on the topic.
Even in states with rational prices, good “deals” are a very small percentage of the available properties for sale. Here in my little corner of Ohio, I estimate that only .0025 to .005 (1/4 to 1/2 of one percent) of the availalbe properties can be good deals. Normally, you will find retail deals by looking on the MLS. To get true deals that will cash flow in the real world, you’ve got to get out of the house and meet people. I would suggest starting by joining your local REIA and making friends with the SUCCESSFUL landlords in your area.
In addition, as BLL said, lower income rentals usually cash flow better than middle class type properties. These will be in lower income areas where many or most of the properties are rentals and many of the tenants are on public assistance or have lower income service jobs. You just need to be careful to avoid war zones, where bullets fly and people die with regularity. The numbers may look good in these war zone areas, but the real expenses can be extreme due to the extremely low quality of the tenants (I’m being polite).
So, my suggestion would be to get out of the house. Start looking at actual rentals in the neighborhoods that have lower income tenants. Talk to the successful investors at your REIA and determine where they are buying. Then, let everyone know that you are a serious investor. Most importantly, run the numbers and be SURE that the property will cash flow before you buy it.
I mean the Boston neighborhoods where people actually live, not the tourist and student areas. Students only know the areas around colleges (Back Bay, Alston, Brighton, etc.) and you won’t get into one of those places unless you put down a very large down payment. (The problem with that solution is you get a better return with less risk by putting the money in a CD.) Even then, your cash flow is limited. The real money is in the low and middle income neighborhoods. Prices are much more reasonable, rents are not that much lower, and there is no real competition from corporate LLs. The bad part is Mike is too polite when he describes the tenants. You will be dealing with either the lowest form of human life or people who live pay check to pay check and can barely afford the rent. It is not a hands-off investment.
MLS has no deals. Those are retail sales that won’t make you any money without a huge down payment. There are some wholesalers who sell property cheap, but they never list with MLS unless it is their rehab selling at retail. You need to drive around the neighborhoods and get a feel for the different areas.
Mike has a great suggestion to join a REIA. There is only for one Boston and it is more of a LL group, which should be a big help to you. The other MA REIAs are not Boston-based and do very little when it comes to renting property. Their focus is the buying and selling of real estate. Once in a while, a deal in Boston comes along and that’s not a bad way to pick up property, but you won’t get much support for renting property. You will make some good contacts for contractors.