3 family homes in the Dorchester, Mattapan and Roxbury sections of Boston are selling at a fraction of their 2005 prices. Three families that sold for $550,000.00 just 4 years ago are now selling for 200,000.00.
Because of the lack of maintenance by foreclosed landlords most of these properties will need anywhere between 10K and 50K to bring them back up to a condition that will yield top section 8 rents but the fact remains that although 2005 prices have been decimated the rents that these units command has not changed.
A four bedroom unit in good condition will get a rent of $1750.00 from Boston housing; a three bed unit will fetch a rent of $1550.00.
Given that a three family with four bed units fully rented is pulling in over $5100.00 per month and a mortgage or 300K at 8% including taxes and insurance will run about $3100.00 per month the savvy investor will be looking at a $2000.00 positive cash flow.
$2000.00 per month will pay for an awful lot of maintenance and leave some left over to pay for an S class Mercedes.
The fact that bank owned homes in the rental sections of Boston are being snapped up within days of coming on the market shows that someone believer that they are more than a bargain at current prices.
What to watch out for:
If you are new to rental housing investing in Massachusetts the most important concern is Lead Paint. The best way to ensure that you go bankrupt is to buy a rental property that is not lead paint compliant and then to double your trouble by renting it out. My advice for what it is worth is that if there is not a lead paint letter in place and you are not in apposition to have the units deleaded than no matter how good the deal looks walk away. If there is lead in a unit that you own then you will make out better in the long run by keeping it vacant.
Women get pregnant and just because there are no children under seven when you rent the apartment, doesn’t mean that there won’t be in nine months. The old real estate adage of location, location, location is superseded in Massachusetts rental property by deleaded, deleded, deleaded.
Also if your perspective is that it is better to rent to a working-one pay check away from delinquency tenant than welfare people on section 8 then all I can say is that you will eventually be enlightened. Rental real estate is about cash flow and not ideals. Keep your ideals for yourself and expect only the rent from your tenants. Remember that just because a person is working when they take occupancy they could lose their job and their credit. Circumstances could very easily turn a dream tenant into a nightmare. In a tenant friendly state like Massachusetts it is always landlord beware. Better by far to consider section 8.
Section 8 pays every month and what’s more they pay on time. If your section 8 tenant is working then their portion of the section 8 rent will be high. If your tenant is not working their portion of the rent will be low to nothing. The closer to nothing the better, as this means that your full rent will arrive from section every month on time, nothing to chase down. Better still it will arrive electronically in your checking account.
Also Section 8 demands that your units are kept up to code and enforce this by yearly inspections. Some landlords resent this but these are the landlords who turn out to be slumlords and eventually spend a lot of their time in the housing courts. A great rule of thumb for success in the rental property market is to ask yourself: “would I live in this unit”. If your answer is a definite no then don’t expect to get great tenants. Be proud of your units and you will find that you are attraction great tenants.
Like everything in life if you are only in it for money you will find that it is extremely hard thankless work. If on the other hand your mission is to have a portfolio of top class well managed rental units then you will succeed with flying colors.
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