For the last 2 years, I’ve been looking at real estate listings.  I’ve been looking both for a place to live, and also a pure investment play.   I would say for most of these two years, I’ve looked at the listings, took note, and quickly moved on.  The list prices have been too high, and the properties not that appealing.  Recently I’ve expanded my search towards multi families both as a pure investment play and a partially occupied property.

While most listings are still overpriced in my opinion, occasionally I see listing that catches my eye.   These listings tend to go quickly, very quickly.  This is especially true of the multifamily investment properties that I’ve begun to look at in lower Allston, a potentially up and coming neighborhood of Boston.   These properties tend not be owner occuppied and usually owned purely as a investment.  Below are some sample listings.

  1. 799K 3 Family (3 Three Bedroom), 9034 Annual Taxes
  2. 635K 2 Family (2 Bedroom + 4 Bedroom), 4997 Annual Taxes
  3. 879K 2 Family (3 Bedroom + 4 Bedroom), 5133 Annual Taxes
  4. 679K 3 Family (3 2 Bedrooms), 6456 Annual Taxes
  5. 599K 3 Family (3 2 Bedrooms), 6137 Annual Taxes
  6. 679K 3 Family (3 2 Bedrooms), 6619 Annual Taxes

Can you guess which properties sold? 

Given that these properties fall under the investment property category, I think it’s only fair to talk about what typical rents in the lower Allston area are.   Having lived in Boston the last 9 years, I generally have good idea of the rents for different neighborhoods.  I’ve rented 4 different places at various points of my life.   Personal experience, and knowledge is important, but it’s not enough by itself.  I always peruse Craigslist to get general sense of what rents are for any given area.

I would say in the lower Allston area, a 2 bedroom should be about $1300, a 3 Bedroom about $1600, and 4 Bedroom about $1900 per month.  These are relatively conservative estimates. On the expense side we have mortgage costs, taxes, and maintenance.  Taxes can be all over the place.  Assessments are rarely accurate.  For example the property listed at 879k actually is assessed much lower than properties list at 679k because it was recently renovated.  Using what we know about the taxes and estimate of potential rental income we can start working out if these properties actually make a good investment.  Below is estimate of what that investment might look like on monthly basis.

 

Assumptions: 120k Down, 6.875% Rate over 30 years, 30% marginal tax rate, .25% annual maintenance

I believe looking at the numbers above it becomes much easier to guess which properties actually sold.  The one exception is the property #1 listed at 799k.  That property is an exception given the condition in which it was in.  The place was a dump and from what I could gather likely in need of some major renovations.  Every property except frot #3 and the #1 property sold within 2 weeks of listing.  These properties will most likely produce a negative cash flow as they have in my example.   However after taking into account the effect of depreciation, these properties should produce a net income benefit for an investor who is able to use the losses to offset other income.  Who are these individuals? A real estate professional as defined by the IRS is someone who spend more 750 hours in the field, and who spends at least 50% of his or her time actively engaged in the real estate business.  Such an individual is able to buy new properties to generate paper losses to offset positive income from older real estate holdings.   In addition the IRS allows individuals who earn less than 150k to use rental income losses to offset any other income as long as that individual is actively involved in the management of the property.

Given that I believe that lower Allston area has great potential for capital appreciation in the next 5-10 years, I may have to act more quickly if I want to buy a property.  However given that I feel the housing market will either slide a little lower or remain stable for the next couple years, I am also in no hurry. It might be good idea for me to get some of my paperwork in order so if I do find the right listing, I can act quickly.   The last property listed was sold within one day of the listing.