Investment Property

How is COVID-19 Impacting Boston's Multifamily Market?

There are articles out there on opposite ends of the spectrum opining on how the multifamily market will fare during and after this COVID-19 pandemic.  Some say that the multifamily market will be among the hardest hit; others believe it will be one of the best performers.  Things are changing every day, as we progress through the re-opening stages.  Here is a look at a few metrics we have been tracking.


 

The number of multifamily properties that have come on the market in recent months is well below last year's levels.  This is likely due to a number of factors - for instance, owners and tenants have been cautious of having people into their properties, and many sellers have taken a wait-and-see approach in terms of timing for putting a property on the market (trying to wait for the most opportune time).


 

The beginning of this year saw more closings than last year - which is similar to what we have seen in Boston's condo market.  These were mainly deals that had been struck prior to the COVID-19 outbreak.  Since sales typically take 30-60 days to close, it is likely that we will continue to see the dip in closed transactions in April and May continue, since the number of properties that came on the market was low. 

Interestingly, sale prices do not yet seem to have been impacted.  The chart above captures Boston as a whole and depicts an average price per square foot.  We are closely monitoring pricing.  On the one hand, the Fed's insistence that they will keep interest rates at low levels for the next few years is working to keep cap rates down (and therefore prices up).  Additionally, the inventory/supply has been low - until there's data otherwise, it seems that demand is still outweighing supply, which is also keeping upward pressure on prices.  On the other hand, vacancy rates are increasing and rent rates are starting to slip, so even if cap rates do remain firm, that could have a negative impact on prices (lower annual net operating income at the same cap rate translates to a lower price).

We will continue to watch the market closely.  If you are interested in specific neighborhoods/areas or would like to discuss potential multifamily investments/sales, please feel free to contact us.  You can also start your search here with multifamily properties in Boston's "core" or multifamily properties in Boston's "emerging" neighborhoods.

 

 

 

How is COVID-19 Impacting Boston's Real Estate Market?

The COVID-19 pandemic has had, and will continue to have, a major impact on Boston's real estate market. Many different factors are at play. Most of the effects are having negative impacts on the market, such as increased unemployment in certain industries, slowed/stopped construction and widespread uncertainty about how much damage the pandemic will inflict on the economy and how long it will list. However, there are also a few side effects having a positive impact, such as the lowering of interest rates. 

The impact of this pandemic is only just starting to be felt. Looking at Boston's condo market, in the first quarter of this year, we actually saw more closed sales and more condos go under agreement this year than last year. However, we saw fewer listings come on the market.
 


 

While the first confirmed case of COVID-19 in Boston was made on February 1st, many of the office/business closures and government-ordered restrictions did not come into place until March. In the beginning of March, in fact, the Boston condo market seemed to be performing very well and we actually saw more new listings come on the market than over the same period year. However, that quickly changed.
 


 

Looking at some major milestones in the month of March (see chart below), we get a better picture behind the slow-down.  

 


 

Currently, open houses are essentially prohibited due to the restrictions against public gatherings. Showings in and of themselves are also challenging, if not impossible, given the circumstances. Based on the slow down of new listings, and the challenges involved with showing the units there are on the market, we expect that the number of new units that go under agreement and the number of closed sales in the second quarter of the year to be lower than in last year's second quarter. 

It is too early to tell though where we will see sale prices trend. Certainly, as mentioned above, there are negative effects on the real estate market due to the epidemic, including that many businesses are closed which has severely increased the unemployment rate and forced others to accept pay decreases; the stock market has gone down substantially and some people that may have had their "down payment" funds in stocks saw those funds shrink; and there is continued uncertainty about the impact this pandemic will have on the economy and for how long.  

However, certain effects are pushing in the opposite direction. For instance, interest rates are extremely low, which presents favorable financing opportunities; while it is only temporary, the construction work-stoppages are further slowing the delivery of much needed additional supply of housing units; and some of the industries that comprise Boston's workforce may not be impacted as greatly by job and profit losses, which may insulate Boston more than some other parts of the country, as the medical, pharmaceutical, biotech and technology industries are all being called upon to help steer us through this pandemic.

It is also too early to tell what the second half to the year will bring. We have clients that were planning to bring their properties to market this Spring, but have decided to hold off until the COVID-19 concerns subside. We may see volume in the Summer and Fall this year turn out to be higher than in years past.

As always, we will continue to watch and monitor the market. Please reach out to us with any questions you may have on the market or if you have a property you plan to sell and want to discuss timing strategy.

 

 

Buying a Condo as an Investment: How Many Bedrooms is Best?

For some real estate investors, residential condominiums are the preferred type of investment property.  Some benefits include that condos typically are less expensive than whole buildings and there are fewer management responsibilities because condo associations typically handle day-to-day operational issues like snow removal.

But, how many bedrooms is the ideal size to buy as an investment property?

As always, the answer is “it depends”.  Some investors take a philosophical approach – for instance, some investors prefer 3 bedroom apartments since there has been increasing willingness for co-living arrangements, particularly because it tends to be much cheaper for renters to live with roommates in Boston.  Others focus more on economics and might prefer the smallest possible units to try to maximize their rent per square foot.
 


Source: CoStar Multi-Family Market Report, Boston-MA, dated 11/12/2019



Source: CoStar Multi-Family Market Report, Boston-MA, dated 11/12/2019



Source: LINK Boston Quarterly Sales Summary, Third Quarter 2019, Citywide Report


The data shows that the ideal condo size for YOU will depend on your investment goals and criteria.  Larger apartments (2-3 bedrooms) have shown a lower vacancy rate than smaller apartments over the past few years.  Rents are higher for larger apartments as well, but of course purchase prices and expenses will be higher.

If you have questions about buying a condo as an investment, don’t hesitate to contact us.  We would be happy to share more specific market reports and data.  We also provide free consultations to real estate investors to review investment goals and when ready, help find the best opportunities for you!

 

 

Boston Bound Student? It's College Tour Season!

Guest Blogger: Nathan Hartseil of First Home Mortgage

Got a College Student in Boston?
Rent costs have you doing a double take?
What if you bought a condo instead?

Many folks are incredulous when I tell them that they are able to purchase a single unit (condo, townhouse, single family) residence for their child here in Boston at the same “market best” terms that they might get themselves – and that these loans are available with as little as 3.5% down, up to the generous local limit of $688,850 (as of this writing, October 2019).

Perhaps your student works, but doesn’t make enough to support the unit on their own?

Fannie Mae, Freddie Mac, and the Federal Housing Administration all allow a parent to “cosign” the mortgage – combining the income, assets, and qualifiers of both the student and the parent or family member on the mortgage application.

Perhaps your student is just starting out on their own, and you plan to visit often? Purchasing a “second” or “occasional” home in Boston, even without their help -  just 10% down assures that your student has a place to call home, and that you will always be able visit.

As long as your student (or parent, or disabled relative of any age) occupies the home as their primary residence for 1 full year, there are no restrictions (on the mortgage side) on roommates, future rentals, or any other customary uses…. A property that serves as a college home base can easily be converted to an income producing investment upon graduation.

What might this look like?

As of this publication, 30 year fixed rates are in the 3s-4s.  A 3-bedroom condo directly on the Green Line off student centric Commonwealth Avenue is currently available for $500,000.  Presuming a 760 credit score and a 5% down payment, Apr 4.05%:

Principal and interest: $2,268
Property Taxes: $268*
Condo Fees: $340
Mortgage Insurance: $100
Homeowner’s Insurance: $50-100

Total monthly expense: Around $3000

(*Boston also offers discounted taxes to primary residents, which will further reduce this expense by about $200, under the Property Tax Exemption Personal Exemption.)

With 2 paying roommates, your student’s expenses on monthly housing could be substantially reduced, while building equity to realize upon graduation.  If Boston’s popularity and average rents are any indication, holding the property as a rental could prove lucrative as well.

Ready to dive in to a search? Click here to get started. Or contact Cabot & Company to connect with an experienced agent to help guide you.

 

This is not a commitment to lend. Terms and conditions of programs, products and services are subject to change. All loans are subject to credit approval and property appraisal. Certain restrictions may apply on all programs. NOT ACCEPTING NEW YORK APPLICATIONS. First Home Mortgage Corporation of America, First Home Mortgage Services, Maryland First Home Mortgage Company, and First Home Mortgage Company of Maryland are d/b/a's of First Home Mortgage Corporation. First Home Mortgage Corporation is licensed in Connecticut, Delaware, District of Columbia, Florida, Georgia Residential Mortgage Licensee, Indiana, Kentucky, Maine, Maryland, Massachusetts Mortgage Lender and Broker (Lic. #MC71603), Michigan, Licensed by the New Hampshire Banking Department, Licensed by the New Jersey Department of Banking and Insurance, North Carolina, Pennsylvania, Rhode Island Licensed Lender and Broker, South Carolina, Tennessee, Virginia, West Virginia. Equal Housing Lender. First Home Mortgage Corporation.

 

What are Current Cap Rates for Boston Multifamily Investment Property?

One of the metrics used by real estate investors to evaluate investment opportunities is called the capitalization rate (or cap rate).  The formula is basically the net annual income divided by the purchase price.  Cap rates do not take mortgages into account – since different investors receive differing financing terms, the cap rate is a quick metric to evaluate an opportunity on a level playing field.

 

The chart above shows multifamily cap rate trends over the past 10 years, and includes forecasts for the next five.  Boston has maintained a lower cap rate than the national average and is projected to maintain that spread in the coming years.  A lower cap rate means that investors are willing to accept a lower return on their investment, so investors will pay more for multifamilies in Boston because they view it as a stronger investment.

This article is focused on multifamily investment property – cap rates for other property types (e.g. retail and office) are different, and each property type has its own set of risks and rewards to consider.  If you are interested in more market data or have questions about investment property in Boston, please reach out to us.

 

 

Boston Landlords: 10 Tips for Renting an Apartment that is Still Vacant

September 1st has come and gone. Boston’s prime rental season is over and the number of renters out there has decreased sharply. However, all is not lost. Here are 10 tips to help get that apartment leased:

1.  Make Necessary Repairs.  If something is clearly broken (e.g. cracked windows, doors that do not close, etc.), many prospective renters will see that as a red flag. 

2.  Deep Cleaning.  Has the apartment been cleaned since the last tenant moved out? Prospective tenants this time of year generally have more options and are more likely to scrutinize unclean apartments.    If the apartment windows have not been cleaned (inside and out), that is a must-do to help maximize the natural light.

3.  Freshen Up the Paint and Floors.  Without furniture, scuff marks become focal points.  Not only will a fresh coat of paint help the apartment show better, but now is the best time to get that done since there are no tenants to work around. The same is true with the floors – refinishing hardwood floors and replacing carpet (with new carpet or hardwood flooring) can make a world of difference.

4.  Improve Curb Appeal.  Depending on the type of rental that you own, there may be limits to what you can do to improve the curb appeal.  However, for prospective renters, their evaluation of your apartment begins even before they step into the unit.  Put yourself in their shoes and walk-up to the building – how does the landscaping look, is the mail in boxes or scattered in the foyer, are the common areas clean, are the hallway lights working?

5.  Take New Pictures.  Nearly all renters’ searches begin online, so pictures will make the first impression. If you have been using the same pictures, take new pictures to give a fresh look.

6.  Consider Going Pet-Friendly.  For renters with pets, they will ONLY look at pet-friendly apartments.  If you have been advertising your apartment as not accepting pets, then there is a new audience of tenants that you could reach. However, careful consideration needs to be given here – for instance, some condo associations prohibit pets.

7.  Change the Lease End Date.  Consider entering a lease until June 1st, rather than doing a lease until September 1st. September 1st has tended to be the biggest turnover date in Boston, but June 1st is a popular lease turnover date too. Additionally, if you miss a tenant for June 1, then you still have several months of “prime” rental season to work with.

8.  Maximize Your Listing Exposure.  Working with a real estate broker can help maximize your exposure.  For instance, here at Cabot & Company we utilize a number of listing and advertising platforms in order to reach tenants.  Not only does the tenant typically pay the brokerage fee, but we provide a credit check and manage the lease signing and collection of upfront payments.

9.  Offer Incentives.  Agreeing to pay all or half of the broker’s fee can help alleviate a renter’s upfront moving costs.  If the renter needs to come up with the first month’s rent, last month’s rent, month security deposit and a broker fee, that can work out to a sizable amount. Foregoing the requirement for the last month’s rent and/or accepting a lower security deposit can also help.

10.  Consider a Rent Reduction.  This is the last tip, but probably the most important.  If you have already tried some/all of the tips above, then the market is saying that you are asking too much.  It is also important to consider the impact of missing an additional month’s rent as opposed to reducing your asking rent – generally, you find that the numbers work out that you are better off agreeing to a lower rent for a sooner move-in date than missing out on a few months of rent while chasing a higher rent.

 

 

Back Bay Brownstone Return on Investment: A Case Study

In 1992, Shelagh Brennan of Cabot & Company and Paul Gleason of Fairfield Realty sold 4 unrenovated Back Bay buildings located at 47, 49, 51 & 53 Hereford Street for $1,020,000 (equal to $255,000 per building) to The Glynn Companies. The package included a parking area in the rear of the 4 buildings that accomodated 10 cars. That same year, the developer was granted an easement on the adjacent corner building at 45 Hereford Street to allow access to the parking lot. The developer later purchased the building at 45 Hereford Street in 1999 for $1,100,000 - now owning the entire block.


September 25, 1992 - Globe Staff Photo/Pam Berry
 

The properties were renovated and rented as apartments, and for the last 27 years experienced a robust rental income.


From Boston Globe, September 25, 1992
 

In 2017, The Glynn Companies began the renovation of 53 Hereford Street (building on the corner of Newbury Street) and added the parking area. Noted architect Guy Grassi designed 16,000 square feet of new construction office space. The building is completed and now known as 321 Newbury Street.

 

The present day estimated value of these properties is $37 million. Back Bay has outperformed the majority of neighborhoods in Boston and we do know owners that purchased their buildings in the Back Bay for $100,000-200,000 that are now worth $6-8 million (and more). The long-term return on investment for these buildings is huge, but it is also not uncommon for us to see some of these long-held buildings be under-rented or under-utilized. Depending on owners' goals, there may be opportunities to improve the property to boost returns and/or sell the property and invest the proceeds in properties that would generate higher annual returns, such as through a 1031 deferred tax exchange. This case study is a great example of how landlords can hold choice assets, renovate, develop and generate higher rental income, and hold for generations to come.

 

 

Micro Housing in Boston

Good news for developers: Boston recently initiated a "Compact Living" pilot.  It's a two-year program that will allow developers to build so-called micro housing units in the City (though the preferred term is "compact unit" instead of "micro unit").  Boston has been considering such a policy for a while, and this two-year experiment will let the City determine how well it works.  

In order to build micro housing units in Boston, developers need to meet a number of standards.  This includes complying with design standards, inclusionary housing requirements and following specific processes and procedures for approval.

Micro housing is often a hotly debated topic.  Opponents typically raise concerns about density and displacing families (who need larger units to accommodate all family members).  On the other side, micro units help promote affordability by creating more units and they help fill an underserved area of housing demand (according to Boston, the number of single people and couples is 2/3 of the City's population, but the number of studio and one-bedroom units is only 1/3 of the City's housing stock).

For more details on the pilot specifics, click here for Boston's webpage on the Compact Living Pilot.  If you are a developer looking for micro housing opportunities in Boston, contact Eric Shabshelowitz to help with your search.

 

 

 

Comments

  1. Peter Parkar on

    Hey Eric, Micro Housing a great idea and it will work well definitely. Good post with good idea.

    Update on Boston Business Trends

    One economic indicator that many businesses and real estate investors monitor is employment.  The Boston Planning & Development Agency recently published a report titled “Trends in Boston Business Establishments & Payroll Employment”, which provides some useful data.  Here are some highlights:

    • In 2016, Boston’s total payroll and non-payroll jobs increased to 794,038, up from 669,423 in 2010.  Total jobs are forecasted to reach 829,000 by 2030.
       
    • In terms of job density, the commercial core of Boston has the highest density.  Downtown/North End had 163,845 jobs per square mile in 2015; Mattapan, by contrast, had 981 jobs per square mile.
       
    • The “Health Care and Social Assistance” industry has the most payroll jobs in Boston, with over 140,000 in 2016.  The second highest is the “Professional, Scientific and Technical Services” industry at 80,524.

    As it is based on census data, some of the analysis is a little stale (most of the data is from 2015-2016).  However, it does support that Boston continues to add jobs and is expected to do so for the foreseeable future.  Continued job growth is good for real estate investors, as those employees will need places to live.  It is also good for businesses, as those employees could be consumers of their goods and services.

    There are a number of strategies investors can employ when deciding what opportunities they want to pursue.  Contact one of our investment property experts to formulate a plan and begin executing on it. 

    Or, dive right into your search!  Whether you are looking for multifamily or commercial, you can start your search for investment property in Boston here.  

     

     

    Where in Boston Have Rents Increased the Most?

    For multi-family investors, it is important to know what areas in and around Boston are seeing the highest rent increases.  Whether it is due to an increase in renter demand or a shortage of supply (or a combination of the two), these are generally areas worth exploring.


    Data Source:  MLS Property Information Network, Inc.

    The chart above shows the areas that have seen the greatest average percent increases in rent since 2015.  The Seaport District is somewhat unique; it is a relatively new market, so much of the increase is likely due to the fact that there were not many options in the Seaport 2015 compared to the new, luxury apartments that have recently been built.

    Many of the other top performers – Mission Hill, Hyde Park, Roslindale and Watertown – abut prime areas that are continuing to get more expensive.  As renters continue to get priced out, we expect that this trend will continue – particularly near transit hubs, such as MBTA subway and commuter rail stations. 

    For additional market data on Boston investment property or for help finding the right opportunity for you, contact Eric Shabshelowitz.  

    Interested in exploring what is currently on the market?  Check these quick searches: "Core" Multi-Family Search and "Emerging Neighborhood" Multi-Family Search.