We are smack dab in the middle of the Massachusetts Rental Market and have seen the good the bad and the ugly. As in all markets, you need to know the neighborhoods. One street might be great, then right around the corner, not so much. We also see a lot of opportunities in the Worcester, Lowell, Gardner, Fitchburg and Leominster markets too. Most recently, we have seen some budding growth in the Athol markets also. Prices for entry further West are great, rents are rising, but jobs and population still need to cover some ground to be sustainable. Out in this neck of the woods is mostly all about cash flow, and longtime buy and hold strategies. It has worked out well for us in our 19+ years. We own a lot of “doors” and mange for about 40+ more landlords as clients.
Deals within the Bullseye
If you are familiar with the traffic reports in Massachusetts then you know the bullseye with the heart of Boston proper on center and the concentric rings of Interstate 128/95, and 495, and then further West on Route 2. Right now, the market has been booming for the past 10+ years and rents have been soaring to their peaks that we have not experienced in these markets before. This is great for the buy and hold cash flow crowd. But being so close to the top, there is not much room for appreciation.
So, think of it this way. Years ago, in Boston, you would buy for appreciation. Prices were through the roof, but still property values went up creating equity. All ships rise and set on the shifting tides. The debt/Income ratios were tight, but with property values rising, you could “flip” a multi-family property with some meat on the bone and still have a payday on a sale or refinance.
Within the 128/95 ring around the city you would need to shop the markets where you might find some hidden gems. It was possible to find appreciation, AND, with the rising rents that have been going up, you could have your cake and eat it too! Cash flow from rising rents, AND market appreciation. By buying right and creating forced appreciation by raising rents, most investors could experience both cash flow and appreciation. You could find the same scenarios out on the 495 rings around the city. But the further West you were shopping for deals, the market trends were leaning more towards cash flow than appreciation.
Once you hit the Leominster/Fitchburg/Gardner rental markets, you are mostly buying for cash flow. It all depends on your investing strategy and your risk tolerance. You could ask 10 different investors how they invest in the market and get 11 different answers. The great thing about this rental market past the 495 belt is the spread between purchase prices and returns on investment. You can enter into a property for a lot less cash down and see a wider spread in the per door cashflow margins. In this investing model you would be able to get your cash back faster out of the deal. We have seen some of our investors realize $300 to $500 per door net profit on a 3-family building (in a great neighborhood). And then there are war zones (like in every market) where it doesn’t make sense to buy the cheap property because you cannot change the neighborhood.
Choose your investment strategy wisely
So, you need to think about where you are in your investing lifecycle, then match that up to the market lifecycle. In the Northern Worcester County Market, younger investors have a lot more time to gain appreciation while enjoying healthy cash flow. But the appreciation will take more time. That’s ok if this is a strategy that works for you. If you are young, and can buy with lower cash amounts, that could be a plan for building wealth. More seasoned investors with less time to invest and more money to invest could afford to do more profitable deals that may be out of reach at the moment for the newer breed of buyers. But guess what? That newer breed in time, soon becomes seasoned with more money and experience. My suggestion? Just get started. If the deal makes sense, then through your hat in the ring and start making offers.
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Belaire Property Management
Regional Property Manager
(978) 448-0669 office
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