By Jake LevinThe Boston real estate investment market is making a swift recovery. With returning growth and ever-increasing occupancy, investor competition continues to drive down cap rates and drive sales prices. Rents are currently so high inside the 128, that well-funded investors can often justify building new assets rather than investing in existing properties.
The largest city in New England, Boston, is home to the highest concentrated technology workforce in the United States. Ranked 41st on Forbes Best Places for Business and Careers 2021 (up from 55th in 2015) the city falls far ahead of neighboring metropolitan markets.
Curbed reports Boston was the third most expensive U.S. market to rent an apartment at the end of 2020, falling only behind New York City and San Francisco. And with many of its 152,000 students returning to in-person classes this fall, the demand for Class A and Class B multifamily units shows no signs of weakening.
What is Multifamily Real Estate?
With many kinds of housing available, you may not know where to start as a real estate investor. Multifamily housing can be an efficient choice to produce passive income.
- Multifamily homes are highly sought after, primarily because they have many advantageous financial attributes.
- A multifamily property is any residential investment that consists of two or more residential units.
- Properties that could qualify as multifamily are:
- duplexes
- townhomes
- apartment complexes, and more.
Below is a brief overview of a few examples of multifamily properties.
- Duplex: a single residential structure with one owner. It has two units that can be divided by floor or an interior wall.
- Townhouse: Units are divided by interior walls with separate entrances. These structures tend to be built in rows that span one or more blocks.
- Apartment Complex: a residential building with five or more designated units. Residents might share amenity spaces such as a fitness center, dog park, or mail room.
Why Multifamily Real Estate Investing? What are the benefits?
Multifamily real estate has many hallmarks that make it a tried-and-true staple for real estate investors. Its benefits well outweigh its cons.
Why multifamilies? Why not a single-families?
Let’s hear the bad news first. Unfortunately for first-time investors, an apartment building costs a lot more than a single-family home. A one-unit rental could set a potential investor back the price of a new car, meanwhile, apartment buildings will go into the millions.
With that in mind, it might seem like the barrier for entry into multifamily is significantly more difficult. But this isn’t necessarily so. The reality is the multifamily property is much more likely to be approved for a loan than the single-family home as an investment property.
Multifamilies are considered recession-proof
Why? Multifamily properties are more reliable investments compared to single-family properties. If you consider potential vacancies and payments, it becomes clear.
Multifamily investments generate a more consistent cash flow.
If someone moves into a one-unit rental and doesn’t pay their rent, 100% of the rental income is missing. Similarly, if the tenant moves out, the property is now completely vacant.
On the flip side, a 20-unit property with one empty unit would have a vacancy rate of just 5% making a bank much less likely to foreclose on an apartment building than a one-unit property.
Multifamilies are a much less volatile investment for a lending institution resulting in better interest rates for the investor. For this reason, multifamily properties are thought to be recession-proof.
When times are tough only some income will be lost, not potentially all of it.
Why multifamily, why not retail?
At any given moment, a few businesses are searching for space. But there are ALWAYS people looking for a place to live, giving multifamilies a numbers advantage over retail. Additionally, with retail, your investment is more exposed to risk from economic decay and recession. Small businesses are always the first to go when times are tough, compared to tenants who may receive unemployment benefits or rent assistance.
If your retail tenant jumps ship, you are guaranteed a lengthy vacancy.
When is multifamily a good investment?
Multifamily real estate offers even more as an investment. Imagine purchasing 30 different single-family homes. You may have to hold 30 separate loans for 30 different addresses, maintenance routines, and users. Sounds like quite the nuisance, right? Now imagine buying a single 30-unit building. Sounds a whole lot easier. Multifamily properties are the go-to for investors wishing to grow a substantial portfolio of rental units.
Multifamily investing gives you a good reason to hire a property manager.
Property managers usually receive a designated share of the monthly income generated by the property. Their responsibilities may include finding and inspecting tenants, collecting rent, handling evictions, and maintaining the property.
Often investors who purchase single-family homes cannot afford to hire a property manager because it is not in the budget for the size of their investment. The monthly amount generated by multifamiles provides enough to utilize property management services without cutting profits.
A property manager can be especially beneficial in the Boston real estate investment market, where antiquated road structures make it difficult to commute to neighboring cities such as Providence. Efficiently where an investor might own another property.
Why the Boston real estate market?
With its rich history and large student population, Boston offers a truly unique living experience. Many of its educational institutions are among the most sought-after in the country.
The combination drives a consistent influx of young renters to the city.
The strength of the Boston real estate investment market presents interesting opportunities for investors:
- Identifying and redeveloping obsolete properties inside the 128 to convert them into a Class A and Class B multifamily and mixed-use assets.
OR
- Explore properties outside the 128 in MetroWest, along the 495 corridors, and even into Western MA submarkets, where there are opportunities to purchase properties better prices while still benefiting from high occupancy and rising rents.
The following trends can be used to determine the forecast for Boston real estate.
- Rising property value
- High demand for rentals
- Lucrative rental income
The Boston Job Market:
A high rental demand follows job growth in cities by bringing in new tenants looking for housing. According to ZipRecruiter, the average salary for Boston, MA, is $76,759. This compensation equates to $37 per hour by comparison. According to ZipRecruiter, Bostonians earn 13.6% more than the national average of $66,665.
The U.S Bureau of Labor Statistics states that as of Q2 2022, the unemployment rate in Boston was 3.0% compared to the national average of 3.6%. The city of Boston is a center for research, education, and medical care. These sectors provide the city with tremendous opportunity and make the Boston real estate investment market a worthwhile place to keep an eye on.
Healthcare and Education:
Hospitals and major universities often provide well-paying jobs for residents. Employees of hospitals and universities may need to live as close as possible due to the long business hours of these institutions. Boston is famous for world-class education and medical centers which ultimately boost the Boston real estate market as people with medical and education degrees seek jobs.
Here is a list of the top employers in the city, which help makes the Boston real estate investment market continue to grow.
Mass General Brigham: Mass General Brigham is the largest private employer in Massachusetts, with approximately 74,000 employees, including physicians, nurses, scientists, and caregivers.
Brigham and Women’s: 21,000 employees across the Brigham family – including the Brigham and Women’s Physicians Organization and Brigham and Women’s Faulkner Hospital
Boston University: BU is one of the largest private employers in Boston, with almost 10,000 faculty and staff.
Rising property value in the Boston real estate market
One of the most sought-after real estate markets is located right here in Boston, Massachusetts. In the last 8 years according to Mashvisor, the median listing price in the city has gone up by over 80%. This is more than the rest of the country.
One of the major factors for this is its size. The city proper is less than fifty square miles. Because of its small size, properties are in short supply and the city is therefore considered a seller’s market. This lack of availability means increased competition among buyers. According to the rules of supply and demand, a market will see increased prices and faster sales if there are more buyers than available properties.
The outlook for the Boston real estate investment market is continued growth through 2021. The biggest issue looming in the future for the city is the lack of affordable housing and more closings for first-time homeowners.
With a projected appreciation rate of 7%, a housing market bubble does not seem to be on the horizon for Boston.
Boston real estate market’s high demand for rentals
Most advantageous for multifamily investors, increased property cost will mean most people will choose to rent in Boston, meaning no shortage of prospective tenants. While housing and therefore business costs are nothing to scoff at, Boston has better employment prospects and population growth than its competitors on the East Coast. This makes the Boston real estate market a safe bet for new investors.
As previously mentioned, Boston boasts some of the best higher education institutions in the country, and within a higher land density than anywhere on earth. A multifamily purchase in a well-chosen area could potentially target tens of thousands of students. Boston even bests larger markets such as New York City in this regard.
Students and young professionals are competing for rental properties in a fashion unmatched anywhere else. This creates a truly unique investment opportunity.
Great rental income in the Boston real estate market.
All this competition amongst tenants means, you guessed it, high rental income. Even faced with the Covid 19 Pandemic and subsequent economic slowdown, Boston rental prices have only experienced minimal decay. After San Francisco and New York, it is the third most expensive city in the nation and almost all apartments charge at least $2,000 per month. This is only possible because of the supply of high-paying jobs downtown and schools with even more costly room and board.
Boston real estate market forecast 2021
The global Pandemic saw an economic downturn nationwide and the Boston real estate market was no exception. With widespread unemployment coupled with disparaging job prospects, many tenants found themselves unable to work and pay rent. This created a dire outlook for the future in commercial real estate investing. However, the rapid deployment of the vaccine combined with our reopening strategy and lack of overbearing restrictions on businesses kept the Boston real estate investment market faring better than most major cities. As a result, we did not see the same diaspora of people that New York and Los Angeles saw. Many real estate businesses, such as Northeast Private Group® were able to operate at a net positive, despite the economic situation. Having gone through the first half of 2021, it is safe to say that for the commonwealth, the worst appears to be behind us, and the Boston real estate market can continue to make its recovery.
Is the Boston real estate market slowing down due to Covid?
Just like in most metropolitan areas, Boston saw increased vacancies during its first move-in period after the pandemic began. This was exacerbated by the fact that nearly a quarter of the city’s residents consists of students, many of whom contribute to the multifamily market by choosing off-campus housing. With many colleges initially opting for entirely remote learning, students chose to remain at home or out of state, continuing their education at home while saving money on rent. Similarly, many companies employing recent graduates also chose to enact a remote work policy which similarly pushed people not to renew their leases.
Therefore, vacancies in popular Boston neighborhoods such as Back Bay, Allston, Kenmore, Brookline, and Sommerville were up nearly 10% for the September first move-in period of 2020.
However, under the leadership of Governor Charlie Baker, Boston was able to see a more substantial opening earlier on than many other competing urban centers with a large student population. Because of this, Boston became an attractive option compared to New York for young people who sought a return to normalcy.
Once again, Boston real estate is on the up and up and this is in no small part to its multifamily market. As people return to the city to chase an education or opportunity, vacancy rates continue to drop and rent prices accelerate. This is a lucrative and competitive market to get into with limited properties available at any given moment. Get in while you can because multifamily rules.
