In this article I'm going to go over three general criteria you need to assess when putting offers on investment condos or two/three family investment properties in the Boston area.
This is the most obvious criteria, but all negotiations start with a price, so you need to know what price make sense for you in terms of your cash flow numbers and your criteria and goals. The one thing that needs to be emphasized here is that many new investors get hung up on price, but there are other levers that can significantly impact the value and outcome of your investment besides price. Treat price as just one card (albeit an important one) that you can use in your hand.
Look, for the most part, we're dealing with old inventory in the Boston area that can date to the early 1900s and even 1800s. If a property is that old and it has not been recently fully gut-rehabbed, then there are bound to be some issues. What’s key is to differentiate between small maintenance issues that a handy-man can fix in a couple of days versus big, significant issues that require specialized contractors and heavy work and can cost a significant amount. To put this in context, there is a big difference between having a property that may need some paint and/or new kitchen cabinets versus a property that has a structural issue in the basement or needs to be re-wired.
That being said, in market such as Boston, you may need to prepare to use your inspection contingency (which allows you to bring a home inspector through the property) as another card in your arsenal that you can play with. This of course is very unique to each investor based on his or her personal goals, experience in the field, contacts of contractors, and risk appetite. The take-away though is you need to view this another lever you may have to play with when negotiating offers depending on your exact situation.
Last but certainly not least is the negotiations around existing tenants. If you are buying two or three families from a landlord who has owned the building for years, then you will often see tenants in the building that are tenants at will, or tenants that are on month to month contracts with no lease in place. Also, more often than not these tenants are paying under market rents (as the previous landlord is “happy” that they don’t call him/her too often).
What does this mean for you? Well, tenants at will (TAW) can more easily be “booted” from the property than a tenant on a lease either through an eviction or giving “cash for keys” (where the landlord will essentially pay the tenant to leave). What you need to consider when evaluating the situations is how comfortable you feel keeping these existing tenants versus trying to force the landlord to deliver the units vacant. You need to tie this to your overall business plan for the investment; is this an investment where you were planning on making a few updates to the units to get higher rent, or is this something that you are planning on just sitting on as-is? This becomes very unique to each investors and their own personal situation and business plan, but again the take-away is that this must be viewed as another lever that you can play with when structuring an offer.