Updated: Apr 28
Investing in real estate is no easy task. Whether it's your first time investing or you’re an avid real estate investor, you know that deciding and starting the process of expanding your portfolio can be stressful, complicated, and definitely challenging. After all, this can be a huge step in a person's life. However, how do you know when it's a good time to invest? How is the Boston real estate market looking for potential multifamily real estate investors in 2022? Follow along and learn the signs that it’s a good time to buy in the Boston real estate market.
The benefits of buying multifamily real estate
Multifamily properties are some of the best for investing. These types of buildings consist of more than one separate rentable space and are not used for commercial purposes. Multifamily properties can be apartment complexes, duplexes, condos, townhomes, etc. These are living spaces that have more than one housing unit, with each unit having a kitchen, bathroom, and a combination of bedrooms and living space.
One of the main benefits of this kind of property is a positive cash flow. If you invest in a multifamily property, you only need some of the rent of your tenants to pay off expenses while the rest represents steady multiple monthly incomes. Multifamily is one of the safer real estate investments because there is always demand for renting spaces in the market.
You also get other benefits that come from buying a property, including building equity. With homeownership, you must pay your mortgage every month, but ultimately the money will come back to you as the market value of your home appreciates over time. You also have stable payments, especially with a fixed-rate mortgage.
Let’s look at different signs that could let us know that it's a good time in the market to invest in real estate.
6 signs of a good time for you to invest in multifamily properties
The truth is that there is no one way to predict the real estate market and investing in multifamily can be a big commitment. But that doesn't mean that it has to be a gamble. There are some signs that the time is right for you to invest.
You want (and can) expand your portfolio
If you are planning to commit to real estate investing, expanding your portfolio is key to success. So if you are ready to make real estate investing your main activity, purchasing a multifamily property is a hands-on form of active investing that allows your portfolio to grow much quicker. Meaning that you can manage the entire project without any specific credentials and can escalate it quickly thanks to the rapid cash flow. but it does take a lot of personal work.
If you take advantage of the extra income and equity a multifamily property gives you, it will be easier to keep growing and escalating your portfolio. You just have to be aware and ready of the managing work it implies.
You are looking for new means of cash flow
One of the known benefits of investing in multifamily real estate is the positive monthly cash flow. Once everything is set up and ready, you will likely earn rental income which will help you pay off possible debts, build equity and increase your savings. It can also help you keep scaling your business and growing your portfolio.
Multifamily property also comes with its own tax benefits. For example, you can write off the cost of repairs to the property, maintenance, advertising, and even the mortgage interest. So if you have already dipped your toes into the world of real estate and you are interested in it as a means to earn more money on a monthly basis, this is a great option for you. Of course, you have to consider that it is a bigger initial expense than other forms of investing, even if it starts to pay itself soon enough.
The perfect opportunity appears
Even if you had not considered buying a multifamily property and you were only looking for a good investment opportunity, sometimes an amazing property will appear with a deal that is impossible to deny. Of course this depends on location, the posible Net Operating Income (NOI) and the property’s capitalization rate.
The single-family market is difficult
The housing market was very affected by the pandemic. There was a continued lack of supply in the single-family market and a lot of people decided to rely on renting because of the uncertainty. According to CoStar, occupancy is at an all time high. This is a good time for multifamily owners and lenders.
Mortgage rates are on the lower end
When the market is down or unstable, lenders tend to raise interest rates to recoup the losses. Higher interest rates mean more money when the market is slow. On the contrary, when the market and the economy are good, lenders can afford to offer lower mortgage rates because there is less risk of mortgage loan default.
Unemployment rates are low
Unemployment rates have a direct link with the real estate market, as we saw during the COVID-19 pandemic. Stable, well-paid jobs give home buyers and real estate investors more stability and let them save more money for their down payments. However, when the unemployment rates skyrocket, many sellers put their properties off the market as a result of a lack of demand for housing.
Prepare to invest in 2022
The housing market experienced an unprecedented crisis during the COVID-19 pandemic. That is why a lot of people are wary of purchasing or investing right now. Last year, 2021, was a highly competitive year with rising prices. Home values skyrocketed by nearly 20%. Now, almost halfway into 2022, we can start to notice some trends in the real estate market for this year, and predict some ways to prepare for the spring and summer buying season.
This year everything seems to be going back to normal. However, inflation and rising interest rates are affecting many sectors. The forecast is that there will be a strong seller's market, although not as intense as last year. And, even if the home prices continue to rise, they will do so at a much slower rate. Experts also expect fewer bidding wars, and sellers may be less selective with the offers they choose.
However, due to inflation, mortgage rates are 1.5 higher than they were one year ago. High mortgages will affect a lot of people's buying power, for which they may go back to renting. For investors, inflation can have a bright side. The value of tangible assets, like property or stocked commodities, tends to rise in case of inflation. With multifamily properties, investors frequently gain economies of scale that allow expenses that would be cost-prohibitive in smaller properties. For example, the advantage for lenders of multifamily properties is that the rising rents have helped them recoup the extra expenses caused by the inflation.
Even if the expectation is for home sales to increase this year, with things going back to normal, and the millennial demographic hitting the home-buying years, there could even be some shortage of homes for sale. Which will be good for renters.
Most recommendations for investors this year are about choosing the right property, more than trying to predict the market. Experts recommend avoiding panic buying and having patience. To make a good decision, the best thing is to stick to a realistic budget and know what you want and need for your real estate investment.
Investing in multifamily properties in smaller cities seems to be the trend. This is not new but it has certainly been accelerated by Covid as younger workers seek a better work-life balance away from big cities. And, with the possibility of remote work, a lot of peripheral areas will have more and more demand, which makes it prime time to invest.
Boston is one of the hottest markets in the country based on the tech, medical and educational sectors. More and more companies are settling in Boston which has contributed to the diversity and overall job marketing in the city. There have been record-breaking sales in the Back Bay, Beacon Hill, and the Seaport areas while South Boston continues to grow. There is currently new development in all major markets, including Boston, which will continue to bring inventory to market.
Investing in multifamily properties in Boston is also a great investment. Since 2000, home value in Boston has risen by 170%. In 2020 alone it rose by 15.3%. This shows that getting a home can be a great investment as the houses continue to rise in value. It is also essential to remember that Boston offers residential tax exemptions. These tax exemptions are for people who own their homes and use them as their primary residence. So if this is your case, you could potentially save a lot of money by applying for these exemptions.
With the market returning to normal and Boston being one of the most attractive places to invest right now, increased mortgage rates seem to be the only factor playing against the odds of new investors. With good budgeting and planning, this year can be a really good one to find your perfect property in Boston.