Key Lessons Learned from Buying my First Multi-Family Property in Boston

Investing in real estate can offer an exhilarating and lucrative opportunity, especially in the dynamic Boston market. Many are drawn to the realm of multi-family property ownership by the allure of a steady stream of passive rental income. However, before diving in, it's crucial to grasp the intricacies of this venture and what to anticipate. In this blog post, drawing from my personal experience managing two multi-family investment properties, I'll shed light on the key insights I wish I had known before embarking on this journey.

A Brief Introduction

Currently, I own and manage two three-unit properties in Everett, MA, just a mere 15-minute drive from Downtown Boston. One of these properties was acquired in 2004 as an owner-occupied investment, while the other was purchased in 2019, just before the onset of the pandemic and the subsequent surge in property prices. The timing couldn't have been better.

Identifying Everett as a hub for growth, given its proximity to Boston and various ongoing city developments like the Encore Casino and mixed-use buildings, fueled my decision. Such developments typically indicate an increase in demand, making it an opportune time to invest. As the adage goes, real estate is a long-term investment, and with careful research and calculations, it can yield substantial returns. However, like any investment, it's essential to mitigate risks and safeguard your interests.

Key Insights Before Your First Multi-Family Investment

1. Buy the Home under an LLC Owning a home under an LLC offers legal protection, tax advantages, privacy, and flexibility, making it a prudent choice for real estate investors looking to mitigate risks and protect their assets. Originally, I did not purchase my property under an LLC, but later converted it to LLC ownership to separate my personal and business liabilities. Keep in mind there are annual paperwork and fees to keep the LLC active.

Pro Tip: Get expert legal advice on how to best structure your investment given your situation. You can’t close in a residential loan in an LLC, but you can fairly easily quitclaim the deed to an LLC after you close, the banks don’t bat an eye if you are paying your mortgage on time.

2. Consider Hiring a Property Management Company

Managing rental properties requires time, effort, and expertise. If you're not up for the task, consider hiring a property management company to handle tenant screenings, maintenance, and rent collection. This could save you lots of headaches but comes at a fee. A typical property management fee ranges from 8-15% of the rent but can be higher for additional services.

Pro Tip: Managing a multi-family is not for everyone. Make sure you are ready for the task, and if you are hiring a management company, understand what they will do and will not do given circumstantial situations.

3. Screen Tenants

Finding good tenants who will take care of your investment while they live there is crucial. You can use tools like Facebook Marketplace or Zillow to post your rental for free and attract renters. But you will still have to do the screening, including background checks, employment status, and eligibility to determine if they are a good fit for your home.

Pro Tip: During showings, it's important to get to know who will live in your home. However, do not discriminate. That’s against the law. If you don’t want to deal with this part, you can hire a rental agency for a fee which you could ask the tenant to pay.

4. Prioritize Plumbing Repairs

Depending on the age of the home, plumbing is a common point of failure, so ensure to check all the pipes for potential breakage. Look for things like corroded cast iron piping, leaky faucets, or older toilets that may need replacement.

A cast iron failure in one of my properties caused an unpleasant weekend for all my tenants across all three floors and the basement. It resulted in tearing down walls in all my units and replacing the piping. This setback cost me around $4K, but costs can vary significantly.

Pro Tip: Don’t wait to fix plumbing issues after tenants move in, which can make it more difficult for the contractors to do their work, while making it more inconvenient for your tenants. The best time to make any repairs is when the apartment is vacant.

5. Install Preventative Measures (aka tenant proofing)

Installing a basement sump pump and garbage disposal can prevent flooding and clogged pipes, which can lead to very expensive repairs and poor tenant experience.

Pro Tip: Heavy rain can cause basements to flood, so be sure to elevate anything valuable from the ground in the basement and install a sump pump that automatically turns on when water is detected. Additionally, garbage disposals can lead to items getting stuck and causing disposal issues, so ensure that tenants are properly trained in their use.

6. Establish a Maintenance Schedule

Wear, tear, and failures will happen over time. It’s important to have a proactive maintenance schedule where you check all the units, grounds, structural integrity, fire alarms, boilers, water heaters, roof, etc., and make repairs or updates as needed. Being proactive helps avoid phone calls from tenants complaining that something isn't working.

Pro tip: Be proactive and have a team you can call when something happens, including a plumber, electrician, HVAC technician, and a contractor. Also, routinely ask your tenants if there any issues they can see.

7. Save for Unexpected Expenses

From repairs and maintenance to property taxes and insurance premiums, owning an investment property comes with a host of expenses that can eat into your profits. Dealing with tenant turnover can disrupt your cash flow and result in vacancies. It's essential to budget accordingly and set aside funds for emergencies.

Pro tip: I recommend automatically saving a portion of the rental income you receive to an expense fund for the property.

8. Set the Right Expectations with Tenants Upfront

Expect conflicts between tenants and be proactive in setting clear expectations and rules. Instances requiring eviction are rare but can entail a lengthy and costly process. Proper tenant screening can help mitigate this risk, but know that it can happen. Maybe create an addendum to the lease which outlines expectations on things like rent due, how to remove trash, how pests are dealt with, cleanliness expectations, etc — this is what I do.

Pro Tip: Review the rules and lease terms with your tenants. Before a tenant moves in, do a final walk-thru of the unit with the tenant and have them sign off. Go over all the rules and walk them through the home, ensuring everything is in working order and safe to move in. Ask tenants to fill out an apartment check form which allows them to outline any issues to address.

Hopefully, the recommendations above do not deter you from buying a multi-family property, but instead provided you with valuable insights on what to consider to be better prepared. Owning and operating a multi-family property is not for everyone, so carefully assess if it aligns with your lifestyle and management capabilities. Many have succeeded in this endeavor, and so can you.