March 14, 2022 Massachusetts
Small multifamily investors (usually 2- to 4-unit buildings) are feeling a lot of competition in the current state of the market. In order to stay ahead of other investors, it is essential to move quickly and decisively on investment properties, but how do you filter through the noise and focus on the best value deals?
One way to do this is to know the composition of the markets in which you are looking to invest. In certain markets, a coveted 4-plex may be extremely rare, while in others it may be more common. Based on the purchase prices of your market, how expensive is each unit in a multi-family? Is it worth buying a 4-plex vs a triplex?
Shown below is a breakdown of sold small multi-family properties over the last 6 months covering a few key markets in Massachusetts. Each city has its own unique disbursement of duplexes, triplexes, and 4-plexes. If you are targeting triplexes, it may be beneficial to focus on the Worcester market versus the Springfield or Lowell markets. Of course, this does not take into account purchase price or rents of the units, but this is one of the factors to consider.
When purchasing, it is beneficial to know the general per unit cost of a multi-family. Usually, there is a scaling benefit with real estate (the cost of things drops with more volume or quantities, i.e. the more units in a building, the less each unit costs). This seems to hold true in Lowell, Springfield, and Worcester, as shown below. However, the cost of a unit in a 4-plex in Boston is not necessarily less than a unit in a triplex.
While this is only a snapshot of the market’s last 6 months of sales, data like this can help an investor narrow their focus. This ultimately provides investors with more specific search criteria, enabling them to move faster and more decisively to become more competitive in today’s market.
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