Two weeks ago, I wrote about how the numbers don’t work for two-family home ownership around Boston, these days.
How does the price of a three-family unit compare to two-family? One advantage of a three-family is that you rarely have both units vacant, so you always have some income.
The "rule of thumb" that I followed when I bought my three-family is that the price of the house should be paid for by the rents in 7 years. That was possible 10 years ago, I'm not sure it is now.
Anyway, it works out for me because the rents of the other two units cover my mortgage, taxes, insurance, and common utilities.
Prices of two-family homes and three family homes vary very dramatically across the Commonwealth. When I look at Massachusetts, the median cost of a two-family house is $215,000! The median three-family house is less, $200. But that is, obviously, not a good indicator. Multi-family housing stock varies so much, these numbers are meaningless.
The local figures, for my area* are more real to me: $512,000 for two-family homes and $600,000 for three-family homes. Using the $600,000 median, which does match my experience of the past 6 months, here are the same numbers I did before to show how the additional rental unit changes the picture:
Sale price $600,000. Three-family house with 5 rooms, 2 bedrooms downstairs and 6 rooms, 3 bedrooms upstairs and 6 rooms, 3 bedrooms on the third floor. Downstairs rent about $1300. Upstairs rent about $1400. Third unit rent $1400.
Down payment: 25 percent (required for conforming loan) = $150,000
Principal and interest = $2416 at 5 percent interest
PITI about $2900
Gross income about $4100
Return on the $150,000 investment is approximately $1200 per month.
That is assuming no vacancies and costs do not include all the costs we discussed in the last two weeks. The water bill and normal maintenance are not going to be the killer expenses here. We all know that repair and updating is where the money will go.
Ignoring the expenses, do the gross rents pay for the house in 7 years? $4100 X 12 X 7 = $344,400. Not even close.
So Shiplesp, small property ownership -- even with a three family home -- still doesn’t add up. Just like video killed the radio star, condos killed small property ownership around Boston.
Shall we continue on the topic of landlords and tenants? If so, what do you want to know more about?
*my area: Acton, Arlington, Bedford, Belmont, Brookline, Cambridge, Concord, Lexington, Medford, Natick, Needham, Newton, Somerville, Sudbury, Waltham, Watertown, Wayland, Wellesley, Winchester. Data past 6 months from MLSPIN.
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