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What Should You Invest In for $400K to $500K in Boston?

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Ask an Investor... is part of Curbed University's attempts to give you the best non-boring advice on buying, selling and renting in the Hub. Our expert answerer is a principal at a Boston-based real estate investment firm. Send your questions today! Anonymity guaranteed.

A reader wrote in:
A friend and myself have managed to secure very good jobs right out of school, and were looking at living together for at least the next two years. We were looking at FHA-backed loans and it seems that we could probably afford the minimum downpayment on around $400-500K worth of home in Boston. The mortgage payments would be in the $2-3,000/mo range, which is what we could expect to pay in monthly rent anyway, and, of course, the mortgage deduction on your income tax is lovely (if it lasts). Our question to the investor and the Curbed community is whether it would make sense to do this as a living arrangement/long-term investment.

We were looking at studios, one- and two-bedroom apts. in the newer buildings downtown (including some of the "Innovation District micro-apartments") but don't know if they have gotten too expensive already, making it unlikely that we would be able to sell eventually.

What about doing the same in some more up-and coming neighborhoods, perhaps taking over a foreclosed home?

As young people, we are looking to live in a vibrant, high-energy neighborhood (read: bars), but as thoughtful people we would like to also make an investment instead of throwing our money away on rent.

The answer from the principal at a Boston investment firm:
It's a great idea to purchase a property and lock in to historically low mortgage rates that are fixed for 30 years (getting 30-year money at under 4 percent is a dream and will build your wealth in the years to come!). I would suggest a two- or three-family home, where the rent from the other unit(s) will offset the mortgage payment. In some instances, the rent will cover most of the payment, if not the entire payment.

You can finance approximately $400-450K and keep your payment under $3,000 per month after taxes and insurance and water/sewer. If you can manage to get $1,500-$1,800 (shouldn't be difficult with a floor of a two-family) of that from the other unit, you will be in a great position. You can live in the second unit for less than the price of a rental and most likely get a larger unit.

Also, there is nothing like paying principal down every month and getting the benefit of appreciation and depreciation and mortgage interest deduction on your taxes. Up-and-coming neighborhoods are great. They tend to appreciate fast, and are desirable among younger working people and families. If you can get as close as possible to the train or bus, that will help you with resale and the marketability of your rental units.
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