Blog 4
Lisa Li
Principal
Licensed Broker
Phone: 617-335-4829
e-mail:
lisali.realtor@gmail.com
WeChat: lisa_fengli00
Proficient in self-housing and rental housing in all good school districts and high-end districts in the Greater Boston area. If you need to buy or sell a house, please contact me.
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All blogs on this site are original, please do not plagiarize, all opinions and experiences are personal opinions, and are for reference only.
Investment strategy for rental housing: holding hands and growing old together
If it is said that self-housing investment focuses on updating, paying attention to vigor and continuous upgrading, it is like a confidante who always makes people passionate, then investing in real estate is a mess, you need to hold your hand, grow old together, and never leave. The emphasis is on being plain, reliable, and comfortable.
Why has to be this way? Because before investing in real estate in Massachusetts, you must have a deep understanding of the following two key points, otherwise you will have no head and no continuity, grabbing vegetables at random, and the result will inevitably be vomiting and diarrhea. And listen to me:
1. Every place in the United States has its own characteristics when investing in real estate. I said in the group that it is very important to learn the rules of the game. Only by fully understanding what you are playing can you play well. Massachusetts is a state that is very protective of tenants. State, if the landlord is a little negligent, if he is not careful, he will be ruined. Therefore, every landlord in Massachusetts must be familiar with the laws of real estate leasing and the necessary steps stipulated. The better the homework is done, the easier it will be to be a landlord. When I explain the details later, I will list what the landlord must do, and list the details of how to avoid trouble. However, when people walk by the river, their shoes will get wet sooner or later. If one day they really step on the pit of the Massachusetts lease law, they still have to keep a firm heart, because in the end, they will still come out. In short, I think that investing in real estate is for a better life for yourself, rather than being led by the nose by troublesome policies and bad tenants. It is very important to choose a simple and comfortable house.
2. In order to avoid value-added tax, every change of hands of the rental house will consume a lot of time, energy and money. Generally speaking, once the funds enter the investment property, there is basically no exit. Since the real estate is likely to increase in value after a few years of holding, the value-added tax is generally 15% or 20% according to the level of income. To avoid this big tax burden, many people use a tax-deferred policy when selling a house, called 1031 Exchange, its function is to let you exchange houses, as long as the total value of the new assets you exchange is greater than the total value of the old assets Value, you do not need to pay a penny of value-added tax. There is no limit to the use of this tax deferred policy, and there is no upper limit until the property owner passes away and is passed on to the heirs. At that time, all deferred taxes can be written off! What an attractive offer! But wait a minute, although it is very good, there is a cost to use it. The specific operation of 1031 is that the sale price does not go into the account of the landlord, but is temporarily deposited with the intermediary until the purchase of a new property. This agency does not work for free, and naturally charges money. Please see the cost of selling an investment house:
- The seller needs to pay about 5% broker fee (Commission)
- lawyer fee
- Mortgage Pay off fee
- Massachusetts State Exercise Tax Stamps: 0.456% of house price
- Seven seven eight eight registration fees, inspection fees
- House pre-sale grooming expenses such as painting, hiring a cleaner, etc.
Adding up these expenses, I cut off a piece of the boss's income, don't you feel bad? In addition, 1031 Exchange has many time constraints. For example, after you sell your house, you must find a new property to buy within 45 days and close the transaction within 180 days. This time pressure is enough for you to run around and raise your blood pressure. Therefore, the less the investment housing changes hands, the better, and strive for one-step completion. That is to say, if you don't do it, you must be cautious and cautious when you do it, and place an order accurately. Once a property is settled, it is ready to be kept by your side for decades, and possibly even passed on to future generations. Therefore, my principle is to focus on quality over quantity, and only houses that can pass through my eyes can be included in the bag, because the cost of making mistakes is relatively high.
Due to the above two determinants, our investment housing must be the most reliable, not easy to cause trouble, not easily affect our quality of life, provide a basis for long-term holding, and ensure that we count money lying down instead of often needing to cross Swear at the tenants, don’t even carry a gun in your waist, and don’t go to court like a lantern to accompany the judge. Be careful; Fully leased, easy to transfer if necessary. The key to the first point is to choose the location, and the key to the second point is to choose the room type.
Location, location, location, this is what everyone says when choosing a property, but not everyone can do it well. The so-called location, in fact, directly affects what kind of tenants you deal with. The quality of the population determines the difference in the location. I remember reading a sentence when I was a child and I always remember: "People are the masters of the scenery." The type of area you decide to choose determines what kind of scenery you will see as a landlord. There is a relatively popular division of various types of land, which is said to have originated from the City of Literature, and has been modified by local landlords in Boston. Since I have never been to the City of Literature, I don’t know the exact ins and outs, but I heard about it in some WeChat groups. After this division, I feel quite vivid:
Baiyu District: Refers to a good district, a residential area for the rich and the upper middle class. Usually the population is highly educated and demanding, and the housing prices are quite high. This type of cash flow income is usually not very good, but it is very reliable, strong anti-fall ability, anti-house price fluctuations, suitable for long-term holding, and strong value-added potential. For example, Brookline, Cambridge, Back Bay, South End, Fenway and other areas. Although many senior landlords will disagree with me, I think that if you have strong funds, you can invest in real estate in these Baiyu districts. As long as the down payment increases, you can guarantee positive cash flow. In the long run, it's well worth it. Not only can you find good tenants in these areas, the rent is very guaranteed, the value-added is also very considerable, and there is also the possibility of converting into self-housing in the future. From a comfort point of view, I like this property the most.
Baitang District: Refers to the district for students, lower-class white-collar workers and upper-class blue-collar workers. Generally, people are more honest and trustworthy, and the rent will be paid in time. The white sugar area has a wide range. I am more familiar with Brighton, Allston, Natick, Watertown, West Roxbury, Waltham, and other very popular ones are Malden, Quincy, Somerville (driven by Cambridge, which is developing towards white jade. I put It is wrongly listed in Sugar because its population has not been completely renovated, every time I arrange customers to see Cambridge and Somerville at the same time, the visual difference between the two communities is still quite obvious), Medford, Arlington, etc., These districts are very suitable for ordinary investors, and the rent can basically be collected. If you encounter bad tenants occasionally, you usually don’t lose sleep. It may take a few years to go to court to evict people. The cash flow in Baitang District is basically guaranteed, but the housing price will fluctuate with the market situation, and the appreciation potential is unstable. However, it is a long-term holding, and it is not a big problem. What a hassle to manage.
Cabbage District: It is the area where there are many lower-class blue-collar workers, unemployed people and government minimum living allowances (Section 8). Regarding the cabbage house, its water is very deep, and I heard two completely different voices: one is a very successful cabbage landlord, who usually owns dozens of properties, because the cabbage house is cheap and the rent is quite high, so the ideal state Next, the investment income on paper is very good. These landlords are very fond of fighting bad tenants. Basically, they have to deal with several of them at the same time. They go to court every month to drive people away. Arguing with the tenants, plus being watched by the city government to repair the house, although it is said that counting money is very happy, but I think this kind of investment method at the cost of quality of life is really not advisable. I don't know what other landlords think. Another voice I hear is amateur landlords, who usually say that the rental income is eaten up by administrators and lawyers, and sell the property within a few years. I think the cabbage area includes Dorchester, Wocester, Fitchburg, Framingham (it is said that it is transforming to white sugar), Lowell, Revere, Everette, New Bedford, etc. For those who do not have fighting spirit, it is best to avoid the cabbage area. I once spent a summer vacation in Wocester to investigate. I visited a lot of investment properties there. Many tenants looked terrible. They were not the crowd I usually see. Many of them even did not speak English and could not communicate. At that time, I thought, those houses have such high returns, I just need to find a good local management company and a lawyer, and I can buy them. However, after talking to several companies, I basically couldn’t find a company that I can rest assured that they will be fully represented by them. The quality of the people, whether they are tenants or management companies, is very poor. In the end, they can only recognize the reality: that money is not something that people like me can earn. I have endless admiration for the cabbage landlord, but I have no intention of imitating, let alone envy, only watching silently.
Next, I will talk about how to be a qualified landlord. Only by becoming a knowledgeable landlord and doing everything right can you rest easy and concentrate on counting money. Stay tuned!