As unemployment claims spike along with coronavirus cases and laid-off workers struggle to make rent payments, many small landlords with mortgages to pay are beginning to feel the pain.
While there’s no doubt that owning a Beacon Hill apartment rental property comes with risk, most seasoned investors take a long-term approach. According to a recent survey from Auction.com, 64% of investors who primarily buy investment properties as rentals said they planned to increase or keep their acquisitions, despite the pandemic.
A new report from RealtyHop helps potential investors determine how much risk they’d be taking on. The Property Investment Index details residential capitalization rates and net operating income across the 100 most populous real estate markets in the U.S. to help investors research properties from a landlord perspective.
In Boston, where average home prices are $750,000 and the tax rate is 0.73%, the aggregate yearly rent was $35,208 while average maintenance costs were $7,500 making the net operating income $22,260 with a cap rate of 3.26%.
Meanwhile, another new report from apartmentguide.com shows rent prices across the U.S. actually increased from mid-year 2019 to mid-year 2020. During that time period, studio apartments jumped 5.37%, one-bedroom apartments climbed 1.6% and two-bedroom units were up 3.46%.
In Boston, where coronavirus cases peaked in April, studio apartment rents were down 6.31% from April to June 2020, while two-bedroom rents were down 4.91%.
While the apartment.com report noted that local supply and demand have influenced the change in rent prices, the pandemic and subsequent economic downturn are disproportionately affecting certain markets.
“Looking more closely at the rent price trends in these cities from April to June, it appears the 2020 changes are more indicative of current economic conditions than the national or even state-level trends,” the report said.
Beacon Hill condo analysts who follow the downtown Boston condo market tend to focus too much on property transactions and not enough on the rental market. Most analysts expect current market conditions will continue to favor sellers through 2018 and 2019, and the rising prices will likely turn some prospective Beacon Hill condo buyers into Beacon Hill landlords. In late 2017, the average monthly rent payment for one-bedroom apartments across Boston was $2,000 and in Beacon Hill closer to $2,800. Beacon Hill Condo units tend to be more attractive and command higher prices, which creates a lucrative opportunity for homeowners who wish to become landlords.
Adhering to good property management practices is the key to making the most of the Beacon Hill rental market. Here are my six recommendations new landlords should keep in mind.
1. Communicate with the Condominium Board
The first step is to check the bylaws of the condo association to learn about any conditions that may preclude renting units. Most condo boards require notification of a lease agreement, and some reserve the right to approve tenants. Many units, especially in Beacon Hill don’t allow short-term furnished rentals
2. Let Professionals Manage the Property
Many landlords across Massachuessts do not last beyond their first lease agreement. Although property investment is a passive activity, property leasing requires hands-on management that includes knowledge of housing laws as they pertain to landlord/tenant relations. If a person who owns condos in Beacon Hill is not ready to be a full-time landlord, retaining a property management firm is highly recommended.
3. Make Sure the Condo Is Safe
The easiest way for landlords to find themselves in court is by failing to provide a safe dwelling space. If there is anything about a condo that may compromise the safety of tenants, it will need to be corrected immediately. A good idea is to allow a home inspector to evaluate the unit in terms of safety before executing a rental contract.
4. Screen Tenants
Blindly allowing anyone to rent a condo is never recommended. Tenancy laws in Massachusetts allow some level of applicant screening, but going overboard and running afoul of these laws could result in a discrimination lawsuit.
5. Have a Contingency Plan in Place
Renting a Beacon Hill condo is a business activity that can either create profits or generate losses. As with all other business activities, landlords should have a contingency plan to minimize losses in worst-case scenarios such as a fire, death of a tenant, appliance theft, and heavy deterioration of the property.
6. Maximize Rental Profits
Beacon Hill condos are inherently marketable, but they can be transformed into profit machines with the right adjustments. If the condominium tower has a luxurious reputation, higher rental payments can be obtained with features such as smart home automation, a mature edible herb garden, high-end appliances, designer kitchens, and wine cabinets. If the condo building offers broadband internet service, this could be marketed to attract tenants with deeper pockets.
If you’re thinking about purchasing Beacon Hill condo or another neighborhood in downtown with the intention of becoming a landlord. Please call us a call today at 617-720-5454 visit us at our Beacon Hill office at 137 Charles Street.
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