Comparing Boston Income Properties
David Bates / August 2, 2011-8:58 pm
Need a simple calculation to compare income properties? Take the asking price and divide it by the total monthly rent. What you will get is called the “Gross Rent Multiplier.” Below is a survey of some gross rent multipliers recently seen in different Boston neighborhoods:
Dorchester: This neighborhood has a 40 percent slice of Boston multifamily sale pie. Many properties here sell for under 100 times the gross rent of the property. 16 Normandy, a large three family in need of some work, sold for only 41 times what the broker estimated was “the typical 3BR Section 8 vouchers.” 1150 Dorchester Ave., in the Savin Hill/ JFK area, sold for 86 times the gross rent.
East Boston: This neighborhood sells about 10 percent of the annual Boston multifamilies. In Maverick Square, 75 Chelsea sold for 103 times the gross monthly rent and 12 Chelsea sold for 96 times the gross monthly rent.
Mission Hill: In this hot Boston rental neighborhood close to many universities and colleges, the majority of fully-rented properties we saw were selling between 112-124 times the gross rent. The median pricing of $954K for multifamily homes in Mission Hill provides an idea of the impressive rents these properties can get in this neighborhood.
Allston/Brighton: This is one of Boston’s most established rental neighborhoods for college kids and twenty-something tenants. Gross Rent Multipliers for sold multifamily homes were often observed to be between 130 and 160 times the gross rent. Perhaps the best buys were two of the most expensive properties: 5-11 Etna, at $1.15 million, sold for just over 100 times the gross rent, and 8-10 Glencoe, at $1.290 million, sold for only 110 times the gross rent.
South End: 37 Gray, a three family with what was described as a “good rental history” in the listing sold for 153 times the gross monthly rent; 637 Tremont, a four-unit building which included retail space on the first floor, sold for 165 times the gross rent.
Beacon Hill: 63 Phillips, a four-family — all one bedrooms — sold for $1,080,000, more than 180 times the gross rent.
While this simple calculation provides an easy way to compare income properties, the calculation can be filled with errors and omissions if not done thoroughly. Marty Stone, friend of this blog and author of Secure Your Financial Future by Investing In Real Estate, cautions against using gross rent multipliers as a guide to your property search or to evaluate property investment decisions.
“In my experience there are no magic formulas like a ‘gross rent multiplier’ that will work as well as just doing the homework to make sure you are making the correct decision,” he writes us.
Marty provides an anecdote where his company showed a client a property that was priced at 137 times gross rent in a market that things typically sold income properties at 126 times gross rent. Plugging in market rents, however, caused the 137 times figure to drop to 98 times gross rent — a great buy. According to Marty, doing the homework helps you find the “diamonds in the rough