This Historic Town Is AWESOME For Real Estate Investing! Boston Real Estate Investing

Good afternoon, everyone. Herve Francois here with The DeRosa Group. Thanks so much for joining us today. Another episode of Market Hunter Thursdays with Herve. I’m going to bring Lien onto the show. Lien, good morning Hi everybody Thanks very much. How are you? I’m well. Thanks for having me So let’s go ahead and get started. Again, Lien, thanks very much for tuning in. Listen, there’s a lot of cities to choose from for single family, multifamily investing. You’re telling me that you do a little bit of both Why did you choose Boston? What makes Boston so attractive to you for your real estate investing? For me, real estate is my hometown apart from Vietnam, so it’s a market that I know really well, and it’s something that I feel like I can confidently invest in without questioning my knowledge of geography. I started my investing originally in New Hampshire, and I own a property in Florida, but pretty much over the last five years have consolidated everything back to Massachusetts. It’s a market I know really well. I can talk about the rent without having to go online, Google it. My strengths are here, so I made the decision to have everything here You are a real estate investment advisor at The L Group, if I have that correct. What kind of advising of real estate do you do for your clients at The L Group? Right. I’m the team lead of The L Group. We’re a real estate group that specializes in working with investors. How I work is I use the analogy of I’m basically a financial advisor, except I’m not looking to advise you on life insurance products, mutual funds, things like that The product that I’m advising you on is real estate. Whether this house would be fitting of the return you’re looking for, that’s graphically close to you, and how would you like to deal with this type of tenant class, this type of appreciation, things like that. That’s why I feel like I’m much more of a consultant or an advisor than just a real estate agent Got it. Got it. That’s helpful. That’s helpful Listen, I want to remind folks to please stick around towards the end of this broadcast, because we’re going to get some hot tips from Lien really in regards to the best way to get started in real estate investing, specifically in Boston, and tell you exactly what city we’re going to next with our show Lien listen, Boston has been on fire. I think there is a misunderstanding of Boston as just another large metropolitan city in the Northeast, and because of that it can only be ripe and successful for investing into real estate deals that are for appreciation and not for cash flow, but in doing some research about Boston, it’s actually different. There are some nice cashflow opportunities. Do you believe in that, that there are cashflow opportunities in Boston besides appreciation? What does your portfolio look like? Which ones are you attracted to the most? Is it one versus the other or is it a mix of both? For me, to answer the second question, it’s a mix of both. I personally don’t do anything too cheap or too expensive. I’m always pretty much value oriented, so I’m somewhere in the middle. For my personal choice, my personal portfolio, I do a mix of cashflow and appreciation What that means is that I choose a B class area. Cs, and there’s some Ds of the world, are definitely high cashflow, high turnover Then there’s A’s, which are 100% counting on appreciation. I live somewhere in between Most of my properties land anywhere between 30 to 45 minutes of Boston, and I find that that’s a perfect middle ground where they could possibly commute into the city if they wanted to, but they have some major metropolises in between for their shopping from their city amenities that they want to Right And I’m still going to get a strong return on my investment To that notion, is there much investment, is there much renovation and repairs that you have to do on the class B type assets that you are purchasing? What’s the average number of units that you’re purchasing? Is that in line with what you see other investors are doing, coming into Boston on average number of units and the asset class that they’re purchasing in the area? We’re probably in a B asset class in terms of condition. My personal choice has always been pretty much cosmetic to turnkey only It’s pretty rare that there is such thing as a completely turnkey multi anyway Right No more than paint and refreshing rooms and floors and things like that. That’s something that I find to be the most fitting for my investing choice. Most of my clients in this area tend to be white collar professionals who don’t have a lot of time and resources to be able to monitor projects, turnover units, as well as basically screen all the tenants,

so they tend to choose a more moderate project, never a huge rehab. With that, they’re still able to get a pretty fruitful investment I stated earlier that median rental prices are about $1500. Is that what you’re seeing and other investors are seeing in the area? And obviously that can be based on mix of one and two bedrooms and things like that Right Is that the kind of average that you are renting out some of your units? What can investors think about from a median rental perspective? I classify the Boston market, because we’re saying this pretty generally, the Boston market I group it pretty much within one-hour radius There’s a primary market, Boston proper if you will, like Beacon Hill, Back Bay, the beautiful areas of Boston that we all know, any tourist would know Right Then there’s the secondary market, which is that 30 to 45 minutes where you still have access, but you still can count that, that you say that you invest in Boston. Regards to that, I can comment on the averages of both areas. I would say the average rent in the primary market is much closer to $2000, because a one bedroom, a decent one bedroom, is going to run you around $1,800 Right A two bedroom, you’re in the mid-$2000s Right If we’re talking about… And these are moderate conditions, nothing too absurd, but nice with some parking. I have personal clients in Southie, which is a really beautiful area of Boston, South Boston, that’s paying $4,000 for a four bed, two bath, and they think they’re getting a great price Wow. Then I’m glad I- That’s the reality I’m glad I own [crosstalk 00:06:53] That’s crazy. Taking all their money Yeah How the hell am I going to go out at night? They think that they’re getting a deal. They’re like, “Oh my God, look, this is so good.” I was like, “Okay.” Those are the best kind [crosstalk 00:07:05] Then what’s a secondary- kind of tenants Yeah. Oh, no, for sure. They’re so well qualified Yeah. I’m very lucky to know them Right, I bet, yeah But with the secondary market, that is probably close to the $1500 stat, because any sort of stat you have the standard deviation of really high versus really low, right? Right With the secondary market, you are much closer to that $1500. My Marlboro property for an attic, one bed, [inaudible 00:07:32] is getting $1,400 Wow That’s a pretty good rent Yeah In a two bed, you’re looking at around $1700 Okay. Listen, put this in returns for us, because, as you know, as real estate investors we talk about IRR returns, we talk about cash-on-cash returns. Some people are more attracted to one metric or another. What metric are you most attracted to besides [inaudible 00:07:55] coming into Lien’s pocket? Right Specifically, how do you go about by picking your spots in regards to where you can best get those returns? Right. For me, that’s the metric that is most meaningful, because I invest in small multis, so while I will do as big of a deal as, say, 25 units, but 25 units is a lot of money in Boston. I don’t just tend to run into those properties often. I tend to hang in that under 10, obviously 3 to 10 units, so smaller multis For those, the cap rate is not really going to be the exciting indicator for the value of the investment Right What I like to really monitor is the cash-on-cash return Okay How hard is my money working for me and when will I get it back, basically? Because you have the year over year cash on cash, so I like measure that the best When you are putting tenants into your properties, what’s the average length of the lease term that you put them in? Is it unheard of to have tenants in there for two, maybe even three years, especially if you can build a rent escalator into that lease for yourself? My tenants tend to stay anywhere between I would say two to four years. My sweet spot is definitely one to two beds, because people naturally outgrow those spaces. They stay long enough that I’m going to get my renovation money back, but not too long that I can’t increase their rent without feeling bad Right Yeah. So around I would say two to four years is the average length, and obviously one year leases is typical Investors, a big issue that they always grapple with when they decide that they want to go into single family rentals, small multi families, such as yourself, is property management, where they have to make the decision of whether they’re going to do it themselves, you’re going to get that call at two in the morning, “Hey, landlord, my toilet’s clogged.” Right?

Right Or you’re going to go ahead and outsource, you’re going to go ahead and pay a property management company for that. How do you balance that in regards to the number of units that you have, where you feel that it’s worthwhile to go ahead and outsource it? What kind of fees do the property managers in Boston charge for their services? For me personally, I choose to PM everything I did an analysis a long time ago that my highest and best use is in my job, it’s helping clients. That’s going to be my highest use My highest use is not contacting tenants to collect rent and running around and switching keys. I’ve made a rule that I PM everything Depending on where the area that the house is, I have certain PMs that I prefer in those markets Oh, okay In terms of the rates that you should be expecting, and again we’re commenting the primary Boston market versus the secondary Right For primary you should expect anywhere between 5% to 7% Okay In the secondary market… Because the rents are so high, right? Sure So 7% on a $3,000 rent, and it’s a condo, that’s a lot of money every month That’s a lot of money. That’s a lot of money, yep Right. In the secondary market, you should be expecting anywhere between, I would say 7 to 9. I don’t think you would ever hit 10 10 is very high We have to talk about financing obviously, because that’s another part of the whole supply chain and whatnot Right Especially if you’re not going to be making outright cash purchases. You might be loaded, I don’t know, and if you are then congratulations if you’re just going to be buying these straight out of your pocket. But if you’re not, what kind of financing do you look to put on your multi-families? Do you go for hard money loans or just straight-up commercial loans, obviously if over the four units in a multifamily that you’re purchasing Right. For the most part, I do 25% down on any obviously investment properties, I’ve done a mix of things. I’ve done partnerships Like this year, actually I bought… Three properties were financed completely different One of it was a house hack property that I bought just a little over a year ago, so I was able to leverage 5% down rolled into closing costs, the classic house pack, and then I moved down a year Okay With that property, I was able to refi and reduce my mortgage, my PITI by 10% Okay That was a win That’s a nice win. That’s real… Right Yeah. Really, I didn’t have to do anything much. It’s really important just to take the first step, in my opinion Sure, sure With other the properties I’ve done basically a mix of two types of partnerships. One is just straight 50/50 Right Straight 50/50 where he helped me identify the property and we hired a management to do that on their behalf. The other one is a little bit more interesting, where there are four partners involved. I’m one of four We’re providing this larger asset. This is a commercial deal Okay The general partner doesn’t actually put money down. So three of us put money down on the down payment and the reserve, but he manages all the properties, does all the construction, and basically it’s as passive as you can get, but we have 25% equity each. That was a little bit different Oh. Yeah- That was 20% LTV. 80% LTV, rather, because 20% down Right. So 20% down, you get 25% equity. What’s the size of this deal? What’s the size? How many units was this deal? This is $1.4 million, so this was larger Right. How many and how many units will come in this? Six with a bonus seven Gotcha. It’s wasn’t a new development? It’s a used purchase? Yeah. It’s just a used purchase. It was obviously really under utilized. We identified it on the market. I was the agent on it and I didn’t have the intention to purchase it, but I kept running the numbers because it was my job, and I was like, wow, this is a really good deal. Then one of the partners who was going to go with it backed out, because we bought right in the middle of Covid. We closed in late March Okay In that moment, they were freaking out. I kept running it, and I was going to ask myself I was like, “What do you want for the long-” What about now? There we go I’m so sorry Well, ninth or tenth try, it’s okay. It’s all good Right. Well, where did I leave off? I was the agent on the deal, right? Yeah I was the agent on the deal, and they had cold feet because of Covid. They were looking for a fourth, and I went back and forth, and I was like, you know what, this is a really good deal Yeah Because our stabilize on cash-on-cash is 22-1/2%

Wow. Wow, that’s a home run right there. Yeah, yeah They tell me there’s no money in Boston. I keep finding it You don’t want people coming up to Boston Now I see why Right Now I see why. With the median incomes and average home prices rising in Boston, it’s been forcing a lot of people to think about renting versus purchasing. It’s not only happening in Boston, it’s happening all over the place What have you been seeing folks doing? Is there any kind of migration trends taking place with metropolitan Boston and its surrounding feeder towns? Whether it’s choices that millennials are making right now, or even families that are looking to say, “You know what, we need to go out of downtown, because we want more space, plus we want to be safer.” Obviously, the pandemic is forcing a lot of people to make choices that otherwise they wouldn’t have been making this year Right. For me, definitely in that March, April, I didn’t believe in the urban exodus. I was like, people will come back. But then as we’re staying inside our homes a little bit longer, it really quickly became a very realistic reality Right I definitely have seen that firsthand, because we have condo units in the city that don’t move because there’s a smaller buyer pool I definitely have experienced that. I see that the average price that everybody talks about is really in the suburbs and single family homes and other properties that are outside the city. For the first time, the urban units are on sale. Units in Boston, if we’re talking about condos, have been down as much as 5% to 10% in certain areas. It’s so rare in our market, but it’s on sale guys Yeah, it’s on sale Exactly This is the first time you’ve seen price depreciation in some of these units in down[crosstalk 00:17:03]- [crosstalk 00:17:03], yes In years. Probably since, what? 2008, the last recession? Exactly. For as long as I remember, and it’s the first time in history that rent has gone down in Boston Wow Because rent has always incrementally gone up. Even in the ’08s people still needed to rent, because all the foreclosures would then make them rent. For the first time in Boston, with rental decreases as much as 15% Wow. Do you view that as opportunity or are you chasing the money to the outskirts of Boston where folks are moving to, which I’m sure artificially is inflating the prices of small multi-families and single families in those suburbs of Boston? For me, I feel like right now I’m planning obviously for 2021, what am I going to do I am very, very closely monitoring what units make sense in Boston for me to execute, because that’s really a short-term investment. That’s just not part of my long-term portfolio to own a bunch of condos, but in this moment when things are a little bit on sale and I’m going to get good rents for it, I’m going to definitely execute, but if a deal hits my metrics which is 10% cash on cash at a minimum, that’s how I screen it. Is it in good condition? Does it have the 10% cash-on-cash? Is it in a good area that I feel like I have a PM? I will still buy it. I have relationships in those areas that I’m fostering. I’m planting those seeds, and they will- [crosstalk 00:18:37] Yeah. They’ll come around in the next six months or so Okay. Okay. Yeah, you know what? I actually tend to agree with you. I mean, I think there’s definitely a lot of fear, a lot of concern, understandably so, which has been causing people to move out of Boston. As you can imagine, the same exact thing is happening in New York City with folks moving to the outskirts, Connecticut and Jersey as well, and even upstate New York I do expect, whether they come back at the same volume that they left, I’m not sure, but I do believe that folks are going to start to come back as the temperature calms down and the clouds settle a little bit, because at the end of the day folks still want to be in and as very close to the city as possible, and I can imagine for Boston as well What just continues to drive the employment growth, the population growth, just overall growth in Boston alone? Would you say that it’s existing employers expanding their offerings there, which is obviously bringing on more employees, has been more and more employers moving into the area because obviously Boston is rich with their really very well-educated talented pool, engineers, hospitality, hospitals, healthcare, financial, and so on and so forth

You guys have a great mix of industries, great mix of companies. Is that what just continues to fuel the growth in the area? I believe so. I mean, partners, healthcare is our number one employer, which not only employees the research sector, obviously, just general practice like patient care, because we have premier medical facilities that people come not only nationwide, but internationally, for- You have Mass General. Absolutely, yep Yeah. Then obviously Kendall has really exploded, Kendall Square, which is Cambridge, over the last five years, because MIT has really taken up a lot of that market share and real estate there because they are expanding, they’re starting their AI program very soon. It’s the first AI university. Yeah, so to basically echo what you’re saying, research, medicine, definitely the academics, so any sort of education sector and all those international student housing, those are major drivers of our economy, and for the most part I feel like we haven’t really seen a large shift in terms of an economic downturn during this time Right Poverty is a little bit everywhere, but for the most part, I feel really blessed and well-insulated in spite of everything That’s great to hear. That’s great to hear Lien, where have investors been coming from recently that have been investing in Boston real estate? Do you believe it continues to be the majority of the investors are local? Have you been seeing more and more outside money coming in? For my core business, I would say that my clients tend to be local. People who might be in some sort of relationship where they had lived in that area before and are coming back because they felt exhausted by their state or wherever they went investing. For the most part, it’s been local’ish, and never just somebody who just picks a place on the map and said, “I’ve got to invest in real estate.” Right, right, right. Gotcha. Gotcha. Listen, we are nearing the end here, so a couple more questions. If I want to get started, if an investor wants to get started, they’re out of town, they want to invest small, so like you, some small multi-families in Boston, how do you recommend? How do you suggest We notice there’s a big relationships business, so how do you recommend that they get started investing in Boston? I’m a huge believer in this house-hack strategy, being able to leverage the FHA owner-occupied loan. In Massachusetts, we obviously have FHA, which is nationwide, but we have a program called Mass Housing, which gives you favorable rates. Some of my clients are getting as low as 2.5% rate for a three family, so not only are they putting as little as 5% down, they’re getting better rates, they’re doing conventional financing, so the PMI will drop after they hit 20% equity instantly. Then you have to refi. And they get down payment assistance There’s so many different like vehicles by using this owner-occupied house-hack strategy They obviously have the intention to live here. For that alternatively, obviously, you have the conventional financing Right. That’s really helpful. Once you get to that 20% to 30% equity, you can really start thinking about refi’ing if the lender allows you to at that point, and then at that point you can, depending on what that equity amount is, you can pull it out and reinvest or just do an outright cash-out refi Right. Well, you can do a HELOC, a home equity line of credit That’s true, too If you bought at 5%, you wait say 12 to 20 months, and you hit your 20% equity. You don’t have to sell the house. You don’t have to really do anything. You can get into the equity line, take that 15% delta and put it into another property. You’re still sitting still at your own house, if you want that asset Right, right. And you’re collecting your monthly cashflow to go ahead and pay off that HELOC, pay down that HELOC, and then you prime the pump and do it all over again Yep. That’s [crosstalk 00:24:30] I think you’re onto something. I’m watching you, Lien. You’re onto something. You’re onto something. Listen, we’re coming towards the end of this. When you talk about neighborhoods and imagining folks want to come in B type neighborhoods, B type assets. Where would you recommend they plant their flags to start their investing in Boston? If they’re very specific on being in Boston, an area that I think that deserves a little bit more credit is East Boston. It’s right next to the airport. It has access to the

blue line, which is the newest line for great public transit that way. It’s city of Boston What that means is that it has a very favorable tax rate. Boston and Cambridge have very inexpensive tax rates for properties. East Boston is great if you want to go over the river to go to Cambridge. East Cambridge is a great market That’s more expensive, but really, really tenant class. You’re buying A Right You’re buying it before it really explodes, so some of the houses are still kind of ugly It hasn’t experienced this crazy condo conversion influx. It’s only about 20 streets, East Cambridge Got it. I got it. I should have asked this to you earlier. Do you venture into student housing as well? Again, half of Boston’s population is students. You’ve got my Boston College up there and all those other universities, but do you venture into student housing? I’ve got to imagine there’s opportunities for investors that may have interest in student housing For me, I personally don’t. The reason is I don’t want to basically be pigeonholed to one type of tenant only. That’s why you’ve seen a reduction of price with some condos in the areas is because they were basically counting on the student housing for their entire investment, and now they’re not coming back. I’d be in an area where I could potentially have student housing, professionals, things like that, potentially the short-term rental opportunity I really appreciate you being with us today What can we do to help you out and everything that you do over there at the L group and your investing in Boston overall? You can definitely reach out to me, support me. I’m definitely on bigger pockets a lot I’m on a lot of different types of forums, because beyond that this is a job, this is something that I’m very passionate about I love meeting people and talking about it Feel free to reach out to me. If you have any questions on anything in terms of the market, in terms of different markets so I can compare it for you, feel free to reach out to my email, my phone number, or anything like that Perfect. We have your contact information right there. One last thing, if someone’s coming up to Boston, they got a nice weekend, put to me a sample itinerary of where they should go, where they should stay, what they should do, where they should eat, because you’ve got the clam chowders, you’ve got the Irish pubs, you’ve got little… I mean, it just goes on. Faneuil Hall. You’ve got the non-tourist areas also. I’ll let you put that itinerary together for folks What? So like 36 hours in in Boston? Like New York has that itinerary? Yeah I think that we have lobster at Legal Seafood, and some kind of chowder that [inaudible 00:27:48] served at the inauguration ball the [inaudible 00:27:50], so it will be served soon I’ve been there. Yes, yes Okay. Definitely in the Seaport area, because you have a really beautiful view of the ocean I would do the Freedom Trail, depending on if you’re walking or biking that can be a 2-3 hour adventure. [inaudible 00:28:07] is really beautiful. Tatte is a great local cafĂ© They’re really primely located in really beautiful areas of Boston, so you can basically just follow the Tatte trail to look at really nice areas of Boston. I really love Grill 23, which is a really, really great steakhouse. That’s right off of Boylston Street. I believe it’s on St. James. Great service , so professional, and they give you a lot for your money Again, thanks so much for tuning in today Stay well, and I’ll speak with you next week Take care Thank you. Thanks for having me