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Massachusetts Investment Properties

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If you've ever considered purchasing an investment property in Massachusetts, you're sure to have some questions. Should you purchase a single- or multiple-family home? What sort of rental income can you achieve? Will rising property taxes kill any hope of a profit?

For a first-time investor, the task ahead may seem daunting, but if you do the job right, the monetary gains can be significant. Here are some things to consider.

Single- or Multiple-Family Investments

The wisdom of investing in single-family homes extends to more than just a lower initial investment cost. This type of residence tends to attract a stable tenant with a better income and greater ability to pay the rent on time. On the other hand, rather than rent them out, many people who purchase such homes in Massachusetts do so with the sole intention of turning them into "flips"

On the other hand, those who have a greater interest in securing the maximum possible number of rentals often prefer to purchase a dwelling fit for multiple families. Along with the chance to collect additional rent, this option offers the flexibility of living in one of the home's apartments while letting the rental income cover the mortgage.

While much two- and three-family inventory does exist in Salem and Beverly, the rental income will be lower in those areas. Summerville and sections of Cambridge currently offer some of Massachusetts's better multiple-family opportunities, but if you're thinking of purchasing a condominium, it's best to look in South Boston or another trendy area where rents are already high.

Check Out the Neighborhood

The area in which you purchase your investment property will determine far more than just the price you pay today and the taxes you'll pay in the future. It will also dramatically affect the type of tenants you attract and the rates of rental you can charge.

If the neighborhood in which you have an interest should happen to show a greater-than-normal number of vacancies and homes for sale, you'll want to determine whether the location is seasonal in nature or going into decline. If you're looking for quick turnover and the concomitant chance to raise the rent with each new lease, a college or resort town could be just your cup of tea. However, when the area shows definite signs of decrepitude, it might be best to simply walk away.

Job Opportunities

Any neighborhood that offers promising job opportunities will attract more tenants to your property. The arrival of new business to the area is always a good sign, and if that company happens to be a large corporation or a big-box store, employees are bound to follow. The U.S. Bureau of Labor Statistics can clue you in to the employment trends in any given part of Massachusetts, and the local municipal planning department can give you the latest on any malls, condominiums or business parks that may be in the area's future.

Local Attractions

While some people will always prefer to live the quiet life, the majority of renters flock to regions that offer theaters, parks, gyms, malls and public transportation. Since tenants are what you want to attract, it will be in your best interests to invest in the towns and cities that offer the largest number of perquisites. A check with the local Chamber of Commerce and tourist information bureau can be revealing.

Average Rents

Rentals are where you'll make your money, so it's vital to learn the going rate in your neighborhood of choice. The amount you charge must be sufficient not only to cover your mortgage payment, taxes and other expenses but also to leave you with the profit you desire. If the numbers refuse to work for you, the area won't work either.

Real Estate Taxes

Anyone who plans to make money through a real estate investment needs to consider the amount by which a region's property taxes will lower any potential profits. While the average tax tab for a single-family Massachusetts home currently stands at a little over $5,000, the investor will encounter a range that runs from a high of more than $18,000 in Weston to a low of just $600 in the Berkshire County town of Hancock. Other high-tax areas include Sherborn, Lincoln, Dover and Wellesley, each of which sustains property taxes in excess of $14,000 and $13,000 respectively.

While the larger figures might seem like deal-breakers up front, it helps to remember that the greater rental income potential and stable tenants of these upscale neighborhoods will often offset the perceived burden of higher property taxes.

Figuring Your Cash Flow

Although any financial investment can be risky, real estate is one area in which a few preliminary calculations can result in substantial monetary rewards. A determination of future cash flow often involves some educated guesswork along with a little math. To start, take the average going rent for the neighborhood and subtract:

Don't skimp on the last point. Remember, a few judicious renovations could easily lead to higher profits for you. On the other hand, any underestimation of the costs of property maintenance will surely come back to bite you in the end.

It goes without saying that if your cash flow estimates leave you at the break-even point, monumental profits may not be in your future. If, on the other hand, you're sure to have a decent amount left over, get your realtor on the line. This could be the property for you.