Being a landlord can be a very rewarding experience in Cambridge, where rents are strong and demand for apartments is high. That said, there are some things you should be aware of before you delve into investment property ownership. I have a few suggestions for you to maximize your likelihood of success.
1. Hire an agent with investment experience to find the right property for you. Rents in Cambridge vary dramatically from one neighborhood to the next. For instance, a property in walking distance to the Red Line subway will nearly always rent for appreciably more than one that is not so located. Also, an experienced investment agent will be able to guide you to the most appropriate type of apartment. One example might be an apartment in a managed building rather than one in a multi-family house. Most importantly, invest in a building that a) allows rentals(!!) and b) is in good financial health. A first rate agent will be able to steer you through the process of handling home inspections, choice of the right lawyer, contract negotiations, choosing the right financing option, and making sure you take clean, insurable title when you close, along with receipt of the necessary title qualifiers (6d certificate, municipal liens certificate and so on).
2. Buy something in excellent (not merely good) condition. Apartments are subject to wear and tear over the years and your investment in a property that has been well maintained and updated when necessary will minimize future maintenance hassles and expenses. Before you commit, have your agent help you determine the rental value of the property, as well as monthly expenses (condo fee, tax escrow, landlord insurance, management fee, vacancy factor) to arrive at a net operating income (your net income before debt service). This will allow you to calculate the capitalization rate of return of your property, and will allow you to compare it to the return of other investments you may have, i.e.: stocks and bonds, mutual funds, etc.
3. Hire a good rental agent (not necessarily the same person as the sales agent through whom you bought). This is important. A good rental agent will perform multiple tasks for you. (S)he will price the property appropriately, photograph it well, present it in the correct on-line media to generate the greatest levels of interest, select the most qualified 1 or 2 applicants, perform a thorough vetting and background check, collect the appropriate deposits and assemble the correct lease giving you the protections and powers of enforcement you need.
4. You will need a good management company to oversee rent collections and to orchestrate the maintenance of the apartment. Again, the manager could be a different person or company from the your purchase or rental agent. A competent manager is your liaison with the tenant, and will not only take care of minor complaints and issues that the tenant may have from time to time, but will also be your watchdog, if for any reason the tenant needs to be reminded to comply with the terms of the lease. An expert property manager will have a full roster of plumbers, carpenters, electricians, cleaners, painters and lawyers (who will hopefully not be needed). Before you engage a manager, be sure to ask about the number of update reports you will receive. A good management company should have a website that allows you to log in at any time to check on the status of your rental account.... whether rents have been paid for the month, whether any money was deducted for repairs or maintenance and so on. Be prepared to pay 10% of each month's rent for this service and be sure to take that into account when you calculate your return on your investment.
It may sound like a lot of work to have three separate people helping you handle your purchase, rental and management of your investment, but the truth is, these are all separate tasks that are best handled by specialists in their field. For instance, a top notch investment agent would not dream of presuming to manage a property for a client, unless (s)he is really an expert at doing so. I own out of town income property, and have it in the hands of a dedicated manager who hires a rental agent when one tenant's stay comes to an end. The system works very well, and it is a matter of setting it up just once and then it sort of runs itself.
Before you do start any of these steps, talk with your accountant, and has him/her to explain the various options of how you might hold title to your investment, and which ones offer the greatest tax advantage. For instance, if you are thinking of adding other investment properties, you may wish to consider forming an LLC or S-corporation to do so. The tax savings can be considerable.
I hope this was helpful. If you have any additional questions, I'm happy to answer as best I can.
Tom von Zabern