Judging by the number of people ready to pay just about any price to become small-time landlords in Cambridge, capitalism is alive and well in the People’s Republic.
If someone tells you there are absolutely, positively no rental properties for sale in Cambridge, they may only be slightly exaggerating.
The city of ivory towers and politically correct hipsters is also apparently a hotbed of would-be landlords and real estate speculators, who have snapped up all but a handful of two- and three-unit rental buildings.
There were just four multifamily properties on the market last week in all of Cambridge, with sales on another five pending but not yet closed, according to online real estate broker Redfin.
The market for rental properties in Cambridge and surrounding communities is back with a vengeance, eating up inventory and driving up prices in what is likely a harbinger for a wider comeback across the Boston area and the state.
And driving this interest is a combination of professionals looking to make a little money on the side and contractors and investors eager to cash in on soaring rents and rising condo prices.
“It’s beyond anemic,” said Alex Coon, market manager for the Boston area office of Redfin, referring to available rental properties. “It’s almost to the point where people are walking around and knocking on doors, asking people if they want to sell their multis.”
Buyers Searching High And Low
Ellen Friedman, a vice president at Keller Williams Realty, works with buyers eager to snag small rental properties in the city.
Ellen Friedman, a vice president at Keller Williams Realty, works with buyers eager to snag small rental properties in the city.
But as the number of listings dwindles, some of her buyers have thrown in the towel after putting in bid after bid, only to be outspent by builders or professional investors with cash to burn.
“I had a couple of buyers looking for months under the $500,000 price range and they both have given up,” Friedman said. “They make good offers, but they can’t compete.”
And even when things work out, it can take months of pavement-pounding.
Take the suburban couple Friedman began working with last year.
The couple, both administrators at local universities, wanted to buy a small multifamily in Cambridge with plans to rent out the two units, one to their daughter and son-in-law.
But time after time they found themselves getting outbid, in one case by $100,000, by contractors and small investors ready to pay cash.
Along the way there was the multi listed at $699,000 that they offered $720,000 for, only to see it go for $820,000. Not to mention the $580,000 rental property that went for $661,000, Friedman recalled.
The pair finally landed a two-family near Davis Square in Somerville – Cambridge didn’t work out in the end – after agreeing to pay more than $600,000, with 25 percent down, she said.
Despite the big prices, not everything was in pristine shape at many of the small rental properties.
“If I didn’t want to live there, neither did I want my daughter living there either,” the husband said of some of the multifamily properties he saw in Cambridge and Somerville.
Ripple Effect
The dearth of inventory, in turn, means that when two- and three-unit apartment buildings go, they go fast, with an average of just 32 days on the market, Friedman said.
Even run-down properties are getting pawed over. Friedman recalled one with a crumbling foundation that had 100 contractors, investors and ordinary buyers show up to check it out.
Of the 51 multifamily properties sold in Cambridge over the past six months, all but 16 went over asking price, according to Friedman.
In Somerville, half of the 80 multifamily properties sold during the same period went over asking price – some by more $100,000, and even $200,000, she said.
Potential buyers and their brokers are now resorting to canvassing owners of small rental properties to see if they are interested in buying, Coon said.
Coon, who owns a multifamily in Somerville, says he is constantly being approached by brokers who claim they have buyers ready to go if he gives the green light.
Not surprisingly, the tight multifamily market has also pushed up prices in Cambridge, with the median price of a two-family home shooting past $713,000 in 2012, according to The Warren Group, publisher of Banker & Tradesman. That’s a big boost from 2011’s $660,000, and the highest number in five years.
And that, in turn, is prodding multifamily buyers to widen their search to Somerville and Medford, where inventory is now getting slim as well.
Somerville last week had 14 multifamily properties for sale, while Medford had just seven, with sales pending on two of them, Friedman noted.
Condo Prices, Rents Fuel Frenzy
The multifamily frenzy is being driven by two separate trends – escalating rents and the comeback of the condo market.
Rents have been soaring across the Boston area, jumping more than 6 percent in January, online real estate site Trulia reports. It is just the latest in a months-long surge in rents that has thrust the Hub near the top of various lists tracking the nation’s hottest rental markets.
And Cambridge is even hotter, with average rents topping $3,000 per month near MIT and East Cambridge, beating out even the Back Bay, Beacon Hill and South End, according to market tracker Rent Jungle.
But builders see an even bigger gold mine converting small Cambridge rental properties to condos.
It’s a move that comes with condo prices in Cambridge jumping 12 percent in December, to a median price of $465,000. Sales also rose by the same amount, The Warren Group reports.
“The problem is there are so many contractors with cash looking for two-families to turn into condos,” Friedman lamented.
Email: sbvanvoorhis@hotmail.com
