Investing in multi-family property in Boston

Reading the rent roll and the expense history

The rent roll lists each unit, its tenant, its rent and its lease term. Treat the seller’s rent roll and operating statement as a starting point, not as facts. Ask for:

When you go through them, look for:

• Rents that don’t match the leases, or units shown as rented that are vacant
• Below-market rents. That can be an opportunity, but in Massachusetts a tenant at will gets written notice before a change, and a tenant with a lease keeps the rent until it ends. Don’t assume an immediate increase.
• Missing expenses. Sellers’ statements often leave out management (because they did it themselves), repairs, capital reserves and vacancy. Add them back.
• The tax line. If the seller lives in the building, their tax bill reflects the residential exemption. Recalculate it at the full assessed value (see the tax section below).

Running the numbers: NOI, cap rate, cash-on-cash and DSCR

Investors use four measures. Every figure below is hypothetical, chosen to make the arithmetic easy to follow. They aren’t Boston rents, prices or interest rates. Plug in your own numbers for a real building.

Net operating income (NOI) is the rent you actually collect minus operating expenses. It doesn’t include the mortgage.

The expense ratio is operating expenses divided by effective gross income: $30,000 ÷ $102,600 ≈ 29% here. Older buildings where the owner pays for heat run higher. Compare the seller’s ratio to your own estimate. If theirs is much lower, find out what’s missing.

Cap rate is NOI divided by price. At a hypothetical price of $1,500,000, $72,600 ÷ $1,500,000 = 4.84%. The cap rate tells you the return on the building as if you paid cash. It’s useful for comparing buildings, but it says nothing about your loan.

Debt service coverage ratio (DSCR) is NOI divided by the annual mortgage payment. Assume a 75% loan of $1,125,000 at a hypothetical 7% fixed rate over 30 years. The payment is about $7,485 a month, or about $89,816 a year. DSCR = $72,600 ÷ $89,816 ≈ 0.81. Below 1.0, the rent doesn’t cover the mortgage, and you’d be adding about $17,216 a year out of pocket.

Cash-on-cash return is the annual cash flow after the mortgage, divided by the cash you put in. With a $375,000 down payment and an assumed $25,000 in closing costs, that’s $400,000 in. The return is −$17,216 ÷ $400,000 ≈ −4.3%.

A thin or negative cash flow means you’re counting on appreciation, rent growth or principal paydown, which are forecasts. Run a downside case too: one unit vacant for two months, a heating system replacement, and a tax bill that rises with the assessment.

Financing an investment property

Two to four units: conventional loans. Most investors financing a small building use a conventional loan sold to Fannie Mae or Freddie Mac. Fannie Mae’s April 1, 2026 Eligibility Matrix allows up to 85% loan-to-value on a one-unit investment purchase and 75% on a two- to four-unit investment purchase (70% for a cash-out refinance on two to four units). Under the Selling Guide’s reserve rules, Desktop Underwriter requires six months of reserves for an investment property. If you own other financed properties, it adds 2%, 4% or 6% of their combined mortgage balances, depending on how many you have. Investment property loans also carry loan-level price adjustments, so the rate will be higher than an owner-occupied quote.

Counting the rent. Fannie Mae’s rental income rules let a lender use existing leases on a purchase. To add positive rental income to your qualifying income, you generally need at least 12 months of property management experience. Without it, the rent can only offset the property’s own payment. A first-time investor’s personal income has to carry more of the load.

DSCR loans. Some private and portfolio lenders offer “debt service coverage ratio” loans that qualify the loan on the property’s rent rather than your personal income. They aren’t a government program, so the down payment, minimum DSCR, prepayment penalties and rate are whatever the lender sets. Expect pricing above conventional loans, and read the prepayment terms carefully.

Five or more units: commercial lending. Fannie Mae and Freddie Mac define one to four units as single-family. Five units and up is “multifamily,” financed through banks, credit unions, agency multifamily programs and other commercial lenders. Typical differences:

• The loan is underwritten mainly on the building’s NOI and DSCR, with a cap on loan-to-value
• Terms are often 5 to 10 years with a longer amortization, which means a balloon or refinance later
• Many loans have prepayment penalties, and lenders may require personal guarantees
• The appraisal is an income-approach commercial appraisal, and the lender may order its own environmental and property condition reports

Get a term sheet from more than one lender before you write an offer, and make your financing contingency long enough for commercial underwriting. Our mortgage options by property type guide compares loan programs across property types.

Property tax without the residential exemption

Massachusetts taxes apartment buildings in the residential class, so a Boston rental building pays the residential rate. For fiscal year 2026, Boston’s rate is $12.40 per $1,000 of assessed value (City of Boston Assessing). As of October 2026, the FY2027 rate hadn’t been published. Boston sets it each year, and it appears on the third-quarter bill issued in late December. Ground-floor shops in a mixed-use building are assessed in the commercial class, which pays a much higher rate.

The difference for investors is the residential exemption. Boston reduces the taxable value of an owner’s principal residence. The city says it saved qualifying owners up to $4,353.74 in FY2026. You don’t get it on a building you don’t live in. Read how the residential exemption works.

Assessments are reset each year, so build in a rising tax line. For how bills are calculated and rates in nearby cities, see property tax rates in Boston and nearby towns. At closing, the seller pays the Massachusetts deed excise tax. See closing costs for what a buyer pays.

Massachusetts landlord rules that affect your returns

Massachusetts is a tenant-protective state, and several rules affect an investor’s cash flow directly.

Broker fees. Since August 1, 2025, Massachusetts law (St. 2025, c. 9) says a rental broker’s fee is paid only by the party who hired the broker. If you list your units with a broker, plan on paying the fee as a leasing cost. Our renting in Boston guide covers the law from the tenant’s side.

Rent control. Chapter 40P prohibits rent control on most private housing. A 2026 initiative petition would have capped annual rent increases at 5% or inflation, whichever was lower, with some exemptions. On June 23, 2026, the Supreme Judicial Court ruled it couldn’t go on the ballot, and it isn’t among the nine questions certified for November 3, 2026 (Secretary of the Commonwealth). Supporters have said they may try again for 2028. If you hold a building for years, check the status before relying on future rent increases.

Ending a tenancy. To end a tenancy at will, you give written notice of at least one rental period or 30 days, whichever is longer (c. 186, § 12). For nonpayment, a 14-day notice to quit is enough, but a tenant at will who hasn’t had a similar notice in the past year can stop it by paying within 10 days. A tenant with a lease can pay up to the court’s answer date (§ 11). You can’t remove a tenant yourself. Evictions go through a court case (summary process), usually in the Housing Court. Boston’s Housing Stability Notification Act also requires you to give tenants a notice of their rights along with any notice to quit or non-renewal, and to send the city a copy. Budget for legal fees and lost rent in any case that goes to court.

Registration and inspections. Boston requires every rental unit to be registered each year by July 1. A building you don’t live in is subject to the city’s routine rental inspections at least once every five years. As of October 2026, the city’s fees are $25 per unit for a first registration and $15 per unit to renew. The lead law, smoke and CO certificates, and deposit transfers at closing are covered in our multi-family buying guide.

Short-term rentals: generally not an investor option in Boston

If your numbers only work with nightly rentals, they likely won’t work in Boston. The city’s short-term rental rules only allow registration in owner-occupied properties. The owner has to have lived there at least nine of the past 12 months, or plan to for nine of the next 12. In a two- or three-family, the owner-occupant must own all the units and can register one other unit as an “owner-adjacent” rental. Units in a building you don’t live in don’t qualify. Stays of 28 consecutive days or longer aren’t short-term rentals under the ordinance.

Where short-term rentals are allowed, Massachusetts applies its room occupancy excise to stays of 31 days or less, and cities can add local taxes and fees. Outside Boston, check each community’s own rules.

Taxes when you buy, own and sell

These are federal tax basics. Ask your tax advisor how they apply to you.

• Depreciation. IRS Publication 527 says residential rental property is depreciated over 27.5 years under the general system, starting when it’s placed in service as a rental. Only the building is depreciable, not the land, so the purchase price has to be split between the two. Depreciation lowers taxable rental income now, but it can be taxed when you sell.
• Expenses. Ordinary costs of renting are generally deductible against rental income, while improvements are usually depreciated over time.
• 1031 exchanges. Under Section 1031, real property held for business or investment can be exchanged for other like-kind real property without recognizing gain right away. Cash or other property you receive can be taxable. The IRS says you have 45 days after the sale to identify replacement property in writing, and 180 days (or your tax return due date, if earlier) to complete the purchase. A home you live in doesn’t qualify. Exchanges are reported on Form 8824, and you usually need a qualified intermediary holding the sale proceeds. Set it up before you sell.
• Ownership structure. Many investors buy through an LLC for liability reasons. That can affect your financing (many conventional loans must close in your own name), your insurance and your taxes, so decide with your attorney and lender before the Purchase and Sale Agreement.

Insurance and property management

Insurance. Get a landlord or dwelling fire policy for a two- to four-unit building, or a commercial package for larger buildings. Ask about liability limits (many investors add an umbrella), loss of rents if a unit becomes uninhabitable after a fire or water damage, ordinance or law coverage for code upgrades after a loss in an older building, and equipment breakdown for shared heating systems. Require tenants to carry renters insurance.

Property management. Decide early whether you’ll self-manage or hire a manager, because it changes both your expenses and your workload. A manager handles leasing, rent collection, maintenance calls, the deposit accounting that § 15B requires, the yearly registration, and notices. Ask any manager:

Fair housing law applies to you as a landlord. Massachusetts protects more classes than federal law, including source of income, which means you can’t refuse a tenant because they use a housing voucher. You also can’t turn away families with young children because of lead paint.

This guide is general information, not legal, tax or lending advice. Confirm the details with a real estate attorney, your lender and a tax advisor before you buy.

If you’re weighing a two-family, triple-decker or larger building as an investment, The Pettengill Group can help you look at the rent roll and compare buildings. Start a search or contact us to talk it through.