When Andrew and Chelsea Doughty walked into a house on Grove Street in Concord for the first time, they didn’t hesitate.
The Northern New England Real Estate Network currently lists more than 200 residential properties for sale in Concord, but the Doughtys were searching in a smaller niche. About 30 of those 200 local listings – 15 percent – are for multifamily homes. The average cost of a two-bedroom apartment in Concord is close to $1,200 per month – so the rent from the second unit will offset almost all of the Doughty’s monthly mortgage payment on their new house.
Not a bad deal for a first-time homebuyer.
Of the five properties the Doughtys toured, however, most listings sold in one to three weeks.
“We made an offer the same day we saw it,” Andrew Doughty, 29, said of the well-maintained, 1870s two-family home.
Realtors and experts say the Doughtys are part of a growing trend. As the market recovers from the recession and rents continue to climb, multifamily homes are a sweet spot on the Concord real estate map.
In particular, homes with two to four apartments are selling quickly to buyers who will live in one unit and rent out the others.
“They can spend more money if they are purchasing a two-unit,” said Realtor Christy Blouin-Mark of Christy Goodhue Real Estate. “They could spend $250,000 or $300,000 if they could use the income from the rental unit to offset the debt.”
A ‘healthy housing market’
Sales are up for both single-family and multifamily homes.
In a recent market report, the New Hampshire Association of Realtors last month recorded the greatest number of single-family home sales for any June since 2005. The median sale price – $254,500 – was the highest for any June since 2008.
Dave Cummings, director of communications for the New Hampshire Association of Realtors, said those numbers point to a continuing recovery.
“We’re simply in a healthy housing market,” Cummings said.
That healthy market for real estate includes Concord. The city assessor recorded 208 single-family home sales in 2011, but that number climbed to 334 in 2014.
While the volume of multifamily home sales is smaller than that of single-family houses, that upward trend is the same. In 2011, the city assessor noted only 10 sales for two-family properties in Concord. In 2014, 20 two-family homes and 11 three-family homes sold.
So far for 2015, the city is on track to top those numbers again; 22 two-family homes have been sold this year as of July 10.
“I would say the greater demand is two- to four-unit buildings,” Blouin-Mark said.
Despite that recovery in the real estate market, buyers are more cautious than they were in 2004 and 2005. And as prices for starter homes climb back up toward previous levels, young couples like the Doughtys are attracted to the financial benefits of a two-family home.
Realtors said they have also seen interest in multifamily properties from buyers who want family members to live with them.
“First-time homebuyers in the last two years are becoming more financially savvy,” Realtor Robin Dennis of RE/MAX said. “They are very focused on staying within their budgets, so in my opinion, they’re looking at these multifamily homes as a way to basically live for free – have your tenant pay your mortgage or the majority of your mortgage. They’re able to purchase more house for the money.”
Although the inventory of both single and multifamily homes in Concord is low, demand is high. Realtor Kathy Lee of BHHS Verani recalled another agent who listed two multifamily properties in the Concord area – and within 24 hours, had offers on both.
“We had some investors that have been looking now for a while, and they’ve been missing out because there are multiple offers,” Lee said. “They’re even offering to pay above the asking price. Right now, there does seem to be a strong demand to purchase the multifamilies.”
Between multiple local agencies, Lee counted 12 multifamily homes under agreement in early June. A well-maintained home, she said, goes fast.
“There are some that have been on the market for a while,” she said. “I’m going to chalk that up to the fact that they are either in a bad location or the condition. . . . If it’s something that requires a lot of work, you tend to see people not as aggressively pursuing those.”
More renters, higher rent
The combination of low inventory and high demand has another side effect: rising rent for eventual tenants.
“Ultimately, it’s a supply and demand issue,” said Dean Christon, executive director of the New Hampshire Housing Finance Authority.
The recession slowed the number of new starts on multifamily or rental properties, and the market isn’t as hot as it once was.
But people – both millennials who can’t afford to buy yet and seniors looking to downsize – are renting more often.
So the stock of rental units is down, but the interest in them is up. In addition to creating extremely low vacancy rates, Christon said that tension only drives rent up. According to data from the Housing Finance Authority, Merrimack County has both a lower vacancy rate and a higher average rent than the state averages.
“We just don’t have as much production of multifamily housing as we need to keep up with this demand,” Christon said.
The more rental housing built, he said, the more stable the rates in the rental market. But he predicted the interest in buying smaller multifamily homes will continue to go up.
“It is likely that the value of two- to four-family units will continue to go up as the demand for rental housing increases and rent increases,” Christon said. “The opportunity to build those is not always available now in many of our markets.”
Opportunities to invest
Ben Kelley is one of the local investors capitalizing on the current climate for rental housing. The 29-year-old developer owns about 20 units in Concord. Kelley and his wife, Karina, rehab distressed homes with four to six apartments inside, and then they hold the properties to act as the landlord and collect rent on their investment.
“My personal thought is that there’s a very sore, huge lack of quality and affordable housing,” Kelley said. “There’s a lot I see for rent out there on Craigslist, but it’s all, in my opinion, not very quality stock.”
So he updates the kitchen equipment and adds new bamboo floors. And his investments pay off. He recently bought a house on South Main Street with six apartments that hadn’t been updated in seven to 10 years. One-bedroom apartments were renting as low as $500 a month before Kelley bought it.
For the new digs, he’s getting between $750 and $950 per month.
“Basically a 50 percent increase,” Kelley said.
As an investor who needs a return, Kelley said he prefers buildings with more than two or four units. But he noted Concord developers don’t often flip – buy, rehab, sell – properties as often as those in Manchester.
Like him, they hold onto the buildings and act as landlords.
“There’s not as many multifamily investors buying and selling on a recurring basis,” Kelley said.
Or like Andrew Doughty, they live alongside their tenants. Perhaps those young homebuyers will become a future generation of investors as well.
“Eventually, we could have it as an income property,” Doughty said of his new home. “We like the potential of having that later down the road.”
(Megan Doyle can be reached at 369-3321, email@example.com or on Twitter @megan_e_doyle.)