Looking for the most important Boston real estate market trends in 2021?
Then you’ve come to the right place. When you think about the best places to invest in real estate in 2021, Boston is one of the first locations which come to mind. For decades Boston has been a top city for buying income properties because of the strong demand for both rental strategies: traditional and Airbnb. That’s why in this article we’ve put together all the real estate data, analytics, and information that you need in order to be up to date with the performance of the Boston housing market and to make an informed decision if this is the best place to buy a rental property for you.
The Drivers in the Boston Housing Market for Real Estate Investments
Before a beginner investor looks at the Boston real estate market forecast for 2021, it’s important to understand what drives the performance of the market. That’s why we’ve compiled a list of the key factors affecting Boston investment properties:
With a population of nearly 695,000 residents, Boston is the largest city in the State of Massachusetts, in addition to being the state capital, as well as the 21st most populous city in the entire US summer real estate market 2021. B-town has a young population, and millennials are more likely to rent a property rather than buy a home than any other age group in the US right now. While the population growth rate is just behind the national average, due to the large population size, the number of newcomers is enough to assure increasing demand for traditional rental properties. A low vacancy rate is a must-have for profitable real estate investments as it determines the traditional rental income as well as the cap rate and the cash on cash return.
Needless to say, Boston’s economy is diverse and fast-growing. Due to its location and history, it is a major port city which plays an important role in trade. Moreover, Boston is home to numerous colleges and universities, which makes it an educational and academic hub not only regionally and nationally but also internationally. This is one of the leading reasons why Boston is an important innovation and entrepreneurship center with over 2,000 startup companies.
Other important economic sectors include medicine, biotechnology, engineering, finance, business, information technology, and law. The city hosts a number of Fortune 500 companies. Having a diverse economy is an important factor in real estate investing. It means that even if one industry starts going down, the labor force will be able to relocate relatively easily to another sector and will not resort to such measures as delaying paying rent or stopping altogether.
While the Boston economy was inevitably negatively impacted by the Coronavirus pandemic in 2020, it’s already on the road to recovery this year. It’s expected to grow at a good rate which will bring more residents. And as we all know, migration is a major positive factor for real estate investors.
Related: 5 Best Cities for Buying Rental Property in 2021: Top Migration Destinations
You don’t need to be an expert on the Boston real estate market to know that it is a major tourist destination both nationwide and worldwide. The city attracts over 21 million visitors each year, including both domestic and international travelers. This number comprises of leisure tourists and business travelers who are attracted by the many historical sites, sports events, and economic and commercial opportunities.
The status of B-town as one of the most important tourist destinations in all of the US has been driving the incredible growth of Airbnb Boston. While there was a slowdown in the vacation rental industry in the city – as well as globally – during the pandemic, with the rollout of the Covid-19 vaccines, things are once again looking good for Boston Airbnb hosts. Recently, Brian Chesky, Airbnb CEO, said that millions of new Airbnb hosts will be needed to meet the expected boost in travels in the coming months. And the position of Boston guarantees a high Airbnb occupancy rate, which in turn is a prerequisite for good return on investment in terms of both Airbnb cap rate and Airbnb cash on cash return.
Related: What Airbnb Occupancy Rate Can You Expect in 2021?
Real Estate Laws and Taxes
If you are thinking about investing in the Boston real estate market in 2021, you will be happy to know that Massachusetts is considered a landlord friendly state. While the state landlord-tenant legislation protects the interests of both parties, laws tend to favor landlords, or investors, rather than renters. This means that the Boston rental market is good for buying an investment property to rent out traditionally.
On the other hand, the average property tax rate in the Massachusetts real estate market is 1.22%. This is above the national average real estate tax rate. That constitutes an important consideration for property investors as taxes are a cost which should be factored into investment property analysis. However, both traditional and Airbnb rental income in Boston are high enough to provide positive cash flow properties this year.
Related: 10 States with Low Property Tax in 2021
Boston Rental Properties Performance 2021
Now that you have a better understanding of what’s impacting the Boston housing market, let’s have a look at the performance of both long term and short term rental properties there. The numbers below have been computed by Mashvisor’s investment property calculator based on big data and predictive analytics. Our real estate software tools use machine-learning algorithms to analyze nationwide real estate data, figure out patterns, and predict the future performance of rental properties in the entire US housing market. That’s how the Boston real estate market 2021 is expected to look according to our analysis:
Boston Housing Market 2021 Forecast
- Median Property Price: $1,016,500
- Price per Square Foot: $802
- Real Estate Listings: 55
- Days on Market: 85
- Price to Rent Ratio: 31
- Traditional Rental Listings: 5,764
- Traditional Rental Income: $2,720
- Traditional Cash on Cash Return: 1.3%
- Airbnb Rental Listings: 1,430
- Airbnb Rental Income: $2,800
- Airbnb Cash on Cash Return: 0.6%
- Airbnb Daily Rate: $188
- Airbnb Occupancy Rate: 55%
To understand if a certain location is a good place for investing in real estate or not, it’s important to look not only at the current performance but also at how performance has changed over time. Based on Mashvisor’s real estate data 2020 and 2021, let’s see how the Boston market has evolved since the outbreak of the Covid-1 pandemic. Here are the most important trends that our data reveals:
Property Prices Are on the Rise
According to our Boston real estate data, the median property price of real estate listings in the city increased by 16% year-on-year. The annual growth in the price per square foot amounted to 15%, from $699 in 2020 to $802 in 2021. This is a major increase which exceeds the average real estate appreciation rate across the US housing market over the same period. This trend demonstrates the resilience of the Boston real estate market even against the face of a global pandemic and shows that this is indeed one of the top places for investing in rental properties.
Rental Rates Are Going Up
The year-on-year growth in rent is estimated at about 2%, which partially offsets the higher real estate prices which Boston investors have to pay in 2021. The price to rent ratio also went up from 27 in 2020 to 31 in 2021. This is a clear indicator of the stronger than ever demand for traditional rental properties as even fewer homebuyers can afford to buy a property this year.
Related: 2021 Price to Rent Ratio in the US Housing Market: What Should Investors Expect?
Long-Term Rental Properties Are Becoming More Profitable
The city-average cash on cash return for traditional rentals increased from 0.8% to 1.3%. While this seems relatively low, savvy investors should keep in mind that individual neighborhoods and investment properties for sale offer significantly higher returns, often reaching double digits.
Short-Term Rentals Offer Lower Return
Meanwhile, the rate of return on vacation home rentals in Boston has declined from 2.0% in 2020 to 0.6% in 2021. This negative change in Airbnb rental income in 2021 as well as profitability can be attributed to the pandemic and is expected to be reversed in the next few months as travel is resuming.
Traditional Rentals Have a Higher Profitability
The optimal rental strategy – Airbnb vs traditional renting – in the Boston housing market reversed over the last year. Airbnb rentals are no longer the more profitable real estate investing strategy as they were replaced by traditional rentals. Again, this real estate trend might be soon adjusted as travel restrictions fall.
Major Boston Real Estate Market Trends 2021: What Investors Need to Know
1. Affordability Will Be a Problem
According to real estate experts, Boston is one of the least affordable housing markets in the US for homebuyers. And our analysis above shows, the problem with affordable housing is deepening. This means that many people are forced to resort to renting rather than buying a home. This Boston real estate market trend is good news for real estate investors who have more financing options when buying a rental property including hard money loans and private money lenders. Even qualifying for a mortgage is easier for investors than for homebuyers as they can guarantee the loan with the expected rental income.
Related: 15 Most Affordable Real Estate Markets in 2021
2. Low Mortgage Rates Will Start Going Up
In 2020 and 2021 interest rates on mortgages reached an all-time low in the US housing market, as a result of the pandemic. That’s one of the reasons why a US housing market crash is not expected despite the economic crisis. However, experts forecast that mortgage rates will start rising soon. What this means for investors considering buying rental property in Boston is that now is the best time to act. You should secure a low, affordable mortgage interest rate now to push down your recurring monthly expenses and push up your rate of return.
Related: 10 States with the Lowest Mortgage Rates in 2021
3. Appreciation Will Be High
Speaking of real estate prices, the values of homes for sale in Boston, MA are expected to continue rising. Since the beginning of 2000, real estate appreciation in the Boston housing market has been 137%, exceeding both the Massachusetts and the national averages. Between 2020 and 2021, Boston real estate prices increased by 16%, according to data from Mashvisor. In 2021 Boston market prices are forecast to increase even further, worsening affordability for homebuyers. However, real estate investors are also encouraged to buy Boston rental properties sooner rather than later before prices – and mortgage rates – become a challenge for them as well.
Meanwhile, a Boston housing market bubble is not in the horizon for 2021 or the next few years.
4. Boston Will Be a Seller’s Market
Similar to most of the best places to invest in real estate in 2021, the Boston real estate market is a hot, seller’s market this year. There is a strong demand for Boston real estate from property buyers, while inventory has decreased since last year. Moreover, the listing prices of houses for sale in Boston, MA are increasing at an above-average rate, which is another sign that Boston 2021 is a seller’s market. Still, the city remains a good investment location for savvy investors who use the right tools to make quick decisions and work with an agent.
5. Boston Has Above Average Foreclosure Rates
Boston real estate market analysis reveals that the foreclosure rate in both Massachusetts and Boston exceeds the national average despite the foreclosure moratorium ending on June 30th, 2021. This is good news for new real estate investors as well as other investors on a tight budget. Foreclosed homes usually sell for a fraction of their current market value, while after some cost-efficient fixes and repairs they can be rented out at market rates. This makes foreclosures excellent investment properties. In general, buying cheap real estate is one of the ways to maximize your rate of return on rental properties right away.
Related: How to Buy a Foreclosure in 2021
6. Rental Demand Is High in the Boston Real Estate Market
As many as 67% of Boston residents are renters rather than homeowners, according to NeighborhoodScout. This is one of the highest rates of renting vs. homeownership nationwide. From the perspective of Boston, MA real estate investors, this means that there are about 466,000 potential tenants, and this number is expected to continue increasing in 2021. Thus, strong demand for traditional rentals is one of the most important Boston real estate market trends for 2021.
If as an investor you prefer the Airbnb rental strategy, you should know that demand for Boston short term rental properties is also high. More than 21 million people visit B-town per year, and many of them will prefer the comfort and affordability offered by vacation rental properties. So, despite the decline in performance in the Boston Airbnb industry last year, things are looking for in 2021.
However, since we are mentioning investing in Airbnb Boston rentals, we should go over the legal situation in this regard.
7. Airbnb Boston Is Only Legal for Owner-Occupied Properties
After the establishment of Airbnb.com in 2008 and the consequent emergence of other similar homesharing platforms, Boston Airbnb was one of the fastest growing short term rental industries not only nationally but also globally. This is only natural taking into consideration the important status of the Massachusetts capital economically, financially, academically, and tourism-wise. In 2018 alone Boston Airbnb hosts earned a total income of $101.9 million.
As could be expected, there were numerous concerns among citizens regarding their safety, security, and comfort in residential real estate buildings with the constant movement of Airbnb guests in and out. This forced the City of Boston to vote for new Airbnb laws in 2018.
According to the current short term rentals legislation in Boston:
- A short term rental in the Boston housing market constitutes the use of a residential building for residential occupancy for a fee for less than 28 consecutive calendar days. There are 3 types of short term rentals:
- Limited share units have a private bedroom or shared space in an owner-operator’s primary residence. The Boston Airbnb host should be present during the stay and needs to pay a fee of $25 per year.
- Home share units have a whole unit available for short term renting at the primary residence of the owner-operator. The annual fee is $200.
- Owner-adjacent units constitute a single secondary unit within an owner-occupied two- or three-family building (duplex or triplex). The Airbnb host has to pay an annual fee of $200.
- Only owner-occupied primary residences can be rented out for 28 days or less as limited share or home share units. Owner-occupied means that the Airbnb host has lived on site for a minimum of 9 out of the past 12 months and plans to live there for at least 9 out of the next 12 months.
- Airbnb in Boston is only legal for residential-use buildings excluding congregate living complexes, elderly housing, group residences, homeless shelters, orphanages, temporary dwelling structures, and transitional housing.
- All Boston Airbnb rentals need to the registered with the City, and hosts need to renew their short term rental license each year.
What this means is that non-owner occupied Boston investment properties rented out on Airbnb and other homesharing platforms will not be an option in 2021, leaving out of state investors out of the picture. However, investors in the real estate market in Boston in need of a home can resort to house hacking.
While house hacking is usually associated with long term rentals, it can be applied to vacation homes as well. As a new real estate investor, you can buy a single family home, townhouse, or apartment with a few bedrooms to rent out a room or two on Airbnb as a limited share unit or a home share unit. You can also buy a duplex or triplex to rent out the secondary housing unit on short term basis. It depends on your budget and your investment goals.
8. All Property Types Are Available in the Boston Housing Market
Another important trend in the Boston housing market forecast for 2021 is that there is no prevailing property type. Homes for sale in Boston, MA come in all shapes and sizes including single family homes, condos, apartments, townhouses, and multifamily homes. That’s great news for investors with different budgets and different preferences in terms of property type. If you’re interested in investing in any other property type in the Boston real estate market 2021, click the button below:
9. The Boston Real Estate Market Is Forecast to Be the 9th Nationwide for Overall Prospects
The prestigious PwC Emerging Trends in Real Estate: United States and Canada 2021 publication ranks Boston as #9 among all US housing markets for overall real estate prospects in 2021. Investor demand in Boston is expected to be strong, the 5th nationwide after the Austin real estate market, Dallas/Fort Worth, Nashville, and Charlotte. One of the most important factors which will continue driving the growth and development of the Boston market is its position as a leading tech, education, and finance market. The trust which such an authority in the real estate industry puts on Boston should be a strong indicator for residential rental property investors.
10. Return on Investment Will Be Above Average
We’ve left the most important among the Boston real estate market trends to the end – to be the cherry on top of the cake. According to Mashvisor’s nationwide real estate market analysis, Boston investment properties will bring one of the highest rates of return in 2021, for both rental strategies. While the cash on cash return numbers above might not look like a lot, property investors should keep in mind that these are just city-level averages. The best Boston neighborhoods for buying rental properties as well as individual houses for sale in Boston, MA offer significantly higher return on investment.
To find out what return on investment to expect for rental properties in the US housing market in 2021, read 2021 Cash on Cash Return by City: What to Expect as a Real Estate Investor.
Real estate investing in 2021 will be all about having access to the latest technology inspired by AI. Thus, make sure to read 5 Best Real Estate Investment Tools.
Top Boston Neighborhoods for Investing in Real Estate
All in all, the Boston real estate market trends for 2021 are all positive. Things are generally looking good for investors interested in B-town rental properties.
However, if you are new to the world of real estate investing, you probably have no idea where to start to make a profitable property investment in 2021. The best way to move forward is to have a look at the most profitable neighborhoods in Boston for both long term and short term rentals. if you decide to go for an Airbnb Boston investment property, remember that only owner-occupied primary residents can be rented out on short term basis in the current real estate market in Boston. Thus, you should choose an area where you’d feel comfortable living as well as a location which yields high return on investment.
The figures below have been provided by Mashvisor’s rental property calculator. The calculations are based on predictive analytics as well as real estate comps and traditional and Airbnb rental comps from the Boston housing market.
Best Neighborhoods in Boston for Traditional Rentals 2021
1. North End
- Traditional Cash on Cash Return: 2.9%
- Median Property Price: $465,000
- Traditional Rental Income: $2,700
- Price per Square Foot: $936
- Real Estate Listings: 1
- Traditional Rental Listings: 31
North End takes the first place among the top locations for traditional rentals in 2021 in the Boston housing market as a result of the the highest rate of return on this rental strategy. Another great factor – as you will see in a bit – is that this area is also very profitable for short-term rentals.
- Traditional Cash on Cash Return: 2.6%
- Median Property Price: $590,000
- Traditional Rental Income: $4,160
- Price per Square Foot: $1,132
- Real Estate Listings: 1
- Traditional Rental Listings: 8
Real estate investors interested in buying a long-term rental property in Boston this year should look into the Downtown area. The rental income is excellent, combined with affordable home values.
3. West End
- Traditional Cash on Cash Return: 2.2%
- Median Property Price: $589,000
- Traditional Rental Income: $3,470
- Price per Square Foot: $729
- Real Estate Listings: 7
- Traditional Rental Listings: 20
Third on our list of the top Boston neighborhoods for the traditional rental strategy is West Bank. According to our real estate data analytics, CoC return here is above the average.
4. Downtown Crossing
- Traditional Cash on Cash Return: 2.1%
- Median Property Price: $1,199,000
- Traditional Rental Income: $3,750
- Price per Square Foot: $9292
- Real Estate Listings: 5
- Traditional Rental Listings: 11
Buying rental properties to rent out traditionally can be a lucrative choice in Downtown Crossing. However, home values are high, so this area is better suited to experienced investors with established financing options.
Best Neighborhoods in Boston for Airbnb Rentals 2021
1. West Roxbury
- Airbnb Cash on Cash Return: 4.5%
- Median Property Price: $712,000
- Airbnb Rental Income: $3,210
- Airbnb Occupancy Rate: 72%
- Price per Square Foot: $391
- Real Estate Listings: 2
- Airbnb Rental Listings: 8
West Roxbury heads our list of the top Boston neighborhoods for investing in Airbnb rentals. The reason for this is simple – this area offers the highest Airbnb cash on cash return as well as the highest Airbnb occupancy rate in 2021.
2. North End
- Airbnb Cash on Cash Return: 3.8%
- Median Property Price: $465,000
- Airbnb Rental Income: $3,540
- Airbnb Occupancy Rate: 65%
- Price per Square Foot: $936
- Real Estate Listings: 1
- Airbnb Rental Listings: 29
North End is another Boston area which offers a high return on investment for short-term rental properties. Also, it’s relatively affordable in terms of property prices, which makes it ideal for beginner investors.
- Airbnb Cash on Cash Return: 2.7%
- Median Property Price: $489,000
- Airbnb Rental Income: $4,360
- Airbnb Occupancy Rate: 63%
- Price per Square Foot: $526
- Real Estate Listings: 1
- Airbnb Rental Listings: 73
Brighton provides the highest Airbnb income among all neighborhoods in Boston this year. That’s what makes it a perfect location for savvy Airbnb hosts.
4. South Boston
- Airbnb Cash on Cash Return: 1.9%
- Median Property Price: $699,000
- Airbnb Rental Income: $3,580
- Airbnb Occupancy Rate: 44%
- Price per Square Foot: $688
- Real Estate Listings: 7
- Airbnb Rental Listings: 58
South Boston is another neighborhood which you should also consider in your Boston Airbnb investment property search. The rate of return on vacation rentals exceeds the city average.
All necessary factors are present to make the Boston real estate market trends 2021 positive. The Boston housing market is expected to continue growing at a reasonable rate, providing long term appreciation. Short term return on investment is also good, for both rental strategies. While both traditional and Airbnb rentals are an option in Boston, long term rentals are the only ones which can be used as independent, full-time investment properties. If you’re interested in buying an investment property in Boston in 2021, sign up for Mashvisor now to get access to all our tools.