Are you eyeing a Medford three-family but unsure how to judge if the numbers work? You are not alone. Multifamily deals in Greater Boston move fast, and small assumptions about rent or utilities can swing returns by thousands each year. In this guide, you will learn how to build reliable rent comps, model income and expenses, calculate cap rate and cash-on-cash, and prepare for lender underwriting. You will also see common value-add plays and a local due diligence checklist. Let’s dive in.
Why Medford three-families appeal
Medford attracts steady rental demand because it sits close to Boston job centers, has MBTA service including the Green Line Extension through Medford, and benefits from Tufts University’s student and staff presence. These fundamentals help support strong occupancy and competitive rents compared to many outer suburbs.
At the same time, supply is constrained. The housing stock includes many older wood-frame multifamilies, and zoning and permitting limit new supply. When you compare Medford to Cambridge and Somerville, you often find slightly lower rents and prices, which can improve entry points while keeping a strong renter pool. Relative to farther suburbs, Medford typically commands a premium due to transit and job access.
Build accurate rent comps in Medford
Strong underwriting starts with a realistic rent roll. Focus on unit-level data and micro-markets.
Segment by micro-markets
Medford is not one-size-fits-all. South Medford, West Medford, Medford Square, and the Tufts area can rent differently. Proximity to Green Line Extension stations and frequent bus routes matters. Segment comps by neighborhood to avoid averaging away location-driven rent premiums.
Collect recent rental comps
Pull active and recently rented 1, 2, and 3 bedroom listings from the most recent 6 to 12 months. Cross-check multiple sources to reduce outliers. Confirm details like beds, baths, square footage, floor level, and parking. Favor rented comps when available, not just asks.
Adjust for features that move rent
Normalize each comp for key features:
- In-unit laundry, modern kitchens and baths
- Central air, updated windows, or efficient heat
- Parking availability vs. street parking
- Utilities included vs. tenant-paid
- Proximity to Green Line Extension stations and Tufts
- Furnished vs. unfurnished, and lease length
Note premiums and discounts in dollars, not just percentages, to keep adjustments grounded in today’s market.
Normalize concessions
If a comp offered a free month or discounted first month, spread the concession over the lease term to convert it to a normalized monthly rent. This prevents you from overestimating achievable rent.
Set a realistic vacancy factor
Use local vacancy trends from credible apartment market reports and adjust for your tenant profile. A 4 to 8 percent vacancy and credit loss range is a common starting point in stable inner-suburban markets. Properties near campuses can see higher turnover, so model that risk.
Model income and expenses
Your goal is to move from a clean rent roll to a clear Net Operating Income. Separate operating costs from one-time capital work.
Create a rent roll and other income
- List each unit with market rent, bed/bath count, and square footage.
- Apply your vacancy and credit loss percentage to get Effective Gross Income.
- Add other income from parking, laundry, storage, or pet rent where applicable.
Include full operating expenses
Capture all recurring costs. Typical categories include:
- Property taxes and insurance
- Utilities: water and sewer, gas, electric, heating fuel
- Repairs and maintenance
- Capital reserves for systems like roof, boilers, windows
- Property management, even if you self-manage, to reflect the true cost of time
- Landscaping, snow removal, and trash
- Leasing and turnover costs: cleaning, paint, minor repairs
- Legal, accounting, and permits
- Vacancy and credit loss
- HOA or shared fees if applicable
Rule-of-thumb allocations can help you start, but verify locally:
- Vacancy and credit loss: often 4 to 8 percent of potential gross rent
- Management: 6 to 10 percent of effective gross income if professionally managed
- Repairs and maintenance: 5 to 10 percent of gross rents
- Capital reserves: consider $300 to $1,000 per unit annually, adjusting for building age and condition
Always pull exact tax figures from the assessor and get current insurance quotes.
Understand utility responsibility in Medford
Patterns vary by building vintage and metering:
- Water and sewer are often owner-paid in older buildings with shared meters.
- Heat and hot water can be owner-paid if there is central steam or hot-water heat.
- Gas and electric are commonly tenant-paid when separately metered. If meters are shared, owners may pay and recover costs via a flat fee.
- Snow, landscaping, and trash removal are typically owner expenses.
Ask for 12 to 24 months of utility invoices during due diligence to improve accuracy.
Plan reserves and contingencies
Older Medford three-families often need near-term work on boilers, chimneys, roofs, or electrical. Budget an immediate reserve based on inspection findings. For ongoing reserves, set a baseline and escalate rents and expenses annually in your model. Many investors use 2 to 5 percent for rent growth and 2 to 4 percent for expense growth, then adjust to current trends.
Run cap rate and cash-on-cash
You can compare properties quickly when you use consistent definitions and steps.
Key definitions
- Potential Gross Income: sum of market rents at full occupancy
- Effective Gross Income: PGI minus vacancy and credit loss plus other income
- Net Operating Income: EGI minus operating expenses
- Cap Rate: NOI divided by purchase price
- Debt Service: annual principal and interest payments
- Cash-on-Cash Return: (NOI minus debt service) divided by total cash invested
- Loan-to-Value: loan amount divided by purchase price
- Debt Service Coverage Ratio: NOI divided by annual debt service
Step-by-step workflow
- Build the rent roll by unit using your comps and adjustments.
- Calculate PGI and subtract vacancy and credit loss.
- Add other income to get EGI.
- Subtract operating expenses to get NOI.
- Cap rate equals NOI divided by price.
- For financed deals, calculate your annual mortgage payment to get debt service.
- Total cash invested equals down payment plus closing costs plus initial capital work and reserves.
- Cash-on-cash equals NOI minus debt service divided by total cash invested.
- Run conservative, expected, and aggressive cases for rents, vacancy, and reserves.
Sensitivity testing
- Test a rent-up plan after renovations with realistic downtime for work.
- Stress test for an unexpected capital item, like a boiler replacement, and see how it affects cash flow.
- Compare the resulting cap rate to prevailing small multifamily cap rates in inner Middlesex County. If your deal only works with very aggressive rent growth, revisit price or plan.
Lender and underwriting essentials
Financing terms affect returns as much as rent and expenses do. Prepare for lender expectations upfront.
Common loan options for 2 to 4 units
- Conventional loans through Fannie Mae or Freddie Mac, and local portfolio lenders. Investor loans often require higher down payments than owner-occupied loans.
- FHA loans for owner-occupants can allow lower down payments on 2 to 4 unit buildings, subject to program and property standards.
- VA loans may be available to eligible veterans for owner-occupied multi-unit properties.
- Bank portfolio loans and credit unions often provide flexible underwriting and consider borrower experience.
- DSCR-focused loans underwrite primarily to property cash flow rather than borrower W-2 income.
Documents lenders will request
- Current rent roll and signed leases, or a market rent analysis if units are vacant
- 12 to 24 months of income and expense history if available
- Appraisal and inspection
- Evidence of reserves, often 6 to 12 months of mortgage payments for investors
- A management plan and a high-level renovation plan if you intend to improve units
How lenders count rental income
- Lenders typically use in-place leases for income. For vacant units, they may use a percentage of market rent and apply a vacancy factor of 5 to 10 percent.
- Taxes and insurance are verified directly and can affect debt service coverage.
- Reassessments after purchase can change tax bills, so stress test for increases.
Appraisal and value drivers
Appraisers will weigh recent 2 to 4 family sales, gross rent multipliers, per-unit comparables, and rent comparables. If you plan renovations, include a clear scope with costs and timelines. Some lenders require renovation escrows or specific renovation loan products.
Down payment expectations
Owner-occupied financing options often allow lower down payments than investor-only loans. Non-owner investors should plan for lower maximum LTV and higher rates. Portfolio loans may offer flexibility at a pricing premium.
Value-add plays and permitting
Value-add in Medford can create both higher rent and lower operating costs. Always confirm zoning and code before starting work.
Upgrades that move rents
- Modernize kitchens and baths, add better lighting and durable flooring n- Add or improve in-unit laundry where feasible
- Reconfigure layouts or finish attic or basement space where legally allowed
- Energy upgrades like efficient boilers or heat pumps can reduce owner-paid utilities and may qualify for energy program incentives
- Improve curb appeal and parking to attract commuters and reduce vacancy
Local code and regulatory risks
- Confirm zoning, legal unit count, and occupancy limits. Many three-families are non-conforming and require care with alterations.
- Pull permits for structural, mechanical, and electrical work, and include time and cost in your plan.
- Understand lead paint and safety requirements for pre-1978 buildings and plan for compliance.
- Check if any rental registration or periodic inspection requirements apply.
- Consider historic district constraints before exterior work.
Due diligence checklist for Medford three-families
- 12 to 24 months of profit and loss statements and rent history
- Utility bills for the same period
- Last property tax bill and any pending assessments
- Full building inspection, including roof, foundation, and chimney
- Mechanical system ages and service records
- Proof of legal unit count and certificate of occupancy
- Any outstanding code violations or open permits
- Comparable rents and recent 2 to 4 family sales from the last 6 to 12 months
- Insurance quotes that reflect planned use and improvements
Simple worksheets you can copy
Use these fields to build your own underwriting kit.
Rent comp worksheet
- Address and neighborhood micro-market
- Unit type and bed/bath count
- Square footage and floor level
- Asking rent and actual rented rent
- Concessions and normalized monthly rent
- Utilities included vs. tenant-paid
- Amenities: laundry, parking, AC, outdoor space
- Date listed or leased
- Distance to the nearest Green Line Extension or major bus route
Operating budget template
- Potential Gross Income by unit
- Vacancy and credit loss percentage
- Other income: parking, laundry, storage
- Operating expenses by line item: taxes, insurance, utilities, repairs, management, landscaping, snow, turnover, legal, permits
- Net Operating Income
- Financing inputs: rate, term, amortization, points
- Annual debt service
- Initial capital work and reserves
- Cash-on-cash calculation
Quick sensitivity set
- Conservative: lower rents, higher vacancy, higher reserves
- Expected: base rents and expenses from comps and bills
- Aggressive: rent premiums post-renovation, stable vacancy, moderate reserves
Lender prep checklist
- IDs, credit, and proof of funds
- Two years of tax returns and a current personal financial statement
- Rent roll and leases, plus a market rent analysis
- Year-to-date P&L and trailing 12 months expenses if available
- Renovation scope, quotes, and timeline
- Management plan and resume of experience if applicable
Next steps
If you build comps by micro-market, model utilities correctly, and run multiple scenarios, you will move faster and offer with confidence when the right Medford three-family hits the market. If you want a second set of eyes on your numbers, introductions to local lenders, or help sourcing on and off-market opportunities, connect with John Dolan. A short conversation can shorten your search and sharpen your underwriting.
FAQs
How should I estimate vacancy for a Medford three-family?
- Start with a 4 to 8 percent range for stable inner-suburban markets, then adjust for your tenant profile and micro-market turnover based on current comps and local reports.
What cap rate should I target in Medford?
- Use cap rate as a comparison tool, then focus on risk-adjusted cash flow. Compare your modeled cap rate to recent small multifamily sales and stress test for tax and utility changes.
How does the Green Line Extension affect rents near stations?
- Proximity to MBTA stations can support higher rents due to improved commute access, so segment comps by distance to stations and test rent premiums in your model.
Who typically pays heat and hot water in older three-families?
- Many older buildings have central steam or hot-water systems that the owner pays, while separately metered upgrades can shift costs to tenants. Verify with 12 to 24 months of utility bills.
Can I buy a Medford three-family with a low down payment?
- Owner-occupants may access lower down payment programs on 2 to 4 unit properties subject to eligibility and property standards, while investor loans often require larger down payments.
What documents should I request during due diligence?
- Ask for leases, a trailing 12 to 24 months of P&L and utility bills, the latest tax bill, inspection reports, mechanical ages, proof of legal unit count, and any open permits or violations.
