Newark - Ironbound Rental Strategy - thoughts?

Question

Hello All.  We are closing on a multi-family in Newark NJ next week, the property is a four minute walk to Penn Station and has great rental potential.  The home is dated in style and has not been renovated since the 60s but has been very well maintained and we are receiving a home that is furnished.   It it is two units consisting of one unit - a 2 bedroom, 1 bath with access to a basement with a full bath and a 2 bedroom, 1 bath plus an attic that currently has two beds.  There is significant construction in the area with several condos going up and we had an idea for tenants.  We were thinking about approaching the construction workers who are working on a building being built right beside our property with a completion date of October 2022.

We were thinking the following:  1) we know these potential tenants have a paying job, 2) no commute for the tenants which would be appealing 3) most are men who are working and sending money home to their families so a dated decor is not a big deal and they just need a place to crash 4) renting these guys enables us to get income immediately vs spending money updating the property.

Our ask of this community is - are we missing something?  Are there risks we are not considering or actions we should take to cover ourselves.  It is the first time we are renting out a multi-family and would appreciate the collective experience of this forum.

Ryan Paltridge · Answer

Hey @Steven Kelts,

I own in the ironbound section of Newark and I have similar tenants to what you are describing. Think a big component is amount of available rooms where people could sleep. Whatever the tenants tell you in regards to amount of people living there, chances are there will be more then they claim. Not a big concern of mine as long as they dont damage the property and pay rent on time. With that being said, I still think its worth doing the renovation, as you would be able to rent those units at a premium. I'm surprised myself with some of the rates you can get in this area of newark. You wont have any problen renting them out. PM if you want to discuss or I can help in any way.

Drew Sygit · Answer

We've rented a STR to two out-of-state construction crews and both times the property was somewhat trashed.

They tracked debris in everywhere, carpet cleaning had to be done twice

Didn't take showers before going to bed, so all the sheets were ruined

Ruined the towels when they did take showers as they werefull of construction crap

Left garbage piled up inside instead of putting it in the exterior trashbins

Overall, we still made some money, but have turned down all construction crews since.

IF you were going to pursue your strategy, suggest you rent out by bed (not room) and supply some hygiene basics. Just make sure you check with local government to make sure you wn't get in trouble for renting this way.

Anthony Marin · Answer

@Steven Kelts

Hi Steven, I am an investor, owner of a brokerage (focusing on property management and tenant placement) and a resident of the Ironbound section of Newark.  In my opinion you are over-valueing short term gains instead of thinking about the potential of stable, lucrative long term gains.  The area you're in is considered one of the best areas in Newark and if you renovate those apartments to a high standard you will get rents at the high range of all rents in Newark.  The other thing to consider after you renovate, is that you can do a cash-out refinance and recover funds.   Your idea of renting to the construction workers nearby is not bad but after October 2022 you'll be in the same situation and no one knows where the market, rates, rents, etc. will be.  @Ryan Paltridge is correct about the subleasing for those tenants, you may think you're renting to two and it may wind up being a lot more.  Playing the long game has never hurt me is real estate, but being short-sighted has bitten me in the ass a few times.  Please feel free to reach out to me if I can be of any assistance.

Ronald Rohde · Answer

Would you be renting by room? or entire unit? You can get detailed agreements and try to enforce via a security deposit.

Steven Kelts · Answer

Thank you, Vanessa, and everyone.  Very helpful!

Vanessa Regalado · Answer

@Steven Kelts we are a local property management company in Newark NJ. One thing to consider is the legality of renting rooms when the property is not a rooming house. #2 some of the construction workers might not have legal documents which is highly important to consider when trying to check on their background, credit etc. We have seen both cases, renovated vs not renovated apartments from our clients and the renovated Units rent for much higher returns and the quality of the tenants are much better too. Good luck with everything and feel free to reach out of you need any help!

Chad Hechme · Answer

@Ryan Paltridge

Hey Ryan, i am in the process of puting an offer on a vacant multi family property in ironbound, but my concern is would there be any limitations to how much rent I can ask for by the rent control board? Or being that the property is vacant I can pretty much ask for market price?

Thanks in advance for your help

Newark - Ironbound Rental Strategy - thoughts?

Most Popular Reply