Purchase options in Journal Square and Hoboken

[Brian Dalton]

My wife and I are currently looking at 2 properties to purchase as investments: one in Hoboken, one in the Journal Square area. Details are as follow:

#1 is in the Journal Square area and would be an appreciation play. Quiet block, well managed building.

Price: $245K

35% down, finance the rest around 4%

P&I is about $760

Taxes, fees, and insurance are around $750

Monthly rent: around $1700-$1850

Monthly cash: $181-$331

Cash on cash: 2.5%-4.6%

#2 is in Hoboken, near Columbus park (btwn Clinton & Grand/9th & 10th Streets). Not so much an appreciation play, but more of a steady income. 

Price: $399K

20% down, finance the rest around 4%

P&I is about $1525

Taxes, fees, and insurance are around $610

Monthly rent: around $2350-$2450

Monthly cash: $217-$317

Cash on cash: 3.3%-4.8%

Thoughts?

[Pancham G.]

@Brian Dalton: I think it really depends on what kind of return you are looking for. To me the monthly positive cashflow looks too low. Depending on the condition of the properties, that positive cashflow will be gone in one major repair. Also, you have added anything for the lawn/utilities/snow/etc. I am assuming everything is paid by them? I would also factor in some repair budget. Also, the CoC looks very low. Both of those areas are appreciating, so if you are very bullish on those sub locations, then it may be ok but I would be watchful.

[Thomas Butler]

are you going to be managing this yourself?  That may factor in as you will have a better tenant base in Hoboken vs journal square.  Also have a few questions.

1. Did you factor in HOA and expenses/ repairs as that can make this a loss

2.  Are you familiar with Hoboken Rents?  Seems for 400k you are going to get a real tiny bedroom and 1 bathroom so I see it hard getting 2450 but happy to look more if you want to send me pictures.  Also location isn't prime Hoboken.

[Account Closed]

I live in Hoboken too. I feel as a landlord in town you still have to factor in some vacancy into your equation.  That 2350 rent is optimistic more than conservative for places that are 400k unfortunately. Usually, those are the 1 bedrooms for 600 sq ft.    I think you should focus on wanting either capital appreciation or cash flow.  

If it were me I would focus on places that will becoming better in 5 years in our area.  Fix them up, get a higher quality tenant and slowly increase rents.  Multis.

Journal square you can find value if you know the blocks well though. I don't. Good luck.

[Ryan Goldfarb]

@Brian Dalton - I agree with the guys above... It sounds like your marginal monthly cash flow can become negative pretty quickly.

A lot of people buying condos in Hoboken as "investment properties" nowadays are doing more so as a means of parking cash rather than yielding cash flow. In combination with the amount of demand from owner occupants looking to buy, values are up, and investment prospects are marginal at best on condos. On the flip side, there's something to be said for the safety of investing in Hoboken -- both in terms of the tenant quality and strong demand for the market.

I also agree with @Thomas Butler and @Account Closed about the rents and vacancy. The location isn't top tier for Hoboken, and the rent seems kind of optimistic. You'll also want to factor in something for vacancy, as the only way you'll avoid that is if your tenant stays forever. If your tenant signs a 12-month lease and then moves out, chances are you'll need some time to clean up the place while also syncing the move-in date with the new tenant. Optimistically, let's say that takes two weeks. Even if that's the only vacancy you experience, that's still an economic vacancy of 4% (15 days / 365 = ~4%). Based on your projected rent, that's $1,100 - 1,200 per year, or about $100/month. By no means is this a deal breaker, but you'll want to set your expectations accordingly.

For the condo deal, as mentioned above, not sure whether or not you included HOA fees in your estimates for expenses. But keep in mind that in addition to that, you run the risk of coming out of pocket for additional common area expenses if the HOA doesn't have sufficient cash in reserve accounts to pay for big ticket repairs (roof, facade, etc.).

On another note, my brother is a realtor in the area (primarily Hoboken, Jersey City, Union City, etc.) -- happy to put you in touch to pull comps, check out other places, or pick his brain if you're not working with someone already.

Best of luck! 

[Daniel Boufford]

I view these two areas the opposite way. Hoboken is more of an appreciation play and JSQ is more of a cash flow play. Hoboken/downtown JC is similar to Manhattan and Brooklyn, where cap rates are crazy low at about 3-5%. This is because there is anticipated growth and strong historical growth in these areas.

Both of these properties have terrible cash-on-cash returns, probably because you're putting down 35%. If you can put less down, I would. As others mentioned, it can easily swing into the negative with margins this thin.

If you're not getting AT LEAST 10% cash on cash you're doing something wrong.  Personally I think JSQ is already expensive because the anticipated growth of the area is already fully built-in to the price. That said, if you can find something with good cash flow there and walkable to JSQ it should be a solid investment. 

I see the area immediately around the JSQ path appreciating healthily long term, but a lot of deals that claim to be "Journal Square" are like a 20 minute walk to the path. Thinking that these rents are going to skyrocket is very optimistic. There is literally no nice retail at all in JSQ as is, and it will only come in after the mega projects are completed.