Why are NY/NJ rents so low in multifamily?

Question

I'm confused. I'm a new investor about to make first purchase and after hearing about how rents are surging, I've notice that most places I look at or are shows are low rent. $1300-$1500. I just looked at an $805k house with $19k taxes and the biggest unit rented for $1500 in 2020. As a primary residence this would be a big loss and the apartment is already renovated. I don't understand with limited places why this is so low. I mean the house is beautiful with nice yard and lake views. I'd think it would be more than normal but it's below market.

Clearly I'm missing something. I must not understand at all how rental prices work. Some major gaps in my knowledge. Lake view within hour of city and 3Br costs you what I'm paying for a 1br with no lake view and my apartment is well under market due to tiny kitchen and tiny bedroom and I've been here 10 years.

Where are all the $1800/month quadplex in NJ/NY, under $1M?

Jonathan Greene · Answer

You aren't looking in the right places, but in general, NY and NJ are tougher to be near 1% rule. I sold an 800k 2-fam in Bloomfield, NJ (new build) and they are fully rented at 7,000/month. I also sold a 738k 4-fam in West Orange and that is rented at 8,000/month so it is possible. What areas are you looking in? In places like Jersey City or Hoboken, you will be between .5 and .75% rule, but no ceiling on appreciation if you buy right.

Shawn Mcenteer · Answer

@Orlando Goodon what are you willing to do in order to get high rents?  Right now UC on a property that will get around 3500 per unit, its a duplex. As is rents are still in the high 2000's but with a few upgrades my clients will be raising rents substantially.   If you want high rents I would suggest a few other markets you add to your list and remove a few markets from your list. You can find high and low rents in any of these markets but consistently purchase price compare to rent will be at its best in Essex county.  I would also recommend being open minded to some form of value add.   If you are unsure of the best market for you investing strategy you may want to attend a monthly real estate meet up I host in Bergen County.  We have MFR investors from all over the Tri State area attending each month.

Jonathan Greene · Answer

@Orlando Goodon vacant units definitely come up because it's much harder to get old tenants out and rents up than you would think, depending on their lease status. There is a rare four-family that just hit in Montclair for 1.2m which rent roll is at 8k and that's about as good as you can do. Of your NJ towns, the best bets for value are possible Perth Amboy and Union, depending on the multi availability. I also like towns in Morris Co like Dover or Netcong which are still undervalued and have lower taxes than more North.

Jon Fletcher · Answer

Good luck with Newburgh, NY. Seller's are delusional with the prices they're asking for now.

David M. · Answer

@Orlando Goodon

Where are what are you looking at?  Many of the urbanized areas have rent control.

Michael Bieler · Answer

Where are you looking in New York? Im on Long island at the rent is extremely high.

Orlando Goodon · Answer

Well I'm very new at this but I was thinking an $8000 investment per unit? That is just ballpark, but that's an easy investment for me to make. Not too much money, but plenty of upside and long term ROIs. New Kitchen, flooring, paint and appliances. I would defer to the experts on that. Personally, I'd peak at the high rent spots and make sure mine look on par or better than them.BTW, I just found a super deal and for the first time, I'm tempted to pull the trigger. I did not think I'd find it so soon, but get these numbers:

Price: $525,000Tax: $9K

Triplex with 3x3BR in an $1800 market!I ran the numbers and it blows everything else I've looked at out of the water. Before $400/mo profit was solid for owner occupied. This house looks like $1700/mo profit, $3700 when I move out. AND...it's DECENT looking, meaning plenty of upside. In a $1700 market, I could put it to $1900 or more if I refresh it nicely. This is a money maker, but the key detail other than low taxes is the price. Some crazies are selling quadplexes for $800k down the block. lol. What do you think about these numbers? Is it as amazing at it sounds to me? TOO amazing to be true? Are you thinking what's the catch are asking why I'm on here posting instead of making an offer already?Here are some more numbers:

Monthy

Anually

Expenses subtotal--

$1,467.17--

$17,606.00

TOTAL Mortgage--

$2,159.00--

$25,908.00

TOTAL Expenses--

$3,626.17--

$43,514.00

TOTAL Income--

$5,400.00--

$64,800.00

NET INCOME--

$1,773.83--

$21,286.00

NOI--

$3,932.83--

$47,194.00

Orlando Goodon · Answer

Thanks for the info. I think I'm looking at places with old tenants. If you only can increase rent 4%-5% or similar, your rents will fall quickly behind market rates.

How easy is it to get a house empty? Have all tenants leave at end of leases. Fix it up, then raise rents to market rates?

Here is my full list:

State

Area

NJ

Keansburg

NJ

Perth Amboy

NJ

Edison

NJ

Bloomfield

NJ

Montclair

NJ

Secaucus

NJ

Union

NY

Newburgh

NY

Yonkers

NY

Mount Vernon

NY

Poughkeepsie

Orlando Goodon · Answer

Newburgh, Brewster, Yonkers.In NJ, Hackensack, Bloomfield

Why are NY/NJ rents so low in multifamily?

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