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Updated about 6 years ago, 10/15/2018
Multi-family Units in Newark and Jersey City NJ
Hi Everyone,
I am new to BP and real estate investing in general but have been following some large (8 units+) MFDs in some rough areas of Newark and Jersey City with numbers that sound good and am wondering if anyone here has experience with owning MFD in these low-income areas and whether you can give me your opinion on whether it's worth the risk associated with the areas/tenants, etc? I grew up in the Ironbound in Newark and went to school in Newark, so I know the areas well. I have nothing against low-income housing but the numbers I'm seeing look too good and I'm wondering if the deal is that good, they must be selling b/c the headaches aren't worth it. Any advice, thoughts would be most appreciated by this newbie! Thx.
#2 New Member Introductions Contributor
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- Rockland, MA
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#2 New Member Introductions Contributor
- Specialist
- Rockland, MA
Welcome.
Check out the free Bigger Pockets Real Estate Guide http://www.biggerpockets.com/real-estate-investing
Affordable Housing can be a great money maker. You need to connect with a Property Manager that specializes in this type of housing. Go to IREM.ord search for ARM certified. Call 4-5 find out what they think of the area, what they see properties that size selling for per unit and what the expenses are per unit by category.
Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info.
Good Luck
Paul
Originally posted by Paul Timmins:
Welcome.
Check out the free Bigger Pockets Real Estate Guide http://www.biggerpockets.com/real-estate-investing
Affordable Housing can be a great money maker. You need to connect with a Property Manager that specializes in this type of housing. Go to IREM.ord search for ARM certified. Call 4-5 find out what they think of the area, what they see properties that size selling for per unit and what the expenses are per unit by category.
Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info.
Good Luck
Paul
@Paul Timmins - thank you for pointing me to these resources! I appreciate your time.
Carlos
Hi Jessica,
Would love to hear what the numbers look like on the newark Multis!
While I tend to shy away from the rougher neighborhoods, there certainly is a TON of money to be made if you buy right!
I have 1 property in I wouln't consider a rough area bit a bit rougher then my others and while I will say it produces the most monthly cashflow it also is my most time consuming and property that requires the most attention on a daily basis - and not bc of the property itself more so the tenants who occupy it.
are these shorts or REOs? DO they need renovations?
best regards,
Chris
Hi @Jessica Soares
I'm also new to RE and looking for MF deals in NJ. Unfortunately I'm not familiar with Newark and I've heard more then once the city has some interesting deals going on.
Can you share some info about the neighborhoods you are looking into?
As for Jersey City it seems that the prices are quite high and the return isn't that great. What is the cap rate you are looking for?
Thanks for sharing...
Lior
I invest in buy and hold on multi units in newark, elizabeth, irvington, and east orange. I do so because I like the cash flow and deal with the head aches. BTW- Ironbound is not the same animal as any other area of newark.
This is not for the faint of heart- people steal copper, vandalize vacant properties just because, ect. I personally work with managment which comes with a cost for quality manager in these areas.
Who's numbers are you looking at that are so good? Do they factor into account vacancy rates, high repairs and maintenance costs, professional management.
Also keep in mind if you are looking at small apartment buildings 5-10 units these are the least desirable of any properties in these areas.
The cashflow is good, there is money to be made, and you can provide a very valuable service to a family or person who really needs it. However it is cheap and has high cash flow for a reason- not everyone has the stomach or cajones to do business in these areas.
Originally posted by Steve Wilcox:
Also keep in mind if you are looking at small apartment buildings 5-10 units these are the least desirable of any properties in these areas.
I find this to be interesting. Is there any particular reason?
@Jessica Soares I just purchased a 2Family in Newark about 1 month ago, it's a bit ruff but I think it has major potential for investors. Go with your gut, but if the deal makes sense take it. I live in brooklyn ny as of now and it to was a bit ruff 10 yrs ago, but now it's a gold mine. Every neighborhood turns around buy now so your a head of the game.
I tend to disagree with Shawn, in that I wouldn't take the deal just because the numbers make sense.
Esp. being where the property is located. There is much more to deal with and get use to if you have never invested in an area such as this. I echo what Steve is saying and at the same time I am not saying to walk away for sure. I am just saying pay attention to detail here and really be sure about the area, the numbers, and have a solid game plan in place as well as a good exit plan in place.
good luck and best regards,
Chris
If it is in the MLS / open market and still for sale after a month, it's probably not the great deal that they are offering.
I used to work down in JC & Newark in the early to late 90's for a construction company and have been in the worst of areas while working on public housing projects & private projects. I know the area pretty good & used to worked with guys who lived there. One guy told me that while he and his wife were home, someone was trying to steal the stained glass window out the wall of their house! He send out his two rotties to handle that :) Can you imagine that?
You'll have to have a thick skin to own low end rentals, and who doesn't like getting lawsuit threats from your tenants or letters/ phone calls from slip & fall lawyers? Low end folks think a suit is like the lottery. I can't imagine dealing with the Newark / Essex County court system for eviction for non payment would be a picnic, something to think about. I would try to go to a court session there to see how they operate & talk LL's who are dealing with the Essex system.
I would imagine that if your not comfortable going there on your own & managing it yourself, your going to spending a lot more than you think & what they'll tell you, especially if you have to hire out repairs.
I would demand to see any info backed up with hard paper evidence for insurance policy / broker contact, utilities, city/state inspection reports, etc.. Get a referral for a good inspector. Double check the info they supplied, don't take anybody's word or paper for the truth, call the venders & verify.
I owned a large 20+ hotel rooming house that was a total mess when I bought it, with scary characters living in it. I got a good deal because most people wouldn't want to, or couldn't deal with the mess & the occupants, but it didn't bother me. It does take a special kind of insight to look past the façade to see the good & the bad behind it. I lived there for half the week for a few months while working to remodel the common areas, then the rooms. I turned it around on the cheap (lipstick on a pig) & sold it for double two years later. At first, the guys were on edge that I was there, soon they came to appreciate the changes being made & me. There was some good laughs & memories from owning that place, just a few bad ones, but not many. I would do it again.
Originally posted by Kenneth B.:
I find this to be interesting. Is there any particular reason?
Yes, because people want to live in houses or real buildings. This is not hoboken or soho. These buildings are generally all walk up, have narrow stair way's making move in and move out very difficult, and just do not attract best tenants. Also most of these buildings have almost all 1 bedroom units, which means higher turnover and more questionable people.
Thanks everyone.
I am familiar with Newark and agree 100% that the Ironbound is different. I don't have a specific deal in mind but I've been lurking on LoopNet and the MLS and was interested in what others think of the areas given that I have seen some large properties for sale at comparably low prices. I'm leary of Section 8 tenants because I've heard horror stories (flip side is, that at least you are getting paid). I also have attorney friends with experience in Essex County LL/T court and have heard tons of professional tenant stories. I have experience with the Ironbound and have been told only to focus my search there. Sounds like a few of you think the reward is worth the risk, as long as it's an informed risk ;)
Hi @Jessica Soares . I currently invest and volunteer in Newark and actually grew up there. So I know the area pretty well.
Most of the horrors stories I read here only apply to certain parts of Newark. The roughness of those neighborhoods are obvious from the minute you enter them. Yet there are so many pleasant neighborhoods in Newark in addition to the Ironbound. Ivy Hill, Forest Hill, Weequahic (the part closest to Hillside) and many parts of North Newark (i.e. Upper Roseville) are relatively safe to move about with little to no problems. And tenant screening is key when you know how to do it right. You can get a deadbeat and professional tenant in the nicest of neighborghoods. I have plenty of experience with section 8 tenants and have nothing bad to say about them or the program. Again, it's all about how you screen your tenants (and analyze your potential investment properties).
Jessica There's opportunity in all Wards in Newark!
Who you are,your experience,and what time
and effort you have to give your investment will
determine which ones you want to focus on!
Two bits of advice that can take you to the
Bank- if you take heed- are as follows!
!.Look for deals 2-4 family that will qualify
for FHA and VA funding! This way you can always
" add and drop" taking advantage of equity build-up
as a Seller to a wider market of buyers-As a Buyer
improving your holdings with better "liquidity" at hand.
Always looking to buy- always have a sale in sight at
the right time to take a profit! Remember Newark
and the State regulate " Multi-family" properties
Aggressively! Costs are high to meet existing
compliance recuirements! The Housing is mostly
older and un-improved ! Lots of TLC required!
To limit your investment strategy to Rental Income
returns alone misses the full potential for profit!!
2. Do not consider any investment " opportunity"
you encounter where you don't feel comfortable
in being the owner, or that has challenges present
you don't feel equipped to address!
Going forward you need a TEAM ! Good, Professional,&
ethical. All professions:Legal ,Management to Plumbers,
Contractors, yard cleaners! Each is important!
The investment you select needs to be one where
you are going to be able bring the elements at hand
both positive and negative in line to realize a return
that justifies your efforts! Sound intense ? It is.
Best for Success!
Bob Brubaker
Jessica, you have not responded to the most pertinent question asked: "What is the cap rate you are looking for?". This more than anything else determines where you're going to be looking and at what. If you go high you're looking at worse areas and lower appreciation potential, reverse that for low cap. Everyone here has different tolerance.
Personally, my most recent investment is in Jersey City Heights, which has the right balance for my taste, which is long term B&H value in a gentrifying area. It's a tough game, I don't know Newark but there's areas here, like Bergen-Lafayette, that have broken hearts and bank accounts of speculators again and again.
@Shawn Legree No offense but you obviously don't know all Brooklyn neighborhoods. Some have went from bad to worse in 10 years and some have been great for the past 10 years. Dyker heights Brooklyn has multimillion dollar single family houses and it's been that way for decades. It would be hard to convince someone that Brownsville Brooklyn is a gold mine. Bensonhurst also changed. People who bought in Brownsville 10 years ago probably aren't happy if they were banking on neighborhood revitalization. A one year old kid was just shot in the head over there last week. Coney Island Brooklyn is one of the poorest neighborhoods in the country. Coney Island and Brownsville neighborhoods have median household incomes of $9500 in 2013. These are numbers for entire neighborhoods in Brooklyn, not just one block pockets. In 2000, four of the 10 lowest-income areas of NYC were in Brooklyn and in 2011 there were five. I wouldn't buy in Newark based solely on the fact that every neighborhood/area turns around. And when neighborhoods gentrify these displaced residents have to move somewhere, which can make bad neighborhoods worse. I know very little about Newark but every area has it's good and bad pockets. That being said, I've had a few people tell me Newark has a promising future. I guess some parts of Newark do and some don't.
@Ibrahim Hughes It'll be interesting to see how Newark moves forward if Cory Booker goes to the Senate. I don't follow local politics, but I doubt they have any candidates that can top what Booker has done for Newark both locally and nationally.
@Johann Jells I'm still figuring out whether MFDs make sense to my REI strategy at this time, so I honestly don't know what cap rate I'm looking for generally. I've heard that in rougher areas it needs to be high but that's the extent of my research.
@Chris Rosenberg absolutely right that revitalization is not something you assume even if there is talk and potential for it - my view is to do your research and see where the big developers are putting their money. From what I understand of Brooklyn, it's massive and each neighborhood is a world unto itself. There are probably opportunities to be had in every neighborhood but the risk tolerances and investment strategies will be different.
- Booker has done alot for Newark - however he basically followed the floor plan created by Sharpe James (the Mayor prior to Booker for those who don't know) as far as revitalization goes imo. I'll admit he did add a bit of his star power to the mix. But I don't think it will be that difficult for the next mayor to follow in Booker's or James' footsteps. The only candidate who has anything close to the National prominence of Booker is Ras Baraka who I think is really concerned about Newark and is also a native product of our home town so we'll see if the so called 'progress' can continue. I'll be doing my part.
Jessica,
You are a first time investor. All the reading on the subject you've done is not equivalent with experience. Experience is when you actually own it. Because of this if I were you I would consider a different area and property.
My experience with section 8 tenants is that generally they are the neediest. Maybe not everyone, but they tend to require more attention and more money in repairs.
From a lending standpoint, in case you apply for financing to acquire the property, you may not even get approved on this deal, that is b/c your lack of experience and the caliber of the property would be too high of a risk to the lender. Unless you have a seasoned partner to consider this deal, I'd be looking for another property. I see so much hype around me about the potential of this and the potential of that. Figures on paper mean little, high cap rates mean little, if you have a property located in an area with poor economic growth, low absorption rates, high unemployment, and higher crime. If real estate investing was so easy, we would have way more wealthy investors. Just my two cents worth of knowledge.
