NJ is a tough market? Why?

[Marsha F.]

I always hear and read about how New Jersey is a tough place to invest but that is all that's mentioned. I live in NY and I'm looking to house hack in either Newark, Jersey City, or the Oranges. What makes these areas so tough? I know property taxes can be a bit steep but you can find a house for 300k in NJ (fixer upper) as opposed to NY. What are some laws/items I should be aware of before investing? What makes NJ so unique?

[Daniel Green]

This is a long post but I've given a lot of thought to this over the last few years....

I live in NJ and own a few multi-family properties so not an expert but seasoned enough.  There are a few things I look for in NJ when evaluating a property:

- The town and the property's location in it.  Is the town solid middle class and stable. Is it generally safe especially where the property is located.  Some invest in rough areas and make good money but I just don't want to deal with the hassle of confronting non-paying tenants and having to evict tenants often and/or pushing them to pay late rent fees. That's just me.

- The property.  Lots of people on BP ask what towns to invest in....but really every house is different.  I think you need to really evaluate deal by deal.  There are a lot of solid middle class towns in NJ but there are not many properties that make sense from a cash flow investment perspective in those towns.  So the town is important but the deal is just as important.  If you don't have both, it's a no go.

- Taxes.  Does the property have reasonable taxes.  You can find properties that simply have lower taxes.  Not very low since it's NJ but lower than others.

- Rent- What would the rents be for the given property once it's rehabbed.  I look at Zillow/Trulia and CraigsList to see what is for rent in those towns given the number of bedrooms/bathrooms and finishes of the apartment.  I take a good hard look at the pictures and try to figure out whether my prospective property is going to look similar to what I see.  I then estimate a conservative rent to cover myself.

- Heating/Cooling- Is each apartment separately metered for heat?  If they are great, but a lot of multi-families are not.  Is it oil heat?  If so that's a lot more expensive than gas heat.  For a 3 family I was paying $6K a year for heat.  I switched to gas and it's down to $2.5K.  It costs me $12K to make the switch- done with permits.

- Rehab- Cracked foundations, leaning houses, completely new wiring and/or plumbing needed, underground oil tank, I'm probably not going to take that deal.  For me it's too risky and frankly you can find other deals that don't have these issues.  New furnace and water heater, new floors, new wallboards/ceiling tiles, painting the walls, new kitchen cabinets, patching the roof or a new roof, new siding, new windows- These are all doable and the costs are fairly easy to calculate.  You just have to make sure you thoroughly evaluate what needs to be repaired versus replaced. For rentals- not everything needs to be rehabbed.  For a flip you need to typically rehab more and with better quality.

- Property location- As many have said, no houses on double yellow lined roads, next to gas stations, across from schools/cemeteries or other funky locations.  No flood zone houses.

- The final analysis- I look at how much I have to spend to buy and rehab, what I think the property will appraise for and rent for after I rehab then I crunch the numbers.  I want to see decent cash flow (different for everyone) and the ability to get money out of the deal after 6 months- the time you have to hold the property and have rents to refinance at a higher appraised value.  Here are actual numbers from a 2 family house that I'm rehabbing right now in Englewood.  Bought for $450K. About $38K to renovate it.  4 bedrooms and 2 baths per apartment with a 2 car garage and another garage that can fit a commercial vehicle.  I'll rent both garages out as well.