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NJ is a tough market? Why?
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?
@Marsha F. you just need to understand how to navigate with the rent control laws in NJ. This comes with experience. If I were a first time investor wouldn't be headed into many areas that some people here are bragging about, for example Newark. There are many municipalities that have rent control but still allow you to operate almost as if you're in a market economy. There are others, like my opinion of Newark, that will lock in rent and make it very difficult for you to raise it moving forward in the future.
And as NJ being any more corrupt than other states I have no clue on that matter. I've worked with a lot of good people here in townships.
@Darren Sager In your opinon, which municipalities would you recommend for a first time investor?
@Marsha F. that's always a tough question to answer because it really depends upon someone's budget. As a first time investor I recommend getting into the best market you can afford to get into, just nothing in a town that would be considered an "A" town unless you intend on owner occupying and there's attributes to that town that you want directly, such as a particular school system, etc. I like solid B towns with train station for long term buy and holds. They've done very well for me over the years.
So, I'd find out what I qualify for, either thru financing or if paying cash, then I would narrow down the choices from there. I'd never invest in a town blindly just by asking the BP members to get their recommendations. They may also throw you off in an effort to keep you out of where they do business. As a moderator here, I've seen it.
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.
$5400 is pretty good for 2 family rent. My 4- family is about that rent roll. some areas in Englewood not so good.
Do you own in Englewood? My estimate is as follows:
- Each apartment (4 bedroom/2 bath)- $2,400 (I pay heat and water). Total is $4,800
- Each garage rent for $300 each. Total is $600.
- Total rent roll is $5,400.
The previous owner was getting about $2,100 per apartment but they were a mess. Mine will be rehabbed with new kitchens and updated bathrooms etc.
I own in a town next by. Englewood shall have rent control. My large garage $400. Small ones $160. You get 1% of price. Still not bad.
You own in Teaneck? I live in Cresskill so not far away. Is your large garage a 2 car garage? Englewood allows you to raise the rent 4% every year which isn't bad if you start out with decent rents. That is also why I want to rent out the garages rather than include them in the base rent. This is a pic of one garage. The one to the left of this is a two car garage.
Originally posted by @Marsha F.:
@Joseph Ghobrial How do you determine an inflation risk in those areas?
I would look to see if the local economy is getting worse while the prices are getting higher.
@Darren Sager What constitutes a town as a "B" rank?
@Demetrius Hargrove it would be one in my opinion that is "good", but not "great". And there can be areas of towns that are A rated, and part that can be B or C rated. In Bergen County, an A town (in my opinion) would be Alpine and Saddle River, for example. If you have a high concentration of single family homes and no multis, chances are it's not going to be on the radar of those looking for a rental, unless that town has some endearing qualities that people really want and are willing to pay for rental wise. You want a town with a decent mix. The rentals in A quality level towns don't have a good rent/purchase price ratio. B towns can be very subjective to the person evaluating them, so it can be much harder to say what's a B town. There are things that I look for (as mentioned with % of single family homes) but I might think that Englewood is a B town, but others may think of it as an A town. It's how you view and overall how the public perceives it.
@Darren Sager Thanks, that really helps me narrow things down and gives me an idea of what to look for as I'm picking my target market
Coming back to this post, I hear that NJ market is even more busy these days.
Do you find is more difficult than NY or PA ?
What do you guys think?
@Angelo Mart NJ is like a thermometer the higher north you go the more expensive it is the further south the cheaper. Deep South jersey like Salem county is very poor
@Daniel Green
curious- why not buy next to a school? Does the opinion change based on type/size of school?
@Kimberly Carver
I had a 2 Family flip in Brooklyn across from a public school that took much longer to close. Also had another project near subway station w/pedestrian traffic that sold fast (in NY it’s an added value). so I would guess that it’s depend how the location of the property compare to streets layout/road traffic/neighborhood etc.
@Marsha F. There are some great answers to this post, in addition to what others have said you'll want to take a deep look into the laws for the areas in which you choose to invest, to do so, I'd recommend calling a really good Real Estate attorney and paying them the fee they charge for a one hour consultation. Use that time to get in depth knowledge on the tenant laws and what your obligations are as an owner. This strategy may also help you choose the attorney that you use for years to come.