NJ or PA for first rental?

Question

Looking into my first rental debating on buying in either the Philly suburbs or central jersey. Just wanted to know if any one had any pointers from personal experience (landlord friendly state, taxes, etc)

Natalie Schanne · Answer

@Sagar Naik - It’s great to get started. Nothing happens without action. I always recommend your first property is within 30 minutes of your home so you can be hands on, learn, and then comfortably outsource going forward. Maybe that looks like a Jersey shore rental you will Airbnb or a dated home in your town you want to BRRR or flip. Flips are a lot of work. BRRR you invest the time once to fix it up and cash flow ongoing. (I wish I had brrred almost all of my sales). Most single family home investment properties don’t cash flow very well above a 300k purchase price because for 300k purchase you might get $2500 rent but for $500k purchase you might get $3000 rent. If you get a college student housing rental or a shore rental maybe you’ll get $5000/mo of rent on a $500k purchase.

If you have any questions about central Jersey investing, ask away. I am also a member of a non profit organization called SJREIA that offers a lot of great advice and local meetups from its 850+ member network.

David Haynes · Answer

Hey @Sagar Naik,

I can't say much for NJ, but I am very familiar with Philadelphia and its suburbs, Delco and Montco.

The city of Philadelphia has significantly lower property taxes than the burbs. However, it charges twice as much in transfer taxes every time you buy or sell real estate. It's a one-time tax at 4.28% of the purchase price that can either be paid fully by the buyer, or it can be split between the buyer and seller. In one rare occasion, I was part of a transaction where the seller paid the full transfer tax. Lastly, the city is more tenant-friendly than the suburbs.

Delaware County (Delco) and Montgomery County (Montco) have higher property taxes than the city. However, the taxes don't destroy cashflow. The one-time transfer tax in these counties is 2% full or 1% split.

I'm consistently finding both single-families and multi-families that have above an 8% cap rate in C and even B class neighborhoods.

Good luck with your plans! If you need a pair of eyes over in Philly, let me know. I'd be happy to help.