First investment (Northern NJ duplex)

[John Papa]

Hi all,

I'm currently looking at a two family duplex in the NYC tri-state area. This is a very desirable area with a lot of young professionals commuting to the city, and people looking to start families.

One thing that I've noticed is that properties in Northern NJ are so damn expensive, and the taxes are ridiculous! Given these factors it seems difficult to cash flow. How do investors in areas that are as expensive as the NYC tri-state area earn a decent cash flow?

Here are the numbers

List price: $365,000 (brand new renovation with granite, SS appliances, and hardwood floors)
Taxes: $9,711/year.
Insurance: ~$1,200/year
Water/Sewer: ~$450/year

Using very conservative rents given to me by my realtor:

Rent (separate gas and electric in each unit):

Unit 1: $1,350
Unit 2: $1,800 (could possibly get $2,200, but again, I'm being conservative).

Annual Rent(11 months to account for any vacancies): $34,650

Annual OpEx assuming 100% financing at 4%, 9,200 in taxes, 1,200 insurance, and 450 water and sewer: $32,316

Gross Profit: $2,334

I am going to make an offer for $335,000 and plan on putting 20% down, but I using the list price because I want to see if the property can cash flow without forcing profit with a money down. What else do you think I should be looking at? I'm aware of the 50% rule, and 2% but they seem to not even exist in my market...

Thanks everyone

John

[Steve Wilcox]

Montclair is a tough market to buy and hold houses. We have a few commercial things there and see a little better yield but that is only because we buy distressed and pay based on current operations, make improvements and raise rents. 

Most of Northern NJ (where 'young professionals' would live) simply does not make sense to invest for cashflow. Unfortunately we have high taxs, and property values are also very high. When I started investing I would exclusively rehab and flip houses because I only would buy in class A areas and everything would be a negative cashflow deal if we held it. 

I invest in Newark and Elizabeth, for better or worse this is much rougher than montclair south of bloomfield ave, but it does cashflow nicely. Investing in tougher areas is not easy and I would not recommend for a newbie especially on a part time basis, self managing. 

I know many others on the forums invest in Trenton which is another tough market but at least you will see some cashflow. 

Unfortunately in our area the market is very hot on multifamily, in nice areas multifamily is trading at the highest valuation in history which makes it very difficult to buy and hold for cashflow. 

Recommendations are as follows

1. Look into what it takes to be successful in tougher areas- i.e Newark, Trenton, Paterson, ect

2. Put some money into a larger syndicated deal if you have a decent nest egg to play with, some commercial deals are out there at a slightly better yield. 

3. Look into other areas of NJ not as geared towards young professionals

4. Look into PA and other nearby out of state areas

5. Look at other strategies like rehab and flip if you want to invest close to home