I highly recommend finding a market that is landlord friendly, cash flowing, doesn't have regular catastrophic events, property taxes are low, insurance rates are under control and you like the area.

If you have a major insurance claim or a fire or something, and your insurance company finds out you were renting out rooms or the whole house and you never told them, you and I both know that insurance company will do everything in their power not to pay. 11 - Fire Extinguisher.

For starters, I would like to clarify that I do not claim to be the most knowledgeable or experienced in this business, let alone in this niche.

If you are using rental income and you already filled your taxes with those rental properties then they will use the your tax returns and schedule E to calculate your income.

I would talk to a qualified intermediary and a tax professional.

What is your tax position?  

Essex and Hudson county are blue (high property taxes too) and I would never buy there. 

I know the cash flow is weak, if not potentially negative, once insurance and taxes are included and that may immediately make it a bad deal for some investors.

Here's why.People are drawn to our area due to the absence of natural disasters, low property taxes, home prices close to the national median, and a thriving tech and research hub, coupled with the life sciences sector.Considering the ongoing influx of people and the likely rate adjustments announced by the Fed for later in this year, we anticipate prices actually  rising as buyers enter the market.

The idea is to get is much out as low of tax rate as possible.