Nj RE taxes eating into profit!!!

16 Replies

In looking for properties in NJ, I can't see why anyone would invest in some towns in NJ. My question is would you invest near where you live but have higher RE taxes OR invest in properties farther away but less RE taxes?

Interesting question.

I can tell you that I live in West Orange, NJ and the taxes are killing me. Essex county has some of the highest taxes in NJ. With that being said, I wish I had stared out investing in NJ. I actually bought my first rental property, a triplex, in Rochester NY, because the taxes were low and the costs of the properties was low as well compared to NJ. 

I will admit, that if I had know any better, I would have just invested in Newark, NJ, so I could have been closer to the issues I came across in Rochester. I did however, learn a great deal with the investment property.

So, you would think that my next property would be in NJ....NOT! 

After the Rochester disaster, I finally saved up enough cash to invest again, and couldn't afford a NJ property right away, so I invested even farther away, Atlanta GA. I still have that property and it is cash flowing and my taxes are only $700 a year compared to the 15k I am paying in NJ. However, I still don't like the fact that the property is so far away. I do have a property manager, but they really don't do much. So, my next step is to bite the bullet and pick up some units in NJ. As long as they cash flow I won't worry about the taxes. I think it's all retaliative.

I was actually going to start a topic asking if any NJ landlords could post their roi's. I was wondering how they make out compared to other parts of the country due to the high taxes. I see a lot of investors say the high rents offset the high taxes, but I would like to see some numbers. 

@Mike D.   @Doug Minton  @Joseph Romero  

I have battled this for quite some time and still don't have a good answer. As a newer investor I thought it was important to at least get a school of hard knocks education by landlording. I have looked into many other markets to include Philly, Cleveland, Indy, Wilmington, etc. 

For now I own 4 units that are cash flowing between $150 and $250 per month. This is after debt service, insurance, 5% vacancy and 10% capex. My properties are in Southern NJ near Wilmington DE. Typical taxes on a 3/1 - 4/2 are $3000 - $4000 / annually. These are C class areas that do require decent local management (I manage these myself). When you figure it all out please let me know :)

@Mike D. @Joseph Romero

All I know is that I see investors going into C class areas to invest for the high cap rates. I would prefer to stay out of those areas after what I went through in Rochester with section 8. 

I'll talk to some of the investors I know out here to see what numbers they are getting. I'll post what I find.  

@Doug Minton  can you elaborate on your experiences in Rochester?  Was it because you had a poor management company or because you bought in a bad area?  We manage Section 8 / DSS in decent areas and have had not problems.  They prove to be quite lucrative for owners who know how to buy right.

Cheers,
Mark

@Mark Updegraff Sure! When I was managing the property myself I had no issues. 5.5 hours away, and I was still able to manage the property with no issues. However, the real estate agent that helped me purchase the property said that she could take over the management, and I trusted her. That was my bib mistake. She put bad tenants into my property. The area wasn't really that bad. In fact the address was 153 Norton St. which is near Irondequoit. 

I would tell her not to accept a tenant unless they had 1 months rent and the security deposit, but she took whatever they had to offer. Then DSS screwed me! The tenants would lose their benefits, and I would not get any notice. I eventually receive a letter stating that they didn't need to inform landlords when benefits changed, i.e. if the tenant needed to pay a part of the rent, or if they lost their benefits. 

The next thing I knew, all my tenants lost their benefits, and I was stuck with a non-performing property. Now, I will say this... I do know plenty of investors in Rochester that had no issues. However, the real estate agent I hired to manage the property jumped in an made things worse. She put a tenant into the property with no security deposit and that tenant abandoned the property and allowed drug dealers to move in. Then, when I told her I wanted to dump the property, she found other investors and put the property under contract, by forging my name, and took all their deposits.   But wait, it gets worse!

I had a burnout property I was going to rehab and she took 10k of my money and never got the contractors involved with the project. A couple of them called me to find out if I was still going ahead with the project. Then she took all the deposit money, kidnapped her kids and ran away to Houston TX.  Meanwhile, all the investors who she took deposits from started contacting me to find out why I wasn't selling my property to them and started demanding that I return their deposits. 

I finally had to dump both properties. I ended up coming out of pocket 23k, and with all the other expenses I lost over 50k. Talk about the school of hard knocks! 

This was my first step into real estate investing and that was back in 2004. I finally sold both properties in 2008, and I have been recovering ever since. Now here is the kicker! Around the time I got out of Rochester, they started to revitalize the area. Rochester never experienced a real estate crash and had remained pretty consistent in sales and vacancy rate. No boom, no bust! So, one would think that it was the perfect place to invest. But I just ran into the wrong person, and later found out that she didn't even have a real estate license. 

Sorry for the long rant, but to make a long story short, this was the worst experience I encountered and it was the best experience I encountered. Now I mentor new investors to not make the mistakes I made. Way worth it. 

I will conclude by saying this. The agent who helped me sell my properties told me not to let that experience discourage me, and that real estate was a great vehicle to invest in. I let those words sink deep down and built up my cash and jumped back into investing.  I could write a book on the things I learned. And honestly, I would invest in Rochester again, but Atlanta seemed to be a better value. 

Wow, @Doug Minton  that is quite an experience!  Good for you for not letting one bad apple ruin the whole bunch.  Hopefully, that wild ride taught you everything you didn't want to know about real estate, and everything will be smooth sailing from here on out.  NJ taxes are insane.  I sold homes in Cary, NC, and we would get a lot of relocating Yankees here.  I heard stories about what people were paying in taxes in NJ.  Our area is more like 1% of assessed value....much more reasonable. :/

Doug Minton that was the exact area I was looking to invest. I've been analyzing properties from Essex county NJ to Buffalo NY. @Mike D. In Essex county NJ you could see half your monthly rent roll go to taxes and that's before any other costs associated with the property.

@Doug Minton btw I work in East Orange and looked at the RE taxes there and the surrounding areas and holy cow! We're talking like a mortgage payment just for The RE taxes! It's absolutely insane.

@Joseph Romero,@Dawn Brenengen

Dawn, yes it was quite an experience and I am still rolling with the punches. I got my NJ real estate license, and I am hoping to be investing full-time by next year right after a cash out on my NJ property which I currently live in. One lesson I could share is that if you have a crappy looking property, then you attract crappy people. The main difference between my Rochester property and my Atlanta property is that I would live in my Atlanta property. It is newer construction, built in 2007. However, my Rochester property was a slum. I would have never lived in it the way it was. My story could have been very different if I had fixed up the property, and then rented it out.

Joseph, yes sir, Essex county has really high taxes. However, it is a very desirable area, so fix and flips work well out here. I reached out to an investor that I partner with and he just picked up an 8 unit building in South River. His taxes are low and they projected an 11.5% cap rate. They are all in for 450k and will net 52,125 annual rent. So that's around $4300 per month. I wish I had partnered up with him on that deal. So, I think the key is to invest in an good area in a town with low taxes and where the properties don't look run down. Sometimes you can find some good multi-family units that can be rehabbed in areas like Newark. The key is to know the good areas in Newark. Take a look at North Newark, area code 07104. I am also looking for a 3 family in a town like Bloomfield where I can live in it and also cash flow. Just know that there are areas that you can invest and the taxes won't kill your profit. Like I said, I think its all relative to your area. 

@Dawn Brenengen Hey Dawn! Too funny. I went out for my 5am 5 mile walk today and as always, was listening to the bigger pockets podcast. Congratulations on a job well done. I got a lot of great information from you, and you also refreshed my memory on listhub.com. I've been meaning to start using it for my business. Great stuff! Thanks!

Hi @Doug Minton  , @Mike D.  , @Joseph Romero  ,

I think it's important to fully analyze your market that you are interested in. In NJ, there are markets that support REI despite the ridiculously high RE Taxes. This is something I am looking into myself, because at first glance I would see really high taxes and my brain would automatically say "won't work, don't waste your time." What we as investors need to do is know the real market rents, look at all the expenses line by line, and figure out the realistic cash flow. The numbers don't lie, and it will lead to either further research into that market/specific properties or we can move on to a different market.

Also, when investing for cash flow the seller's asking price is usually a fantasy.  We should present our offer price based on the current performance of the asset.

Happy investing all!

Mike

@Michael Germinario 

I totally agree. 

Originally posted by @Doug Minton :

@Joseph Romero,@Dawn Brenengen

Dawn, yes it was quite an experience and I am still rolling with the punches. I got my NJ real estate license, and I am hoping to be investing full-time by next year right after a cash out on my NJ property which I currently live in. One lesson I could share is that if you have a crappy looking property, then you attract crappy people. The main difference between my Rochester property and my Atlanta property is that I would live in my Atlanta property. It is newer construction, built in 2007. However, my Rochester property was a slum. I would have never lived in it the way it was. My story could have been very different if I had fixed up the property, and then rented it out.

Joseph, yes sir, Essex county has really high taxes. However, it is a very desirable area, so fix and flips work well out here. I reached out to an investor that I partner with and he just picked up an 8 unit building in South River. His taxes are low and they projected an 11.5% cap rate. They are all in for 450k and will net 52,125 annual rent. So that's around $4300 per month. I wish I had partnered up with him on that deal. So, I think the key is to invest in an good area in a town with low taxes and where the properties don't look run down. Sometimes you can find some good multi-family units that can be rehabbed in areas like Newark. The key is to know the good areas in Newark. Take a look at North Newark, area code 07104. I am also looking for a 3 family in a town like Bloomfield where I can live in it and also cash flow. Just know that there are areas that you can invest and the taxes won't kill your profit. Like I said, I think its all relative to your area. 

 So they are grossing ~$100,000 a year from this property before expenses?

@Mike D

Mike, these are numbers that were given to me and they didn't share with me the gross rent, or the expenses, so, I really don't know. I can ask my friend and get back to you. However, we have been doing business since 2011 and I trust his numbers. 

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