I live in an expensive area and the numbers aren't working

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I live in an expensive area and the numbers aren't working

Casey Gocel
Parsippany, NJ · Member since 2017 · 16 posts · 2 votes

I've been researching REI'ing for the past 6 months and I have yet to purchase a property. I live in New Jersey where property values and property taxes are very high. I don't have any construction experience, so I figured I should avoid flipping. Instead, I've been focusing on rental properties, specifically vacation rentals at the Jersey shore. The numbers just don't add up. Even with a multi-family, the best ROI I can get is like 3%. I've been looking at properties between $500-600K and the monthly rents are only $2,000-$2,400 (roughly 4%).

I've also looked into properties that are not vacation rentals, but the numbers are roughly the same in this area.  4% is clearly not going to work.

Flipping seems to be the better choice in this area, but that makes me nervous since I don't have construction experience and I will have to sub out all of the construction work and I fear I could lose all of my profit that way. 

I'm starting to get frustrated that I can't find a deal that works.  I'm determined to buy a property this year, but I don't want to buy something unless I can make the numbers work.  

Do any of you out there in the BP Community have a similar problem with living in a high-priced area? Does anyone have any suggestions for me?  I'm very eager to start investing!

Thanks in advance for any advice you may have! 

1Reply
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y

Hi Casey! I live in LA and the problem is the same out here. I've always just bought out-of-state properties. That way I have lower entry prices, higher cash flow, etc. So investing non-locally is one option. Flipping would be the other option, but my hunch is to say follow your hesitations about not having experience or feeling like that's what you should do. Flipping can of course be an option, but it's honestly a very different animal than just having a rental property. If it calls to you do it, but only do it if it really calls to you. Otherwise you could end up with a significant amount of stress to deal with...

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  • Vincent P.
    Monmouth County, NJ · Member since 2015 · 37 posts · 13 votes
    9y

    Do not make a rushed decision. I do not have experience with Shore vacation rentals, but though between flood insurance, cleaning crew, upkeep it would be hard to make money. There are opportunities in central Jersey with good cash on cash returns(10-15%) you just have to find them.

    Best of luck

    2Reply
  • Rob Suhai
    Real Estate Professional · Oak Ridge, NJ · Member since 2015 · 26 posts · 20 votes
    9y
    Hey Casey, Don't rush into anything. The deal has to be right! Try looking for off market properties in the area. Nj has a ton of homes in pre foreclosure as well as landlords who have gone through evictions looking to get rid of their property. Keep searching for those off market deals. Don't worry about not being handy right now. It's a miracle what just cleaning and paint can do to a property. Good luck!
    3Reply
  • AL-Teef Jones
    Newark, NJ · Member since 2016 · 37 posts · 9 votes
    9y

    you are not alone!

    I'm having the same trouble myself making the numbers work for NJ properties. I'm looking in Essex county so taxes are a major pain for most properties I've been looking at. I've been utilizing the MLS mostly but at this point I'm going to have to figure out how to transition to off market properties.

    Hopefully I can get better numbers on off mark properites

    0Reply
  • Jake Recz
    Manville, NJ · Member since 2015 · 141 posts · 87 votes
    9y

    Im in the same boat as you. The numbers just aren't working for anything I can find on the MLS in jersey. So it's either off market deals, as others suggested, or going a little out of state.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    Hi Casey! I live in LA and the problem is the same out here. I've always just bought out-of-state properties. That way I have lower entry prices, higher cash flow, etc. So investing non-locally is one option. Flipping would be the other option, but my hunch is to say follow your hesitations about not having experience or feeling like that's what you should do. Flipping can of course be an option, but it's honestly a very different animal than just having a rental property. If it calls to you do it, but only do it if it really calls to you. Otherwise you could end up with a significant amount of stress to deal with...

    5Reply
  • David Weintraub
    Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes
    9y

    CALI, Jersey, that's an issue.

    For Jersey people you're gonna have to head down state, or venture into parts of Pennsylvania.  

    It's not as if people aren't doing business in NJ because there is a lot of business, but newer investors who don't have deep contacts are starting in areas further away.  I see it a decent amount.

    Flipping is certainly much less of an issue, obvs.

    0Reply
  • Greg Hamer
    Real Estate Agent · Carmel, CA · Member since 2015 · 193 posts · 128 votes
    9y
    Bro, I'm in Carmel CA. We just had a house here sell for $1800/sqft. It was only 1600 sqft and $2.8m. I feel your pain. I'm looking inland. Hard to pull the trigger though...
    0Reply
  • Account Closed
    Investor · Boca Raton, FL · Member since 2017 · 108 posts · 18 votes
    9y
    Originally posted by @Rob Suhai:

    Hey Casey,

    Don't rush into anything. The deal has to be right! Try looking for off market properties in the area. Nj has a ton of homes in pre foreclosure as well as landlords who have gone through evictions looking to get rid of their property. Keep searching for those off market deals. Don't worry about not being handy right now. It's a miracle what just cleaning and paint can do to a property.

    Good luck!

    whats a good source for finding landlords who have gone through evictions and looking to unload property.? how do you go about finding these deals

    1Reply
  • Douglas Krofcheck
    Hudson, NH · Member since 2017 · 70 posts · 47 votes
    9y

    Took me 8 months to find one in southern NH.  Don't jump the gun and buy a bad property, remind yourself that you're saving more each month so in theory each month you can afford a slightly better house (assuming property values aren't increasing faster than that).  If you bought a bad property you'd be losing money each month.  At least you're not doing that.  Think of all those horrible properties you were smart enough to avoid.  

    Perhaps start looking into off-market deals with only surface damage.  You don't have to know about construction to fix things, that's what contractors are for.

    There's also turnkey rentals in other areas, just don't forget to do your inspections (building, area, multiple local management companies) too.

    3Reply
  • Alexander Green
    Astoria, NY · Member since 2017 · 5 posts · 0 votes
    9y

    Hello, Casey 

    0Reply
  • Account Closed
    Investor · Boca Raton, FL · Member since 2017 · 108 posts · 18 votes
    9y
    Originally posted by @Rob Suhai:

    Hey Casey,

    Don't rush into anything. The deal has to be right! Try looking for off market properties in the area. Nj has a ton of homes in pre foreclosure as well as landlords who have gone through evictions looking to get rid of their property. Keep searching for those off market deals. Don't worry about not being handy right now. It's a miracle what just cleaning and paint can do to a property.

    Good luck!

    whats a good source for finding landlords who have gone through evictions and looking to unload property.? how do you go about finding these deal

    0Reply
  • Travis Dawson
    Investor · Moscow, ID · Member since 2017 · 107 posts · 76 votes
    9y

    no deal is better than a bad deal. If nothing you find makes sense you have a few options: 

    Go out of state

    Find an off market deal

    Find a creative solution to get the MLS properties to cash flow

    3Reply
  • Login George
    Belleville, NJ · Member since 2016 · 46 posts · 19 votes
    9y

    @Casey Gocel Hey Casey. I hear you! Dealing with the same problem myself in Essex county.

    0Reply
  • Eric Costa
    Nutley, NJ · Member since 2017 · 20 posts · 10 votes
    9y

    @Casey Gocel, Hello Casey.  Im with you, it seems impossible to find something with working numbers!  I've started to downgrade my search area.  High property taxes means we need lower purchase costs (near impossible in our area).  Instead of looking at A and B neighborhoods; I've been looking for C areas.  Places like Newark and Passaic hold strong working class families that need affordable housing.  There are plenty of D properties in C neighborhoods.  Maybe an area like that will help make the numbers work for you.  Tread carefully and find the right street/neighborhood.  It can be a warzone in these areas as I'm sure you're aware. 

    Goodluck, I hope you find something worth buying soon

    0Reply
  • Account Closed
    Orlando, FL · Member since 2017 · 11 posts · 1 vote
    9y

    Join groups on facebook and try FL or GA.

    0Reply
  • Rob Suhai
    Real Estate Professional · Oak Ridge, NJ · Member since 2015 · 26 posts · 20 votes
    9y
    Alex A. Go to your county court house and ask for recent tenant evictions it's public record. In some counties you can find it online, others you need to visit the courthouse. Once you know the property address you can look into who owns the property from the tax records and start reaching out; whether it's sending a letter or trying to find a contact number, Facebook page etc... it's a lot of digging but can pay off especially in NJ's market. Let me know if you need anymore info or if I can help further
    1Reply
  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    9y

    Northern NJ is very tough, unless you catch the right deal, patience. I purchase out of state because of prices, and have a PM that manages my properties for me. My brother and his wife wanted to start flipping in his area of Northern Jersey, they have been doing it for 2 years now ( part time thing) and only have done one flip. what houses may be out there, there are usually a few investors checking that same property. As far as rentals in Northern NJ you have to look into multi family in order to make money a SFH usually will not make enough in rent to cover your expenses and make a profit. be patient and keep looking, but maybe try and change your strategy on how you can get a deal.

    0Reply
  • Hank Keller
    Rental Property Investor · Mansfield, OH · Member since 2017 · 151 posts · 117 votes
    9y

    @Casey Gocel - Live where you want to live, but invest where the numbers make sense. I cant tell if you have $500k-$600k or not, but if you do, that much could get you $5,000-$6000 per month in rental income in one of the turnkey markets that are popular here on BP. I've personally built that type of rental income using a TK company in Indianapolis with 7%+ returns over the last four years. Turnkey rentals are completely hands off and the tenant is placed into the house at the time of purchase. 

    Your other option may be to purchase a house near the shore and make it into an AirBnB. Returns on those can be much higher though you will need good systems if you start to expand...

    I"m available to talk if you have any questions

    Hank

    5Reply
  • David Weintraub
    Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes
    9y
    Are any of you trying to find properties through foreclosure auctions?
    0Reply
  • Anthony SuscoPro Member
    Lender · Turnersville, NJ · Member since 2016 · 173 posts · 68 votes
    9y

    @Casey Gocel The high property values and taxes in Northern NJ can make it difficult to find rental properties with positive cash flow.  As previously suggested, returns can be better if you start looking in Central and South Jersey.  I think you are being very smart in waiting to buy anything until you find the right deal.  Some investors get impatient and end up making bad decisions, and as @Travis Dawson mentioned, no deal is better than a bad deal!

    One key piece of information that you didn't mention in your post is your goal for REI. You mention both rentals and also potentially flipping. Defining your goals will help determine your strategy. I don't think your lack of construction experience should preclude you from flipping, but you need to find the right contractors and get them on your team. While you are looking for the right property, you should be thinking about building your team of contractors, realtor(s), attorney, etc. That way, when you do find the right property, you will be ready to act quickly.

    2Reply
  • Rachel King
    Brooklyn, NY · Member since 2016 · 1 post · 0 votes
    9y

    I live in NYC and have been looking in the Hudson Valley, with results similar to yours. 

    0Reply
  • Tracey G.
    Accountant · Baltimore, MD · Member since 2016 · 74 posts · 29 votes
    9y

    @Casey Gocel I live at the shore (a mile from the beach) and in general the rental prices for a shore house don't make any sense to me. The tiny cape (a 2/1) behind my home sold for $260k cash this spring and couldn't rent for more than $1,500. A 0.5% deal on a property with $6k RE taxes. Investors in my area purchase to have a summer house and rent to college students in the winter to help cover expenses.

    I am looking to flip in my area and use that money to buy and hold elsewhere. Either inland NJ or in DE/PA where the taxes are much lower.

    2Reply
  • Account Closed
    Investor · Boca Raton, FL · Member since 2017 · 108 posts · 18 votes
    9y
    Originally posted by @Rob Suhai:

    Alex A. Go to your county court house and ask for recent tenant evictions it's public record. In some counties you can find it online, others you need to visit the courthouse. Once you know the property address you can look into who owns the property from the tax records and start reaching out; whether it's sending a letter or trying to find a contact number, Facebook page etc... it's a lot of digging but can pay off especially in NJ's market.

    Let me know if you need anymore info or if I can help further

    does the same process work for homes...? people going through foreclosure process and or behind on payments?

    1Reply
  • Jeff Schechter
    Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes
    9y

    I agree with @Hank Keller.  Every single comment on this thread is screaming TurnKey.  ESPECIALLY in the MidWest.  The whole point of TK is to help and bring tremendous value to investors like you.  

    5Reply
  • Casey Gocel
    OP
    Parsippany, NJ · Member since 2017 · 16 posts · 2 votes
    9y
    0Reply
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