4 Things You Should Know Before Purchasing a Rental Property in New Jersey

Real estate is a lucrative business that has produced some of the richest people in the world, thereby making this a great reason to consider the investment tool. However, as with any investment, knowledge and information are necessary components prior to investing funds on a project. Compile information and do your research so that you know what you are getting into. The New Jersey area can be a great place to purchase rental property and enter the real estate business. But to be successful, you must arm yourself with vast amounts of knowledge. It is important to know a few things before becoming a property investor.

  1. Know the Background Information

The real estate investment scene in New Jersey has rapidly changed in the last few decades. The primary catalyst for such change have been the affluence of people escaping the high living costs of New York. With such proximity to New York City, these individuals take advantage of the lower costs of living in New Jersey, the many things to do in Central Jersey, and the rapid train rides between the states. However, as the demographic changes occur, supply and demand are affected, and prices have risen given the lower levels of inventory. The market is shifting into a seller’s market, which makes timing and selecting the right property critical. Furthermore, the rising costs of living in Philadelphia is making commuting between Pennsylvania and New Jersey attractive, further lowering the supply of homes.

  1. Know if This Type of Investment is Right for You

Do you know your way around a toolbox? How about the process of installing drywall? Of course, you can always hire someone to do it for you. However, this will reduce the profitability as it will increase the costs of managing the investment. Property owners with limited amounts of capital to finance such projects generally perform the work themselves. However, a person that does not have the financial resources available and cannot perform the work should probably look toward other financial vehicles that will allow them to build sufficient capital to finance rental projects.

Look for tools and platforms that can make the process easier. For example, Airbnb can be an excellent resource for renting the property and is perfectly legal in New Jersey. Otherwise, for long-term rentals, use tenant screening to ensure that you find the perfect tenant for the property. Also, consider using experts than can help with improvements and upgrades that can increase the amount of rent you can charge. For example, kitchen and bathroom remodeling in New Jersey can increase the overall value of the property and can also increase the revenues generated from the rental process.

Consider having a professional perform a thorough review of a rental property. Some aspects of the property, like repairing the foundation, will require an expert. Therefore, this step is important so that you are aware of what the total work on the property will end up being. Have a lawyer go through all documentation before you sign. Investing in the right home or apartment is about doing the least amount of work for the greatest amount of profit. Therefore, push to obtain the lowest possible interest rate on a mortgage and do not forget to insure the property as renter’s insurance will only cover a tenant’s belongings. Insuring the actual building is the responsibility of the owner and will probably be more expensive than normal property insurance when the location is occupied. However, these expenses are part of the cost of doing business and will be tax deductible to a certain amount.

  1. Consider Property Taxes, Interest Rates, and Other Costs

Jersey City is set to experience a tax revaluation, and this is set to cause a ripple effect in the housing market that is state-wide. The reason is that Jersey City is a major sector for real estate investment. The situation will hit some property owners hard, as many pay only a fraction of the taxes based on their current home value. As the tax rate and subsequent value increases, many individuals may be faced with a financial burden too great to overcome. The situation will create an opportunity for investors who may take advantage of the despair of property owners.

Investors and homeowners should also consider interest rates. The cost of borrowing money is relatively low at the time. However, loans for investment properties have a higher interest rate than conventional mortgages. Also, the monthly value of a loan should be sufficiently low that monthly rent covers these costs and provides a profit. If the cost of the mortgage is too high and the property is empty for a long time, this can create financial pressure for those without enough capital. Said capital is necessary in any business as positive cash flow is a lifeline. Therefore, those with debt may want to re-evaluate their investment strategy.

Regardless of where a person wants to invest, everyone needs to avoid debt as much as possible. If you have student debt, unpaid medical expenses, or other high interest debt, purchasing a rental property may not be the right move at the current moment. Banks have stricter guidelines for providing loans for investment properties than for primary residencies. They understand that when times get tough, people are less inclined to sell or abandon their homes, whereas there is less emotional attachment to a commercial property. Be prepared to pay 20 to 30 percent for a down payment plus the closing costs. Also, allow an expert to thoroughly examine the property and a lawyer to review all paperwork prior to closing.

  1. Know the Locations

Some of the cities that show the greatest potential for investment opportunity in New Jersey include Jersey City, Newark, and Hoboken. Each of these areas shows signs of economic growth which points to a future expansion for prospective home buyers. As the real estate market evolves in New Jersey, the where and when to invest is also most likely to change. You will need to continue looking for good opportunities as this evolution takes place. Look for locations that are offering good jobs and paying decent salaries. This assures that residents of the areas can pay the rent. Areas with good jobs will tend to attract more people which will correlate with more renters. Look at newspapers and local job listings where you are thinking of investing. Also, consider looking for companies that are relocating as this is sure to draw employees that will also move, causing a fluctuation in rental prices.

Research the locations well and be informed. Remember, as an investor, it is your job to know as much about the opportunity as possible. Look for properties in low tax areas, decent school districts, low crime rates, a growing job market, parks and malls, and entertainment. Demand will always exist for areas with public transportation with access to major cities like Philadelphia and New York. Many possible home buyers that work in those cities will not want to live there; however, they will still need to get there. Therefore, these individuals will consider areas with the fastest routes and least number of public transportation transfers. New Jersey residents will also look for the best paying jobs and will opt to move to communities that provide access to any area in the tri-state region. With all these reasons, New Jersey is an attractive state for an investment property.