Buying investment property is a great way to generate passive income. As with any real estate purchase, however, you need to choose the right property.
Here are a few things to consider:
Real estate is all about location, so look for a neighborhood in which tenants will want to live. Properties near public transportation, good schools, and employment hubs are attractive to renters. A property with a superb location also justifies a higher rental fee.
In order to choose the best location, you must have a long-range view of how the immediate vicinity will change over the next several years. Research upcoming developments, and thoroughly check ownership, zoning, and intended uses of properties in the neighborhood.
Choose a property with great cash flow. Ask to see records from the last 6 to 12 months indicating how much profit the property generated. When investing in multi-family properties, calculate the fair market rent for each unit. Fair market rent is an estimate of how much a property with a set number of bedrooms will rent for. It includes base rent, along with essential and nonessential utilities.
The United States Department of Housing and Urban Development (HUD) releases a list of fair market rent calculations for over 2,500 counties and metro areas each year. The figures are based on renter surveys and census data.
New Jersey has some of the highest rental rates in the U.S. Its proximity to New York City and overall desirability makes it a haven for property investors.
- Property taxes
When buying investment property, talk to your REALTOR® and real estate attorney about property taxes. Though NJ offers tax credit or deduction for primary residences, this is not applicable to rental properties or vacation homes. Figure out how much you’ll have to pay in taxes, and factor that into the rental price for the property.
- Landlord-tenant laws
If you’re thinking of buying a multi-family property, do research on NJ landlord-tenant laws to find out what your obligations are. The law protects landlords by imposing penalties for late payments, but they must also give tenants a 30-day notice if they want to increase the rent or file for eviction. Tenants can also withhold rent if landlords are unable to shoulder important repairs.
- New construction versus existing properties
New construction properties often come with attractive prices, clear titles, and nearly endless options for customization. As investor, you’ll only have to deal with the construction company. However, there are risks concerning an increase in costs and delays in turnover.
- Repairs and improvements
Take stock of any repairs you might have to make and how much it will cost. Make sure that the property and all systems are in good condition – the fewer repairs you’ll have to make, the better. But even then, be prepared to deal with repairs in the future. These can be unexpected and expensive, so factor that into your projected budget.
Existing properties, on the other hand, require you to do a more in-depth search on legalities, ownership, and documents.
Find the right investment property today. Call me, Stacy Esser, at (917) 621-6794 or send an email to email@example.com.