Real estate investing in New Jersey has gained popularity in recent years as a way to earn extra income, but it isn't something you should jump into haphazardly.
The main goal of real estate investing is to buy an investment property for a low cost, rent it out at a price that makes you money, and hopefully sell it for profit down the road.
New Jersey is a great state to become a real estate investor in! We have national parks, gorgeous beaches, and a healthy mix of quiet suburbs, beachfront homes, and modern city living. Whether you're looking to invest in a waterfront vacation rental or a home you can flip in six months, there's plenty of opportunity in New Jersey.
While the potential to make money with real estate investing is attractive, there are still a lot of risks that come with it. To help you along your investment journey, here are 9 things you should know about real estate investing.
1. Start With a Mortgage Pre-Approval
If you're going to finance your investment property (instead of paying with cash), getting pre-approved for a mortgage is the best thing you can do.
When you're pre-approved for a mortgage, most lenders lock in the interest rate for you. This interest rate is typically good for about days. Even if rates go up while you're looking at properties, you'll get to take advantage of the lower rate that was locked in when you were pre-approved.
In addition to taking advantage of interest rates, a pre-approval shows sellers you're serious. Many sellers are much more inclined to accept an offer from a buyer who is pre-approved compared to one who isn't.
2. Look for Distressed Properties
New Jersey ranks third as the state with the highest number of foreclosures. While this is unfortunate news for some, it's good news for real estate investors — foreclosures mean an influx of low-cost homes.
As a potential real estate investor, this can open up a lot of profitable inventory. They might need a bit of work to become an attractive rental (or to make a worthwhile flip), but it's beneficial to keep an eye on foreclosed homes to see if any pop up in the neighborhoods you're looking at.
3. Keep Up With Local Pricing Trends
The New Jersey real estate market hasn't cooled much over the last few years. As of late 2022, according to Zillow, the average home value in New Jersey is $471,650, up 11% from 2021. Zillow also notes 63% of homes sold over the list price.
Looking at the local pricing trends in New Jersey, it's a desirable state where homes sell fast for buyers who are qualified. However, for buyers who can't keep up with rising home prices and mortgage rates, renting is a much more attractive option.
For a real estate investor, this is a win-win scenario: you can capitalize on the growing property values while providing a nice home to rent.
4. Research Local School Ratings
Neighborhoods with high-quality schools are some of the most attractive real estate opportunities for a few reasons:
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Parents with young children will be more likely to rent the home
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The home will typically hold its value more than a home in an area that does not have desirable schools
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Where there are good schools, there are usually other areas of growth, such as more retailers, outdoor activities, etc.
Check out some of New Jersey's top school districts here and look for neighborhoods closest to top-rated schools.
5. Look for Accessible, Suburban Areas
New Jersey is unique in that it provides access to multiple major cities. Residents can enjoy the refreshing, small-town life of a rural neighborhood and still commute to New York City or Philadelphia for work.
Some of the most desirable areas will have this kind of flexibility!
With property values and rent continuing to rise in major cities, the outskirts are becoming more popular. Luckily, New Jersey is full of beautiful suburbs that offer a more appealing price (and space!) than city living, but are still within reasonable driving distance.
6. Calculate Your Expected Cash Flow
You shouldn't go into any investment without knowing what you'll be getting back in return. However, figuring out expenses and profits isn't always straightforward when it comes to owning property.
Here's what you need to consider when calculating your expected cash flow:
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Property tax trends - Have they gone up in recent years? What's the predicted trend in the near future? When was the last tax assessment? If the home is going to be reassessed soon, it's likely your property taxes will go up. You'll need to factor this into your expenses.
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Property values - Have property values decreased, increased, or held steady recently? What's the expected trend? (An experienced real estate agent can provide invaluable insights here!)
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Expected repairs or upgrades on the home - If you plan on keeping a long-term investment property, are there any major repairs or upgrades the home will need? Factor all of this into your overall projected cash flow.
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Other cash flow streams - If the worst-case scenario happens and you project you're going to have a negative cash flow for any reason, you might need to allocate money to this property until it's back in the positive again. This means using income from your savings, salary, or other investments.
7. Analyze Vacancy Rates
Look at the vacancy rates for the property type you're considering in different areas. Are most of the rentals vacant or are there a high number of tenants to available properties?
For the state of New Jersey as a whole, rental vacancy rates are some of the lowest the state has seen in decades, with a statewide total of a 3.6% vacancy
8. Understand What You're Getting Into
While rehab properties carry the potential for huge profits, it's important to fully understand what you're getting yourself into before pulling the trigger.
If this is your first time purchasing an investment property and you don't have a ton of extra capital to spare, you probably don't want to purchase a $500,000 home that needs $60,000 in repairs.
Make sure you study the property, have contractors come to look at it if needed, and have wiggle room in your budget in case any expected construction costs end up costing more.
9. Start Small & Learn
Are you new to real estate investing? It's okay to start small! In fact, that's probably the smartest thing you can do.
Starting small allows you to get used to everything that goes along with being a property owner and investor. You'll work out the tough spots with your first property and probably learn a few lessons along the way. By the time you start investing in properties with higher stakes, you'll be well-seasoned.
Looking for Investment Properties in NJ?
The Aneja Team has been finding profitable investment properties for clients in New Jersey for over 25 years! We can help you find your next one, too.
Contact us today to get a FREE one-on-one consultation!
