Mike, it has been quite a while since homes' rental prices justified their purchase prices. Most investors were counting on appreciation. Take your time as I expect rental prices to climb and purchase prices to continue to decline. Let your agent know you will only consider positive or break even cash flow properties.

It depends on where you are looking in NJ. The shore market has always been strong and expensive. IF you want to invest here, your best bet is to look to multi family units. However, most investors know it takes a good 5 years for a property to become in the black, unless you are putting a large down payment.

There are urban areas in NJ where you can pick and choose from many properties that will allow the rents to cover the mortgage.

As far as your comment on your ROI, real estate has returned on average 6%/year. You would be hardpressed to find any CD paying that!

Property investment is a long term proposition and not a bad one at the Jersey Shore. Have you taken into account depreciation and other tax benefits?

The national average home price increase from 1987 to 1997 was zero after adjusting for inflation. From 1997 to 2007 the national average home price was up 151% after adjusting for inflation. Even if prices are down 20% in the past year, I think this tells you that they have a way to go or real estate, as an investment, is just dead money for the next 5-10 years.

Houses are not generally good investments (unless you timed the bubble pretty good). It was certainly the worst investment for the 22 million people that bought at peak prices. About 9 million of them are already "underwater".