Foreclosure in Hackensack>Question Details

Julio, Home Buyer in Hackensack, NJ

I have been saving for a while now to buy some income producing multi-family houses in New Jersey. Is this a?

Asked by Julio, Hackensack, NJ Thu Jun 12, 2008

good time to buy or should I wait for prices to drop further? I am a current resident of Hackensack where there are a multitude of multi family houses for sale. Being that I am relatively new to the investor real estate market, what should I look for in a property to produce income? Thank you for any advice.

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Will Robles
888.605.9190
will@firstcasasolutions.com
0 votes Thank Flag Link Tue Jun 24, 2008
I would refrain from investing unless you are able to find an extremely good deal somewhere. Most multi-family properties are selling for way too much considering the rent roll coming in. Prices still have to come down more and property taxes are extremely high as well. Most properties have rents that wouldn't cover the mortgage alone (assuming 20% down) and almost all of them wouldn't cover the taxes and insurance added into the expenses. This doesn't include any landlord paid expenses.

This is not to say there is not a great deal SOMEWHERE out there, but it will be extremely difficult to find suck deals in the Northeastern NJ area. Other people's statements of getting 10% ROI are true, but as I stated earlier, good luck finding that. If you do, make sure the rents currently charged are market rate. Some are artificially high due to long term tenants w/ yearly increases. If they leave, you're back to square one on rental value.

In Hackensack in particular, there are some good values out there, but vacancy rates will be relatively high since there are a lot of empty rental units listed in Hackensack. To rent them out quick, I see listings on the MLS (I am a registered Realtor) dropping the asking price. Others with high rents are sitting empty for months.

There are properties in Hackensack that you can consider if you're still interested. I can help do the math and show you CONSERVATIVE earnings (or loss) estimates for each place.

Example of a loss property:
Selling for $500k, which at 20% down = $400k mortgage.
$400k mortgage @ 6% for a 30 year loan = $2400/mt (rates are slowly climbing right now so 6% may be hard to get).
Taxes = ~$12000 (for larger / newer places) that equates to $1000/mt
Insurance for a typical 2 family location is $1200/yr for a tenant occupied location. ($100/mt)

That equals $3,500/mt in expenses.
typical rents for a 3BR = $1500/mt (depending on condition, but we're talking about a $500k property).
Even if both units were 3BR's that's only $3,000/mt That's a net LOSS of $500/mt without including other expenses/repairs.

Some will try to convince you that you get to take "losses" from depreciation and the tax benefits would offset that, but that is far from the truth. Your actual CASH flow will remain NEGATIVE.

As a rough rule I've been using to calculate values, for every $100k you borrow, make sure you're getting at least $1,000 in rent, just to break even. That means for the property above, you need $4,000/mt income (since you're borrowing $400k). I also wouldn't count on "appreciation" of the property anytime soon. As much as the pundits would like to say the recovery is just around the corner, we have to consider prices jumped 300% in the last 5 years in this area. We still have a lot more to go in my opinion.

I would also be wary of foreclosed properties as it generally takes about 6 months to a year for a property to go through that process and during that time, I can assure you they are not spending extra money to keep the place in good shape since they are having a hard time just to keep up with mortgage payments. Expect at least a few thousand in repairs/paint/replacing major appliances to get these places rentable again.

I hope this helps you figure out your plans and good luck!
0 votes Thank Flag Link Tue Jun 24, 2008
Julio, as it is impossible to foresee when and how much prices will drop, I would say now is the best time to START your home buying process. If you haven't done so, speak with a lender about your investment desires and see how much you can qualify for. It is great that you have been saving, however, many people throw their whole savings into investment properties and end up with nothing. I would advise you to consider only using "most" of your savings but factor in several thousand for "unexpected" costs along the way.
As many have mentioned, foreclosure properties are a cost effective way to begin your real estate investment portfolio. However, while more affordable to purchase, they typically require more work including minor to complete rehabilitation. A lender can explain the details of special financing available (i.e. FHA 203K Rehab Loan) which will allow you to obtain the mortgage for the purchase price as well as additional funds for renovations all lumped into one monthly mortgage payment. Now for investors, I do believe they require a larger down payment than for an end-user (someone living in the property). It's a great way though to get involved with investing in foreclosures. My office has hundreds of foreclosure properties throughout New Jersey (our main foreclosure office is in Cranford), so if you're interested in learning more about the process feel free to contact me, I'd be happy to help!

Christine Markow
ERA Statewide Realty
Office: (908) 874-7797m ext 519
Cell: (908) 444-3106
christine.markow@era.com
0 votes Thank Flag Link Tue Jun 24, 2008
This is the type of property I was talking about in my earlier answer. Short sale(type of Foreclosure) in Paterson. Legal 4 family with a green card on a half way decent street. 3 of the 4 units rented so we have a rental history. Total rents for the 4 units $34,800 a year expenses $7,200 (taxes & insurance) Utilities paid by tennants. First listed for $239,900 now Asking price $185,000. Net return on investment approx 15%. Probably can be had for less.
0 votes Thank Flag Link Fri Jun 13, 2008
If you are going to buy a single family of multi-family property not more than 4 units than I would recommend to not buy more than 80% of the property's value unless there is an excellent cash flow (Minimum of $200 after ALL expenses, vacancy factors, etc). In fact I would stick with 70-75% LTV and a better cash flow. It's the norm for investors and this gives you a 'cushion' for the unexpected (believe me it will come, so expect things to go wrong but buying smart will keep you safe!). As far as giving you advise, either partner with someone who's experienced OR do your homework! Homework is to include knowing EXACTLY what you're getting into. Real Estate is an excellent investment, but it is only as good as the person investing. Feel free to contact me about investing and best of luck to you!

Will Robles
888.605.9190
will@firstcasasolutions.com
0 votes Thank Flag Link Thu Jun 12, 2008
Hi Julio,
I currently have a few investment properties in New Jersey and I'm an agent. Give me a call we can talk 609.254.3198.
0 votes Thank Flag Link Thu Jun 12, 2008
Simply put you should look at the gross operating income (or rent rolls) and compare that to the purchase price. 10% or more is a good start.
There are many, many foreclosures out there that allowyou to buy multi families at a deep discount but most of them are inner city. Newark, Passaic and Paterson are close to where you live. I am working with investors who are looking in Paterson and I tell you its not for the faint hearted.You need to do your homework and understand how things like Section 8 operate. Also how the towns are. For Example Jersey city has rent control on buildings with 4 or more units. 3 units and above require you obtain a state inspection called a green card. In Paterson you should not buy buildings with 2 bedroom units - too many available, you need to look for buildings with units of 3 or more bedrooms. There are an enormous number of illegal buildings where there are more than the authorised number of units and towns are cracking down - Clifton is a good example. I could go on for hours but if you need more drop me an email.
Good luck.
0 votes Thank Flag Link Thu Jun 12, 2008
Dear Julie,
Welcome to the world of real estate investing. It is a great place to be. Hackensack is a great town to own investment property in due to HUMC. Tenants are readily available. There is another area that will be in the same position very soon that I would love to tell you about. You can buy before the prices go up. Please contact me through my website and I can give you all the details.
I look forward to hearing from you.
Sharon Kozinn
Web Reference: http://www.sharonkozinn.com
0 votes Thank Flag Link Thu Jun 12, 2008
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