NJ single family rentals can cause a real headache. While there are many advantages to purchasing a single family home in New Jersey as an investment property to rent out, there are also many disadvantages. This article is meant in no way to discourage you from purchasing a single family home in New Jersey for a rental, but rather to give you the knowledge of this type of investment property and make an informed buying decision. Purchasing a full or partial interest in an investment property can yield different returns. There are many factors that are figured into the success ratios of a rental home. Evaluating the good and the bad can prepare any investor for a long-term investment strategy.
- When tenants move your vacancy rate is 100%. When a single family home is vacant there is NO money coming in. This lack of cash flow can be painful if the unit is not filled quickly.
- When vacant, theft and other vandalism can be more of a problem because there is no one there to look out for your property.
- With single family homes as your rental properties, everything you have that can break multiplies. You have more roofs that can leak, more air conditioners that can go out, basically just more of everything.
- More upkeep. There are more fences to repair, eaves and dormers to paint, etc.
- Management could be more difficult as your properties are more spread out and not all under one roof. You use a sort of economy of scale.
- ROI Decreases with Vacancies. Unlike multi-family properties that contribute more than one source of income, single family homes are vacant the moment that a lease agreement engines. Lost revenue and increased costs to find a new tenant can be common.
- Decreased Land Size. The average single family property is less than 1/4 acre in most neighborhoods. Families that prefer renting homes with more land could be turned away by homes with smaller lots when seeking housing.
- Higher Initial Sale Price. Single family homes generally hold a resale value regardless of the age of the property. Homes that are renovated prior to being placed on the market can have a higher sale price compared to those that need repair work at the time of purchase.
- Cost per unit is usually higher. Think of it like the difference between buying a 12-pack of your favorite soda and buying 12 cans individually. The cost per can will almost always be less buying a 12-pack.
- Financing won’t always be a breeze. After you own four homes conventional financing is out and most banks won’t lend on more than 10 homes. At that point you will either need to purchase with cash or find a portfolio lender.
- Vacancies can be painful. When you have a vacancy in a single family property there are no other tenants to help cover your mortgage payment. This makes maintaining cash reserves vital.
- The house and yard may not be kept to your standards. Most tenants aren’t the neat freaks and master gardeners we would love them to be. If the house is in a neighborhood with an HOA be sure to lay out what is expected of the tenants or you will likely be hearing from the HOA more often than you’d care to.
- Fewer economies of scale. The likelihood of an investor finding 10 single family houses built the same year with the same floor plan, heating system, plumbing and fixtures is virtually zero. With a 10 unit apartment complex all the light fixtures, toilets, countertops, paint colors and appliances are the same which can make repairs and upgrades less expensive.
- More miles on your car. Owning multiple single family properties can mean spending more time in the car driving across town from one unit to another.
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