Many first-time real estate investors are attracted to the idea of becoming a NJ landlord. Buying a second residential property provides an opportunity for one to invest their money and receive passive income. Sounds easy right? It can be easy if you know what you are doing. It can be a nightmare if you do not. Here are 3 things you must do to help keep your NJ landlord journey on the easy track.
Run Your Numbers
Before you actually buy a property, you need to make sure it will be a profitable investment. For a property to be profitable it must generate a positive cashflow. This means that you must have money left over from the monthly rent after paying all of the monthly expenses involved with owning the home. When calculating the expenses involved with owning the rental property, you should include the taxes, mortgage payment, a 6% maintenance reserve, property management fees (about 10% of monthly rent), leasing costs (approx. 1 months’ rent), vacancy rate (varies by market), insurance, utilities, and any other applicable fees that may include HOA, trash, and lawn care. If you are not making at least $350-$400 after all expenses, it may not be worth it to buy the property.
Form a Separate Business Entity
If the numbers check out, and you decide to move forward with a purchase, it is a best practice to set up a separate business entity before you accept a tenant. This will help to protect your personal assets should a tenant ever decide to sue you as a NJ landlord. Usually, landlords will set up a separate LLC or Corporation for the purposes of the rental lease. If you are unsure of what type of entity to setup it may be best to consult with your accountant or tax advisor. You can easily set up another business entity through an online business filing service that can do everything for you. This will help to insure it’s done correctly.
Hire a Property Management Company
Now that you have found a tenant, and successfully rented out your property, it’s recommended to hand everything over to a property management company. Some experienced investors manage properties themselves with the help of online property management software, but we recommend hiring a good property manager to save time. A good property management company will handle all maintenance requests, rent collection, book keeping, repairs, and many other tasks that you may not want to be bothered with. They usually charge about 10% of the gross monthly rent. The property management company should also be able to handle the eviction process should you need to evict a tenant. If you opt out of hiring a property manager, your passive income could quickly turn into non-passive income that eats up large chunks of your free time. This in turn leads to headaches and a new desire to abandon your original dreams of being a landlord. Be smart and hire a good property manager so that you can enjoy your life while avoiding the pitfalls of the do-it-yourself landlord.
These 3 steps will help you get you started on a successful land lording path, and provide you with the opportunity to grow from 1 property to many. They will help you enjoy the business and avoid pitfalls that many first-time landlords in NJ face. For additional questions about buying an investment property in New Jersey, contact Christopher Avallon, Broker/Owner of Avallon Real Estate Group.