Different states have their advantages and disadvantages in terms of land investments. If you’re thinking about owning land in New Jersey, there are some things to consider.
From taxes to maintenance, there are a number of things that contribute towards whether land ownership in New Jersey is a good idea or not.
Owning land in New Jersey has its pros, such as property value appreciation and tax advantages, but it also comes with its disadvantages. From concentration risk and maintenance, there are plenty of things to consider before becoming a landowner in New Jersey.
Land owners will usually make the investment for an added revenue stream, whether that is focused in the long run with raw land, or short run with rentals.
We looked into all the possible benefits and problems you may come across if you were to become a landowner in New Jersey to give our recommendations.
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Pros of Owning Land in New Jersey
As mentioned earlier, most landowners will make the investment for an added revenue stream. Sometimes, people buy land so they can eventually live on it and be free of the burden of rent, but many others will buy land so they can make money off it. Usually, land owners will have homes and buildings built upon their land so they can rent it out to someone else.
As a landowner, if you can keep your own monthly expenses low and keep rents high for tenants, your monthly revenue stream can be pretty decent. In fact, New Jersey is one of the states with the highest rental prices around the country. So, if you manage to reduce your loan payments, maintenance and property insurance to its minimum, your land will bring in some pretty decent revenues.
Property Value Appreciation
In fact, while rentals are great, land is also a great investment for long term income solutions. If you buy raw land and don’t have a building built upon it – no worries. You still have a pretty valuable asset.
Unlike the stock market, real estate markets don’t fluctuate often. Property prices actually go up over time, even if they do have their dips at times. In faster growing states like New Jersey where development is rapid, you can be sure that your land’s value will shoot up at faster rates.
In some states you may have to wait a few years before you see any results, but in New Jersey, this change can come across even as little as three to four years after you buy it. In fact, according to Realtor.com, the median list price for single-family homes has grown by about 35% within three years, which is a very fast change.
You can also improve the land by adding facilities and features, which will further bring up the total value.
New Jersey may be one of the smallest states, but it is also the 11th most populous one. This means that if you live around town or a major city, you’ll be subject to the hustle and bustle of busy city life.
If you own land in the southern part of the state, even if you’re not renting it out, you can have the advantage of privacy. With all that space to yourself, you can be free from the noise and pollution that comes with cities.
One major plus side to owning land in New Jersey is the tax advantage. Owning land that you rent out to someone helps you maximize your tax advantages and allow your bottom line greater benefits. Rentals are considered to be business assets, so you can reduce expenses like mortgage, operation expenses, renovation, insurance, etc. from your total payable tax amount.
You can also get depreciation taxes, and in some circumstances, you can even avoid some of your self-employment taxes too. Since New Jersey has a lot of heavy taxation, anything that allows you tax benefits is great.
This can be a double-edged sword though, because these tax advantages only apply to rental property.
This brings us to the cons of owning land in New Jersey.
Cons of Owning Land in New Jersey
Taxes can be a benefit for New Jersey land owners, but only if the land itself is being rented out. If you happen to simply own raw land that you’re not renting out to anyone, you’ll have to pay taxes on it.
It’s no secret that New Jersey has astronomical taxes, which can really cut into your savings. In fact, even the land investment may end up being useless if you keep paying high property taxes on it before you can even make any returns.
Since New Jersey is very densely populated, there is more and more development every year. This means that you can make very high returns on your land investments, provided that you are careful with taxes. The best way to turn this around in your favor is to build a home on top of it, which you can rent out to get tax advantages instead.
When you own a piece of land, you become responsible for its maintenance. This is particularly true if your land is being used for rentals. From leaking pipes to all out renovations, everything that is part of your property’s maintenance falls on you.
This is particularly true for New Jersey, where landlords are expected to abide by certain standards. Besides larger maintenance costs, you’d also have to shoulder the regular costs like cleaning the pools etc. If you do not abide by these laws, your tenants – if you have any – can even sue you.
On top of there being plenty of costs to consider, New Jersey is also an expensive state to live in. This means that the cost of repairs and maintenance is much higher in New Jersey than it would be elsewhere.
The problem with land investments is that it comes with the risk of concentrating your portfolio. While it is true that land investments are more stable and will most often appreciate, they do have their downsides. One of these is their lack of liquidity. Even if your land has very high value, you cannot sell it as easily to make money.
In fact, holding a property for a long time may also devalue it, such as if a neighborhood’s value goes down due to rising crime rates. If you own land in a New Jersey town with higher crime rates, you may have to reconsider after some time.
If you own raw land, you may have more difficulty with your finances than if you owned developed property. While land is a profitable investment, it is true that cities are being expanded vertically as well, in the form of apartment buildings and skyscrapers, instead of just stretching out.
This means that your property may not appreciate as much as you think it should, and may even come with the added trouble of your land not being considered good enough for collateral. As an asset, lenders would usually consider your land as a good collateral for when you apply for loans.
But with raw land, things are a bit different. Since the value of raw land cannot be accurately determined, lenders may sometimes charge higher interest rates when they take your land as collateral to compensate for the risk.
We already know that New Jersey is an expensive state, and this doesn’t just stop at taxes and utility costs. In 2019, the US Bureau of Economic Analysis reported that New Jersey’s land values were the highest around the entire country. At the time, the next state on the list – which was Rhode Island – had land prices about a third less than the cost in New Jersey.
At the time, the value of an acre of land was reported at $196,410, and this was without any structures or buildings on it. While owning such an expensive piece of land would generally be considered a major advantage, there are some considerations to make around it.
As we mentioned earlier, raw land comes with troubles that developed land does not, and this is true for New Jersey as well. It is also true that property value appreciation is not a guarantee, as much as we’d like it to be.
What does this mean? Unless you’re sure that the land in question would be developed in the near future, it is best to not invest in it. This comes with a further downside of the piece of land being even more expensive than it would’ve been otherwise, which doesn’t just pull up financing costs, but also the tax you pay on it.
While there are plenty of advantages to owning land in New Jersey, there are also many disadvantages. In fact, many wealthy landowners are leaving the state due to the trouble they face with high taxes and maintenance costs. When making such an investment, it is best to look into it carefully and consider how this will affect you in the future.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling