Paterson, NJ Cap Rate 2.25%
Paterson is the third-largest city in New Jersey and one of the densest, most ethnically-diverse US cities — historically the "Silk City" of US textile manufacturing, now a dense NJ urban core with significant immigrant communities. The 2.25% cap rate at a $705,000 median price keeps the 0.46% rent-to-price ratio at or close to functional — Paterson is one of the rare NJ markets where cash-flow math is closer to working. Population growth at 0.2%/yr is modest, sustained by continued international immigration.
Employment is anchored by the broader NYC metro commuter base (Paterson residents commute to Manhattan via NJ Transit bus and the Bergen County Line for the broader Newark / Hoboken / Jersey City professional centers), St. Joseph's Health system (St. Joseph's University Medical Center is one of the larger NJ medical centers), the broader Passaic County government, the Paterson Public Schools (one of the larger NJ school districts and a major employer), William Paterson University in nearby Wayne, and a meaningful retail-and-services base supporting one of the largest US Hispanic and Middle Eastern communities (Paterson has the largest Peruvian, Dominican, and Arab American populations in NJ). The Great Falls National Historical Park is at the city center — historically the site of America's first planned industrial revolution. Submarkets stratify cleanly: the historic East Side / Eastside Park area is walkable urban-historic with strong appreciation; the broader Hillcrest and Riverside areas have older multi-family inventory; the broader Paterson extends with dense 2-4 unit and apartment inventory; the central and parts of southern Paterson offer deeper-value workforce inventory with significant operational complexity.
New Jersey property tax in Paterson is among the highest in the country — Passaic County effective rates often exceed 3%. NJ state income tax is graduated with a top rate near 10.75%. NJ landlord-tenant law leans strongly tenant-protective with multi-month eviction timelines and rent stabilization in some Paterson buildings (typically pre-1987 construction with 4+ units). Verify rent-stabilization status per building before underwriting. Insurance is reasonable. The structural advantages: cost basis is among the lowest in inner NJ; sustained immigrant population provides durable rental demand; dense 2-4 unit and apartment inventory enables small multifamily strategies. The structural risks: NJ tax structure is heavy; NJ regulatory environment is operator-unfriendly; per-block variance is significant — Paterson has had historical fiscal and crime challenges that affect specific zones; older Class C housing stock requires honest capex assumptions. For local operators with comfort around NJ law and patience for per-block underwriting, Paterson produces genuine cash-flow math.
Market data powered by Zillow Home Value Index (ZHVI) and Zillow Observed Rent Index (ZORI) · Updated Feb 2026
Market Data
2026 Market Update: Paterson
Paterson's 0.5% rent-to-price ratio is well below the 1% rule. At median prices of $705,000, the $3,260/mo rent produces only $1,320/mo in NOI. Investors here need to target below-median properties or pursue value-add strategies to make the numbers work.
At current rates, a 20% down conventional loan ($141K at 7%) would result in approximately $-2,431/mo cash flow — negative at median prices. Larger down payments, seller financing, or buying 15–25% below median are strategies to turn the numbers positive.
Property taxes consume 39% of gross rent here — one of the highest ratios in our dataset. This significantly compresses margins and makes Paterson a market where tax-conscious underwriting is essential. Every deal should be stress-tested with potential assessment increases.
Deal Modeling & Scenarios for Paterson
All figures below are computed from Paterson's real market medians. Use them as a baseline; override with property-specific numbers in the calculators.
Property Tax Bill in Real Dollars
At 2.18% effective rate on the $705,000 median price, the annual tax bill is $15,369 — that's very high (top 15% of US markets) (+106% vs the national average of ~1.06%). Verify the actual assessed value before purchase; sale-triggered reassessments can push the bill higher than the seller's current statement.
5-Year Cap Rate Trajectory
If Paterson continues appreciating at 2.5%/yr while rents grow at a conservative 3%/yr, cap rate holds roughly steady as price growth outpaces rent. Year-by-year projection at the median:
| Year | Est. Price | Est. Rent/Mo | Cap Rate |
|---|---|---|---|
| Today | $705K | $3,260 | 2.2% |
| Year 1 | $723K | $3,358 | 2.3% |
| Year 2 | $741K | $3,459 | 2.3% |
| Year 3 | $759K | $3,562 | 2.3% |
| Year 4 | $778K | $3,669 | 2.3% |
| Year 5 | $798K | $3,779 | 2.3% |
Three Financing Scenarios
Same median-priced Paterson property — different capital structures. All-cash maximizes cap rate. Leverage trades cash flow for higher cash-on-cash return when the spread between cap rate and borrowing cost is positive.
| Scenario | Cash Invested | Monthly Cash Flow | Annual CF | Cash-on-Cash |
|---|---|---|---|---|
| All cash | $705K | $1,320 | $15,842 | 2.2% |
| 20% down conventional @ 7% | $162K | $-2,430 | $-29,165 | -18.0% |
| 25% down DSCR @ 8.5% | $204K | $-2,746 | $-32,951 | -16.1% |
Three Price Tiers: Below, At, and Above the Median
Properties don't always trade at the median. Lower-priced units typically offer higher cap rates but harder operations; higher-priced properties tend to compress cap rates while attracting better tenants. All-cash assumptions below:
| Tier | Price | Rent/Mo | NOI/Yr | Cap Rate | Monthly CF |
|---|---|---|---|---|---|
| Below median (~75% price) | $529K | $2,771 | $12,361 | 2.3% | $1,030 |
| At median | $705K | $3,260 | $12,403 | 1.8% | $1,034 |
| Above median (~125% price) | $881K | $3,749 | $12,444 | 1.4% | $1,037 |
Total Return Over a 5-Year Hold
Cap rate is just one piece. Real estate returns come from four sources: cash flow, appreciation, principal paydown, and tax benefits. Assuming 20% down conventional financing at 7% and a 5-year hold at Paterson's historical appreciation rate of 2.5%:
On a $141K down payment, that's a -7.7% total ROI over 5 years (not annualized). Tax benefits from depreciation are additional and depend on your personal tax bracket.
Risk Flags Specific to Paterson
Automated checks against the underlying data — surface only the risks that actually apply to Paterson, not generic boilerplate:
Cap Rate Calculator — Paterson
Pre-filled with Paterson medians. Adjust to match a specific property.
Cash-on-Cash Return — Paterson
Factor in financing to see your actual return on invested capital in Paterson.
Is Paterson a Good Place to Invest in Rental Property?
Paterson, NJ has a population of 157,929 and has been growing at 0.2% annually — roughly in line with national trends, meaning demand is stable but not exceptional. The median home price of $705,000 paired with median rents of $3,260/mo produces an estimated cap rate of 2.25%.
Property taxes at 2.18% are notably high and represent a significant drag on cash flow — model this expense carefully, as it can make or break a deal. The vacancy rate of 5.8% is moderate and within normal parameters for a healthy rental market.
At a price-to-income ratio of 19.2x, homes cost about 19.2 times the local median income of $36,800. This elevated ratio means homeownership is stretched, supporting rental demand but limiting buyer pools. Home values have appreciated at roughly 2.5% annually. Steady appreciation means total returns will be primarily cash flow-driven — the more sustainable model for long-term wealth building.
Bottom line: At current median prices, Paterson is challenging for pure cash flow investing. Consider BRRRR strategies with below-market purchases, or look at neighboring metros with stronger price-to-rent ratios.