Investing in Utah - townhome with no cashflow?

Question

Hello BP community,

I am contemplating a purchase in Centerville Utah. I've found it difficult to find a property in a good area that cashflows in the first year. I am following a buy and hold strategy and slowly trying to build a portfolio for retirement. The property is a new construction townhome 4 bed 2.5 bath, 2 car garage with higher end finishes. I live nearby and would be self managing the property / doing most repairs.

My thought is that with continued inflation and undersupply of homes in Utah that the property will benefit from appreciation, have lower expenses (new construction), and strong rent growth (excellent location near major shopping centers, stores, parks, and close to down town SLC)

Main concerns are that the property may not have much more room for appreciation since we are at all time high's in Utah now. The size of the property is (~1700sqft) which may set an upper limit on rent growth and the property not cash flowing in the first year or two. I'm stuck between deploying the 100k into multiple out of state properties with lower purchase prices, likely higher risk tenants, good cashflow and little to no expected appreciation or sticking with this.

I've done an analysis in the link below with 5% rent growth, and 2% appreciation.

I greatly appreciate the expertise of this community and welcome your thoughts!

https://builtbycw.com/communit...

https://www.biggerpockets.com/...

Jay Hinrichs · Answer

just put a little more down that solves the cash flow problem day one.

Keep in mind the long term benefit of RE is someone else paying your mortgage for you some appreciation .. and rental increases over time.

local self manage is less risk of course.  so you have to pick what your comfortable with.

A lot of millionaires in the west who bought in the exact same scenarios does not cash flow day one but 10 years later they are doing just fine.

Conner Olsen · Answer

@Clark Cannon If the margins are thin I'd consider having an extra cash cushion to weather any storms. That's my way of mitigating risk.

Dan Dixon · Answer

Extra cash down will solve short term cashflow issues but also slow down growth.  Only you can decide your risk tolerance.  I think you're on the right track and seem to be considering all the right data.  I expect higher appreciation but appreciate your conservative approach.  Best of luck

Leo R. · Answer

Personally, I've always felt that there's a fine line between buying a property in the hopes that it will appreciate and speculation (perhaps they're the same thing?).  If you can afford to hold the property with zero appreciation (or even through a crash), then that may change your calculations (though, I'd still wonder about the wisdom of buying a property that is guaranteed to lose money month over month in the near term, and where the longer term returns are far from guaranteed)...or, if you can force property appreciation or rent appreciation through value add, then that might also change your calculations... But buying a property that is guaranteed to lose you money month over month and just hoping that it will appreciate seems like a dice roll.  True, there are plenty of indicators that the market around SLC will continue to appreciate...but there are also plenty of indicators that we're in for a correction...and at the end of the day, none of us know for sure what will happen.

Also, you mentioned that new construction should have fewer repair costs...this is true in theory, but not always true in practice. A brand new building sometimes has kinks that need to be ironed out (sort of like a brand new car that is in its first year of production). I know folks who have bought brand new houses, and in the first year they've dealt with serious issues like significant foundation settling and cracking, significant flooding (basement was built too close to the water table), and premature wood frame rot due to poor design/construction....  On the other hand, if you see a 40 year old house that is in good condition today, with no evidence of settling, flooding, rot, etc., then it's doubtful that it will suddenly begin to settle or flood tomorrow...on an older house, the problems have often either been resolved, or they are plainly visible (particularly if the basement is unfinished). ...Having said all that, there's no doubt that a lot of modern construction techniques are better and more durable than some techniques that were used in the past...

Hopefully that's useful info. Good luck!

Cody Hunter · Answer

@Clark Cannon Location is not terrible. From reading your post, I would lean towards turning cash into cashflow. Also consider a property management company to assist with the risker tenants. Run the numbers and follow what you think is best. You just don't want to "invest" to sit idle, or worse lose money.

Investing in Utah - townhome with no cashflow?

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