Is my area even worth it?

19 Replies

Hi everyone,

I'm currently looking to purchase an owner occupied 4 plex in the salt lake area.  The prices for your run of the mill 4 plex here are on average upwards of 300k with rents coming in around 700 - 750 or so.  I hear people in the podcasts talking about getting 2% of the purchase price in rents but given prices here in Utah, I wouldn't even be getting 1%!  And that's with me not even living in it.  Obviously each deal has to be evaluated individually, but is it even worth looking if a property won't produce 1%?

some markets are tough to cash flow in, although there may be some lower end areas around salt lake that would work better. It seems like you're in more of a flipping market

@Josh Butler  

Each market is going to have its pros and cons. There are some parts of the Midwest where you can easily get 2% like in the market where I invest, but appreciation hasn't been as high as some of the cities on E and W coast. I don't necessarily mind that appreciation hasn't been that high in my area, because that has given me great opportunity to add properties to my portfolio.

What I would do is connect with other local investors in your area here on BP and go to local REIA and meet other investors and find out what they are doing and what's working and what's not working for them.

Yeah I heard on the podcast with Dawn Anastasi that she is sometimes able to get 3% in the Milwaukee area.  I was blown away!  I have gone to the SLREIA meetings and done some networking there.  There have been a few people talking about successful 4 plex purchases but those have been a few months ago and prices have come up since then.  I fear I might have missed out...here's to hoping though.

This is what separates novice investors from experienced educated ones (I'm not saying that you are inexperienced!!). And what seams to be the funnest type of investing. It requires creativity. There is definitely a way to make prophet, surely everyone who owns a 4-plex in this area doesn't lose money.

@Josh Butler  3% is possible in my market also, but those deals are harder to come by. 2% is not that hard to hit on a regular basis. Rental demand has been pretty strong in my area.

The demand for flip properties is very intense in my area, but the competition for rentals isn't as bad, specially if you have cash to invest.

Unless you are looking to invest for very short term, use the dollar cost averaging to diversify. Don't put all your money in one big property, diversify in some smaller properties and possibly different areas to spread your risk.

Hi Josh,

Ive been looking for multifamily properties for about a year now. This area really isnt great for multifamily deals on the MLS.

I can't even find one that cashflows $100/door after expenses. If I domiciled here (I dont), I would buy a distressed single family, fix it up, and sell it tax free in a couple years, rinse-repeat. If you have enough $ to buy a 4plex, you might be able to buy a rental and personal house as stated above.

There is definitely money to be made, just have to adapt to the market. Also, those people might be calculating cashflow not taking into consideration cap-ex.

Good luck!

@Michael Rudd  

I have been looking on the MLS myself as well with not much luck! I've started working with an agent who is a little more investment minded than most and hopefully will be helpful in finding a good deal other than what's on the MLS.

@Ethan Bowen  

You might not be saying that I'm inexperienced, but I sure am!  ha.  What are some creative strategies you'd suggest for finding something?  Direct mailings and such?

@Josh Butler  

I'm afraid I'm like you my friend, I only know enough to know that there are other ways out there! For example you can look at alternative acquisition strategies like seller financing or lease/options (L/Os can be really risky though, cause you're kinda gambling with the seller on appreciation). There are other benefits to owning a rental property other than cash flow. For example, gaining equity, depreciation (would not be eligible if owner occupied), and appreciation. I would try looking at it from different angles.

The best thing I think would be to keep coming to SLREIA and UVREIA. You're going to meet a lot of experienced people that know the local market. Those are the people you want to be talking to.  I also have my preferred sources of education that I have invested in and can vouch for.

Just remember the difference between a novice investor and a skilled investor; novices investors find deals, but smart investors not only find deals but can also create deals.

@Josh Butler I would identify what your goal is then pick your market based on that goal. If you live in the selected market, even better (and ideal), but don't let your where you reside dictate your purchase. If places aren't cash flowing like you need in Salt Lake then I'd look in other markets. First, I'd look at markets you can drive to then expand from there until you find one that fits your goals.

Originally posted by @Josh Butler :
Yeah I heard on the podcast with Dawn Anastasi that she is sometimes able to get 3% in the Milwaukee area. I was blown away! I have gone to the SLREIA meetings and done some networking there. There have been a few people talking about successful 4 plex purchases but those have been a few months ago and prices have come up since then. I fear I might have missed out...here's to hoping though.

A 3% deal in a decent neighborhood doesn't happen every day. Those are more elusive.

@Josh Butler I would probably stay away from a multi that doesn't cash flow. Cash flow is a more import factor in multi's that SFR's.

Real Estate makes money in 3 ways: Cash Flow, Appreciation and Mortgage Paydown. For SFR's you can count on appreciate more, so maybe can get by with a worse cash flow position. However, multi's don't appreciate as well as SFR's. They have a smaller pool of potential buyers and they only appreciate based on the ability to improve the cash flow (raise rents). I would stay away from that one.

Good luck.

Hi Josh, on one of the podcasts, Brandon said that he would not look at anything that delivers under 1%. As a beginner (and someone who has not purchased property yet), I appreciate that guidance. I don't want to own real estate for fun, it is a big transaction and the goal is to improve your chances of achieving your goals. (For me the returns need to be as good or better than I can do in the stock / options market.)

I am a beginner and currently starting to think through what I really want to do for a first purchase. I am leaning toward finding a low-price (but decent) local property in an acceptable neighborhood and getting some learning done without a huge financial commitment, and as a trial balloon to see if I am going to be any good at real estate / land lording and if it suits me. Baby steps.

I am really considering a budget for getting started. A modest budget, with an emergency fund on the side. And then I have to shop based on that budget and not on the properties that I am the most attracted to, but honestly can't afford (yet). And the nice ones aren't yielding quite enough. I don't have so much money that I can just park it without expecting it to grow.

In the last months, I have become a regular Dave Ramsey listener / fan (he's a personal finance guy that helps people who are mostly in debt, but also at all stages of financial planning). He's very conservative, against all debt and recommends buying rentals in all cash, after you are 100% debt free, including your own mortgage. I will probably begin while I still have a personal mortgage, and I will probably use a lender, but…. I appreciate the advice to be cautious about not digging yourself into a deep hole. I think it's good advice to buy what you can afford and not over stretch. A property is going to have to pay for itself and it has to produce a good investment / good return.

Make sure you are being a smart buyer. Keep looking, keep learning, keep networking, have fun!

P.S. when you are saying owner--occupied, you mean you want to live in your multi-family? That is great. There have been a lot of positive comments about doing it that way. I think you have more leeway with your calculations if you are living there, and if you can live for free…. or really cheap, I would con sider that a "win". What are your goals? Make them clear for your purchase and talk to other people who have done what you want to do. :)

@Josh Butler  

I hear you, Josh.  In Logan it's even worse.  It's hard to find 4-Plexes up here than get more than $500/unit/month that sell under $250K.  And we don't have the SLC appreciation.

We've purchased 3 4-Plexes in ten years. All of them were odd balls and only one from the MLS which was illegal non-conforming that we were able to get grandfathered.

In our market we can't afford to narrow our searches to a specific property profile or we wouldn't have enough opportunities.  You probably have enough inventory in SLC, but a lot more competition, particularly in multi's.

Like everyone else is saying, be creative.  Look under rocks where no one else is looking.  Determine what kind of distress you are prepared to deal with and look for it.  The deals are out there.

Finally, if you are even considering other markets, look at the risk. We still like Cache Valley because it is incredibly stable. We didn't get hit in 2008, we have less than 2% vacancy rates under good management, low crime, etc. And we can still find deals that get us 20% IRR, but it's not easy.

Good luck,
Wm

@Josh Butler

You and I are in the same boat. Trying to start and just not experienced enough yet to know what rocks to look under to find our first deal. Thanks for asking this question! I thought maybe it was just me that couldn't find a decent deal in Salt Lake.

Have you looked in Ogden instead for decent rentals? The prices seem to be better but I have no idea what neighborhood is good or what the rents might be.

@Josh Butler Josh, I love the idea of a duplex for your first primary residence.

If I could do it all again I would buy a duplex as my primary and rent out the other room.

If prices are too high on the MLS I would think about trying to direct mail duplex owners. You will undoubtedly have to do some rehab , but you might be able to find a motivated duplex seller.

I haven't done any research myself but there must be a list of duplex owners available somewhere.

Also, it maybe that prices in SLC are just too high to live for free. Last year I found a condo downtown where I rent a room for $650 which helps, but I still payout of pocket to cover my bills.

Thanks everyone for your responses.  These have all been very helpful!

@Karen M.

Yeah as an owner occupant I would agree you can take a slightly different perspecitve on the numbers.  I was talking with another 4 plex owner who says he cashflows 800, but in reality, it's only 200 and he 'eats' the rest.  So effectively it cashflows 800, but some of that is just money he's saved.  I think I would be able to find a situation similar, but not exactly reaching the 1% rule.  With as much as everyone talks about it, it makes me hesitant to violate that rule on my first purchase!

@Josh Butler  do you listen to the podcast? I have found that the phoenix area is hard to find good rental deals unless you are in a pretty shady neighborhood. I found the latest podcast Show 73 to be very inspiring if you are in a situation where your market is to expensive.

@Josh Butler  

There's a UVREIA luncheon today with the topic prospecting for opportunities.

Might give you some ideas.

Wm

@William Hochstedler

Thanks for the heads up on this.  Had I seen it sooner I might have actually gone!  How are these luncheons done then?  Is everyone just sitting around a big table or something or how many people go on average?  SLREIA has some as well I'll have to check out sometime.

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