Hey all. I want to see if I can get a pulse on what you guys think about the market right now in Utah. Everyone says 'we are at a peak in the market' & 'there are few deals to be had'.
I am able to purchase 2-3 homes. Ideally I would like to buy in Saratoga Springs where I live. The intention of the investment properties is to hold for appreciation over the next 10 years as well as some cashflow.
I don't like the idea of waiting for the market to dip but I don't want to pay a premium. Here are some of my questions:
I am not a first time investor. But the last few years I have purchased out of state and now I am planning on coming back to Utah for investing.
@Nik Krohn Hi Nik! Simple answer to your question "whether you should get in now" is yes.
A friend of mine who is also an investor just built a house there and has a great cash flow and cap rate. The home prices are going up everyday, as well as rents. Whether to hold it for capital gain or income, I wouldn't hesitate to buy in Utah county right now. There is so many factors that make the Utah's rental market bullet-proof even if the market crashed. I would strongly recommend avoiding existing buying new construction for a few reasons, especially if you're intention is to buy and hold.
1. Tax benefit - 50% bonus depreciation deduction on new builds purchased in 2017 (the % decreases to 40% for 2018 & 30% for 2019)
2. Renters demographic - The majority of the renters here are young couples with small kids, tech savvy millennials (tech employees & university students). They tend to prefer a modern style home with newer systems. Hence higher rents, better quality tenants.
3. No hidden surprises - No need for initial work or repairs.. I myself as an investor hate to own old homes as an investment. I value my time too much to be willing to stress over unexpected repair cost or something that could literately ruin my plan.
4. Easier to manage & cheaper to maintain. Insurance cost is lower. Utility bill is smaller. It takes less time and money to re-rent. Things don't break as often as older homes.
5. New communities have amenities that established communities don't, such as new park, playground, pool, splash pad, etc, which the trend says millennials look for in a rental.
6. Investment Oriented - For example, you can increase the rent and increase the value of your property significantly by adding an extra bedroom for almost nothing. It works great for Utah because of the uniqueness of the renters demographic.
I would definitely recommend talking to @Sam Levin who is my investment partner and pick his brain. He knows the market extremely well, has strong connection with quality builders, lenders and is very honest and genuinely cares about fellow investors.
With the recently announced LDS temple to be constructed in Saratoga Springs the prices will climb steadily at least until it is finished. Land in utah is a great investment, especially in Saratoga Springs.
@Nik Krohn Hi Nik! Simple answer to your question "whether you should get in now" is yes.
A friend of mine who is also an investor just built a house there and has a great cash flow and cap rate. The home prices are going up everyday, as well as rents. Whether to hold it for capital gain or income, I wouldn't hesitate to buy in Utah county right now. There is so many factors that make the Utah's rental market bullet-proof even if the market crashed. I would strongly recommend avoiding existing buying new construction for a few reasons, especially if you're intention is to buy and hold.
1. Tax benefit - 50% bonus depreciation deduction on new builds purchased in 2017 (the % decreases to 40% for 2018 & 30% for 2019)
2. Renters demographic - The majority of the renters here are young couples with small kids, tech savvy millennials (tech employees & university students). They tend to prefer a modern style home with newer systems. Hence higher rents, better quality tenants.
3. No hidden surprises - No need for initial work or repairs.. I myself as an investor hate to own old homes as an investment. I value my time too much to be willing to stress over unexpected repair cost or something that could literately ruin my plan.
4. Easier to manage & cheaper to maintain. Insurance cost is lower. Utility bill is smaller. It takes less time and money to re-rent. Things don't break as often as older homes.
5. New communities have amenities that established communities don't, such as new park, playground, pool, splash pad, etc, which the trend says millennials look for in a rental.
6. Investment Oriented - For example, you can increase the rent and increase the value of your property significantly by adding an extra bedroom for almost nothing. It works great for Utah because of the uniqueness of the renters demographic.
I would definitely recommend talking to @Sam Levin who is my investment partner and pick his brain. He knows the market extremely well, has strong connection with quality builders, lenders and is very honest and genuinely cares about fellow investors.
@Nik Krohn Hey man! It's good to see you on the site again.
My vote: Buy!
(As long as the ROI pencils out for you, that is)
If you are confident that Saratoga will continue to appreciate significantly over time, then I think it's a great time to buy. I'm not trying to predict the market by any means, but I think it will be difficult for you to find better financing terms in the future.
Lock in a solid interest rate while you still can and ride the Saratoga wave for the next decade or two.
@Yuki Inui Has some great points. I own a townhome in Saraotga Springs I bought last August. It was new construction. The numbers worked for us and it has proved to be a solid investment. I would agree with @Justin Hammond Make sure the numbers work for you. I have owned rentals for almost 11 years here in Utah. I survived the last market crash with my rentals. When buying at the peak make sure you have solid numbers. Take into account how long you think you will own the property, and average real estate cycles. I really like Saratoga Springs too, it's a nice area!
Wow guys! I love waking up to seeing all of the comments on the thread :P
@Yuki Inui Thank YOU for some great info. I have not actually thought about building a home as an investment property. Is it possible to purchase from a home builder (We have DH Horton in SS and several other builders) while they are mid build and still get the 50% bonus depreciation? Or do you have to build from the start?
I definitely do want to have a newer home since we plan to hold for many years.
Thanks @Amy Kendall & @Justin Hammond for the feedback too. Its always nice to hear others who are confident in a growing Utah market.
We will be putting between 20-25% down on the next 2 homes so that alone should make the hose cash flow positive. In the past we could always try to find a deal that was 15-25% below market. Having looked lately, those dont seem to be around much anymore.
Hi Nik. On your question about the bonus depreciation the answer is yes. As long as you are the first person to put the property into "service" as a rental. I have purchased several brand new investment properties that were under construction when I put them under contract. I had them already leased out (tenants standing by) when I closed on them upon building completion and have never had to come out of pocket for any mortgage payments. By the time the first mortgage payment came due I had already collected one 1.5 months rent.
One of these building was new fourplex purchased in December and it has already had an offer to purchase it for $95k above what I paid for it. I attribute this instant equity to several things including the strength of the market during those months but there are a few other key ingredients that I believe made this bump so pronounced. There's another property that I bought more recently for $410k using the same timing strategy. I have since received an offer on it for $475k. Goth of those offers came almost immediately and I am pleased to say that I turned them both down and still have these two properties in my portfolio today.
My CPA has confirmed that the bonus depreciation does apply to both of them. The building purchased in 2016 has $90k in depreciation "loss" that's allowed by the IRS, most of that is in the bonus. Needless to say I will be continuing to use this approach this year, as the data that I rely on shows a clear continuation of market growth in Utah County for the next year or more. Even if all of that data turns out to be wrong and the Utah market levels out in the meantime, or even takes a step backwards, I won't get hurt in any way because I am targeting properties based upon their rental characteristics (data) so there will always be a tenant in there who is happy to pay the mortgage for me :)
Yes, it is still a great time to invest. The temple is a big deal and everyone is speculating where. If you are in walking distance, you should have at least 10% extra appreciation when it is done. The other factors are the fact that there just isn't any inventory. If you can find anything under about $100 per square foot, it's a good deal. We are seeing no slowing for at least 1 to 2 years.
Will it come down at some point? That is the big question. Some are guessing that in 3 years we will see some correction. The key is to find something that can cash flow even if the market turns on you. You seem to want to hold for the long term, so the market fluctuations are interesting, but not very relevant. It's a beautiful city with a lot of people wanting to live there. You shouldn't have any trouble renting.
Thanks @Rebecca Belnap & @Sam Levin
What are homes renting for out there these days?
Our current home in SS is 3800 finished Sq Feet with 6 bedrooms (+1 bonus) and we feel like it could rent for $2200/mo
The investment properties will likely be 1800-2500 I would imagine. What kind of rental range would you guys suspect?
PS - Thanks again - You guys are awesome
To get the best idea, go to KSL.co regularly to see what else is available. We have a 1 bedroom in Lehi that rents for $875 and that includes utilities. We have a 6 bedroom in Saratoga Springs that we are renting for $1900, but it is a friend and we are only charging him the actual cost (long story). Smaller homes tend to rent better. I agree that your own home would rent for $2200, and the smaller investment homes should rent for $1500 to $1800. One word of caution, the further south you go, the lower rent you can get. Stillwater is about the furthest south I would recommend. As a rental, north of Smiths would be best since it is closer to work, although near Westlake High school isn't bad either. Here is an example of something too far south.
@Nik Krohn
>I have not actually thought about building a home as an investment property. Is it possible to purchase from a home builder (We have DH Horton in SS and several other builders) while they are mid build and still get the 50% bonus depreciation? Or do you have to build from the start?
Yes, there are good quality builders like EDGEhomes that are building new in Saratoga Springs. We fell in love with the view of the valley and the lake from Edgehomes Talus Ridge community and almost built our dream single family home with them last year! (bought a Fourplex in Provo instead since it was more convenient for us to commute and self-manage) I know several investors who have built with them, and they're extremely happy with the quality. Our friend Brady Jex is an excellent consultant (kind of has the "good uncle" vibe and never pushes you to buy anything or to do something you're not comfortable, but very knowledgable and gives you valuable information and advice you need right when you need them) With Edge you can add an extra bedroom for $7K and raise the rent by $100, a great trick to create better cash flow. Their building time is around 6 months, and our experience at their design center in Orem was so much fun to say the least... (being able to pick your own materials and style is just so awesome... and their designer Matt is great to work with!) I also hear good things about D.R.Horton as well.
Looks like @Sam Levin beat me to your question regarding the bonus depreciation!
Here is a couple articles that talk about bonus depreciation
Nice going! I know Bluffdale sold out pretty quick... I'd really like to get a couple townhomes in the new big Lehi Exchange community. Brady just informed me that they will be releasing phase 1 & 2 on May 10th.
You should talk to @Sam Levin about the property management. He manages his and his clients' investment properties and he's really good at what he does. The tenants absolutely love him.
@Nik Krohn, to add the bit on rentals and what we're able to get. Due to the housing shortage, the rental market has done really well too. I'm in Millcreek, UT (Sugar House) and while I could get about $750 last year for a 430 sq. ft. 1 bed/1 bath, we just rolled a new tenant over for $850/mo. We are looking at an Airbnb and Home Away (VRBO) strategy for our 550 sq. ft. 1 bed/1 bath third unit. local averages show we should expect to average $1400/mo. using this strategy. You'll have to look into the laws and regs in Saratoga Springs, but in Salt Lake, we can approach this strategy with a minimum of 1 month agreements which narrows our market, but still creates a greater ROI potential as some traveling workers prefer this type of lease option.
Good Luck with your investments and keep us posted.
@Andy C. I do currently manage my properties and a few others but am not looking to expand at this time. I have heard good things about AAA Property Management but I would not use Evolution Community Management. We've had multiple poor experiences with Evolution. Best of Luck!