Going prices for trendy areas in Salt Lake seem almost out-of-control. Avenues, Sugarhouse, downtown seem to be very hot with some pretty beat up properties listed and selling for some pretty rich sums.
I'd like to hear the experiences of others in the area about investing in these areas-- single family, duplex, and up to small apartments 6-8 units. Is it practical to invest in these areas anymore?
I only have 1 property right now, 5 minutes away from Sugarhouse, so take this with all appropriate grains of salt.
If you're looking on the MLS as your only source, then no. The numbers I have run on some of the properties I have seen don't make sense. I think the smart money for these areas is finding off market deals. My neighbor sold his run down house off market to a flipping company (really kicking myself for not realizing in time to buy it) for $175k. My best estimate is that with major repairs to the property in the area of $75k, they could sell for close to $300k, seeing as how we had a recently rehabbed house across the street from us sell for just shy of that price.
I was following one in a pretty nice spot South of the college and just west of 13th. Driving around it looked like one of those pretty hot areas. A pretty rundown duplex was listed for 350K. It was an estate sale and they were taking offers until yesterday. From what I hear it may have gone for 450K or more. Driving by it and looking at the photos on the listing, you could easily see 80 to 100K in rehab. Heck, the listing even suggested a tear-down.
Still based on and renting to say 12 students for $500 each and maybe. I just don't see $2.5K+ rents per unit though.
Just a thought.... I suspect that many of the multi-family buyers in these hot areas are people who would ordinarily be looking for a single family home. They may be millenials who like the area but can't afford it on their regular income, so they owner occupy and the additional income from a rental suite makes it doable to buy there. Making money on an investment property is not their priority so they are willing to pay more than an investor who wants to actually be profitable on the property. They may also hold long enough that increased rents and property values will make it worthwhile eventually.
I have watched those hot areas since 2010. It used to be that 2-4 family properties sold at lower square footage prices than single family. I attribute that to a smaller buyer pool of investors who bought those homes strictly for income. Now, with an increased demand due to SFH buyers crossing into the market segment, the supply is low and prices are at or higher than single family.
Glenn, we are seeing that properties in hot sub markets trade at lower cap rates. Small MFR properties in the areas you mentioned will trade at cap rates as low as 4% as the investment carries less risk than other sub markets as rents are higher, thus attracting better renters. I suggest looking at the entire picture when analyzing a purchase. Look at potential value add possibilities and what amount of capex you will have to invest that will not increase income such as roof, plumbing and electrical systems. No doubt you can get a better return in less attractive sub markets, but it comes with the risk of being in a location where good tenants do not want to live. Sugarhouse, the Avenues and downtown will be locations where people will desire to live for the foreseeable.
Let me know if you want to discuss as I'm happy to hop on a call.
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