It seems that 1% or 2% rule doesn't really apply in SLC area.

15 Replies

Hi all, I am new to BP as a newbie investor. I have been screening deals on MLS for over 200 listings and it seems it is mission impossible to find a deal that is even close to 1% rule. Any thoughts, folks?

Hi Hua,

I would agree they rarely exist, however I have seen them from time to time. However if something that amazing comes across the MLS as hard as it was to find one it would be even harder to secure in this market. Good deals typically have multiple offers within a day or 2.

The fact a 1 or 2% deal rarely exists in the Salt Lake Valley should not stop you from investing.  There are lots of amazing investments out there and almost anything in the Salt Lake Valley will be a good Long term investment. 

I would keep watching. Watch Homes for sale and also the rental market.  If you study the values and watch hot sheets, you will know when a good deal comes along. Then you can run the numbers on those select few that you immediately know look promising. 

Thanks Cherie for your comments. There are other concerns I have: 1. The cash flow of the properties I have screened is never over $200. The assumption is 20% down with 5% APR over 30 yrs, if take vacancy and maintenance into consideration, there is pretty much no cash flow. 2. Everyone agrees that the recess is coming, the question is when. I feel that the high price point of real estate is not sustainable.

@Hua Zhang

No one really knows as far as recession goes. My personal opinion is that we have a good 2-5 years that they continue to rise. Many cities expect population to rise up to 50% in the next 5 years.
I personally am still buying and will continue to buy even if I think a correction is coming. I think the important thing is to strategize best you can. I would be careful if I were doing a flip and make sure that I accounted for any possible correction.  However if you are planning on a long-term buy and hold as long as that cash flows enough I would not be worried about it. You can ride out a correction based on history they will bounce back. You just have to make sure you don’t get scared and Sell just because everyone else is. In a correction I would say more people need rentals and it would actually be beneficial in a sense. 

Multi units are typically overpriced in my opinion. Sometimes a deal will come along that the rents are much lower than they should be and you could calculate based on what you could raise them to once the current leases are up. 

Another possibility is homes with mother-in-law apartments. I will keep my eye out for you

I am an investor in Utah. I quickly realized that the price point in Utah was not favorable. I have moved on to other markets in the mid-west. Even Southern Idaho has some potential. Grab David Green's book on Long-Distance Real Estate Investing. @David Greene He will build your confidence in going to other markets.  I signed contracts on two properties in the mid-west last week and I owe a lot of that to that book. It is totally possible. 

@Hua Zhang Hello, yes, I have been looking into that market for a couple years now and it has definitely gotten worse. Even here in SE Idaho the prices are getting out of control. A couple years ago there were lots of 1% deals. My first one was and it has worked out great since rents have increased quite a bit. There are still some that come up but like was mentioned, they get overbid to make them become well below the 1% mark. People are overpaying which drives up prices making them all become bad deals.

Like others have said, I've been having more success lately in the mid-west locations. You may not get the appreciation, but honestly you shouldn't be investing for that anyway. That would just be speculation as many paid the price for back in 2008. It must cash flow to start with and can start off low as long as you understand the market and know you can raise rents over time. Your first investment property is always the scariest, after that you are hungry for more.

The good thing is that you are spending the time analyzing deals. Good or bad doesn't matter, get the practice in so that when a good one comes up you'll recognize it right away. Just be sure to have your financing in place so you are ready to take action when you find it. Keep reading, keep watching podcasts and webinars and be patient. Don't just buy something and end up with a bad deal. Make it count.

Yes, the Utah market is tricky, but there are ways to make it work. You can buy a Muti-family, and rent out the units separately, and then if your using and FHA, rent out the other rooms individually. You can airbnb with relatively good vacant rates as long as its not downtown SLC, or the number won't work. You can buy a single family near a university, if it allows it, and rent out the rooms individually. But best of luck to you, hopefully you can find something that works!

Originally posted by @Justin Munk :

I am an investor in Utah. I quickly realized that the price point in Utah was not favorable. I have moved on to other markets in the mid-west. Even Southern Idaho has some potential. Grab David Green's book on Long-Distance Real Estate Investing. @David Greene He will build your confidence in going to other markets.  I signed contracts on two properties in the mid-west last week and I owe a lot of that to that book. It is totally possible. 

Hi Justin, thanks for the advice. Will check out the book. Out of state investment seems too risky for me at this moment, but again risks come from uncertainty and education will help.

 

Originally posted by @Andrew Gammon :

Yes, the Utah market is tricky, but there are ways to make it work. You can buy a Muti-family, and rent out the units separately, and then if your using and FHA, rent out the other rooms individually. You can airbnb with relatively good vacant rates as long as its not downtown SLC, or the number won't work. You can buy a single family near a university, if it allows it, and rent out the rooms individually. But best of luck to you, hopefully you can find something that works!

Hi Andrew, individual room renting is one of my strategy, thanks for bring it up.

 

Originally posted by @Don Spafford :

@Hua Zhang Hello, yes, I have been looking into that market for a couple years now and it has definitely gotten worse. Even here in SE Idaho the prices are getting out of control. A couple years ago there were lots of 1% deals. My first one was and it has worked out great since rents have increased quite a bit. There are still some that come up but like was mentioned, they get overbid to make them become well below the 1% mark. People are overpaying which drives up prices making them all become bad deals.

Like others have said, I've been having more success lately in the mid-west locations. You may not get the appreciation, but honestly you shouldn't be investing for that anyway. That would just be speculation as many paid the price for back in 2008. It must cash flow to start with and can start off low as long as you understand the market and know you can raise rents over time. Your first investment property is always the scariest, after that you are hungry for more.

The good thing is that you are spending the time analyzing deals. Good or bad doesn't matter, get the practice in so that when a good one comes up you'll recognize it right away. Just be sure to have your financing in place so you are ready to take action when you find it. Keep reading, keep watching podcasts and webinars and be patient. Don't just buy something and end up with a bad deal. Make it count.

I have lived in Cleveland Ohio for 5 yrs and even the best school district won't give you any appreciation. I only make even when selling my house after I move to Utah. My house newly built in 2014 in the top school district in the area stays on the market for 6 month. The property tax is ridiculously 2.3%. I wish I knew BP 5yrs ago and I would make better choices.

 

Good question/point and thread, @Hua Zhang ! I skimmed so perhaps it's been said but I agree with the general consensus around how cashflow is tough in SLC and Utah County. The only caveat I would add is to consider market appreciation. The Wasatch Front is growing so quickly that depending on your risk tolerance and opinions on the next RE correction, owning in Utah as the market continues to appreciate isn't a bad wave to ride. 

If you're looking to make money today then perhaps this is less appealing, but if you're looking to buy, hold, and play the long-term game, then I think Utah can be a great place to be because the demand is so strong and it seems it will be moving forward. 

My two cents! Best of luck 

I am in the same boat bro. I do not think there is anything yet. I have been looking into Ogden. We were planning on a house hack here on the Salt Lake Area but that is not going to work out due to the inventory being over price. WE DO NOT want to live in Ogden. Can you buy a property, showing intent to live in it, leaving the unit vacant not committing fraud?

@Hua Zhang that market there is tight and hot. You can try cold calling/farming off market deals. MLS is good to browse deals but can be slim for good deals. As others mentioned OOS is perfect. Midwest is a gold mine. You can hit the 1%-2% rule easily. I love working with OOS investors:)

Hi Hua,

Many new investors see the word "rule" on terms like the 1% rule or the 50% rule and that leads them to believe that if they do a deal that doesn't fit all these made-up metrics then they are doing something wrong. That's not necessarily true. In my view they are more like 'potentially meaningful guidelines or benchmarks' rather than rules.

The reason I say that is because right here in the Salt Lake City / Utah County areas there are people who have made a lot of money (from appreciation, value add, and principal reduction) on deals that don't fit the 1% rule on say a 3 year horizon. And there other deals that did fit the 1% rule on paper but after multiple evictions, and months of not collecting rent it turned out to not be a great investment.

Value-add investing is how you make money in today's market. Find a value-add deal, it can even be just an okay price, and pull the trigger. So many people wait on the sidelines for years and years because they feel they don't know enough. But the truth is for the most part you actually only learn by doing. So the lessons you will learn by just getting in the game will prove to be very lucrative to you further down the road.

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