Does it Still Make Sense to Invest in Utah?

Question

Do folks who are familiar with the area think the Utah housing market is still worth investing in or has the juice been squeezed? I'm Looking in particular around the Lehi/Bluffdale area. New development townhomes going for $350k. I’m from NJ so this would be an out of state investment for me.

I have an old buddy that sells for a developer out there and I’ve been in contact with him as of late, so naturally he is optimistic about the area but I want to make sure I'm doing the proper research. A lot of the articles I’ve been reading do not have Utah listed as one of the better states to invest in right now so I just wanted to see if anybody had thoughts on the topic or any market insights. In particular:

A.) Do you still think it makes sense to invest in Bluffdale/Lehi? Meaning, is there a high demand for rental units?

B.) Do you think $350k for a new construction townhome (estimated completion spring 2021) is overpriced right now?

C.) Are the rents holding up relative to housing prices (i.e. are landlords getting $1,800 - $2,000/mo) and if not how long are these rental listings sitting on the market?

D.) If you are familiar with the area, do you still think there is upside and growth in the years to come on these housing prices, specifically for townhomes?

Anything would help, thanks all!

- Jordan

Jeremiah Maughan · Answer

As to your question about investing in Utah, YES it does make sense. As to your question about investing in Lehi/Bluffdale, NO it does not make as much sense unless you can afford short term losses. Among the 1,300 units my company manages, we have over 60 townhomes in the Lehi/Bluffdale area--it is overbuilt from a rental perspective. We used to rent them out within a couple days, but last year we started seeing demand slow down and this year was especially tough. We are now seeing at least a month, sometimes two between renters. Simply too many were built and sold to too many investors. Rent to mortgage ratios are very tight so once HOA dues and other costs are factored in most owners are not cash flowing much. So when you toss in two months of lost rent, then that's it for cash flow for a couple years. As others have mentioned, Lehi/Bluffdale is an appreciation play. However that appreciation will slow as interest rates go up and the building catches up. A lot of our appreciation is propped up by interest rates allowing homeowners to move up due to newfound equity.

Also, with Covid even renters are looking for larger places with yards for kids and a home office for themselves. Total opposite from last year. Not sure if that's a long term trend but it seems to be.

Also, with Covid even renters are looking for larger places with yards for kids and a home office for themselves. Total opposite from last year.  Not sure if that's a long term trend but it seems to be.

Becca Summers · Answer

Utah is known for appreciation and low vacancies. We have thousands of people moving to the state a month so rental demand is very high. We've never been close to the 1% rule. But we have a very strong market.

based off the price you're talking about in the area I can guess what builder you're talking about and that particular builder / area has no rental restrictions in their communities which is cool for investors but It makes it so that area has a lot more rentals which isn't always beneficial to investors.

I prefer Lehi over Bluffdale just because people moving into the state know where Lehi is and don't know where Bluffdale is.

Account Closed · Answer

This is a fascinating topic. I'll chime in as someone who is looking to move to the area.  The market is white-hot and crazy on the Wasatch front.  I'm looking at things a little farther north and I had some fun looking at rentals.  Here's a fun exercise* Look up a rental in an area and see if it would cashflow were you to buy it instead.  It's easy to do with dealcheck and I guess you can do the same thing with the BP calculator.  Put in the rental price as a known amount and then run the numbers using a mortgage rate that you're likely to get on a personal residence.  The upshot: each time I do it, the cashflow is negative.  Or said another way, the landlord at least in the short to medium term looks to be paying cash out of pocket for the privilege of renting.

*yeah, I'm a nerd.

Robert Hansen · Answer

I'll throw in my 2 cents as well, I have a townhome appraised for 275k (up from 220k April 14, 2018).  The rental market puts the place at $1450 a month, tenant covers HOA and all utilities.  The long and short of it is that utah isn't building houses fast enough for the demand but rent prices haven't appreciated proportionally with market value of a house purchase.  I just went under contract for a new construction SFH and during my due diligence 2 huge builders have frozen new purchase agreements because they can't keep up with demand.  Most smaller builders have waiting lists from 7 to 15 people waiting for new phases to open.  As previously mentioned by another post, invest in the Wasatch front for appreciation, not for the cashflow

Jordan Yuppa · Answer

Thanks everybody, I appreciate the input!

Ben Hartman · Answer

These are all great questions.  I live and work close to these areas and am happy to share my OPINION:

A) This is a high growth area with a tremendous amount of commercial and residential construction and it doesn't seem to be slowing down at all. Also there are several major infrastructure projects (highways/freeways/parkways etc.) in the area which let's you know where the state is focusing a lot of attention for future growth.

B) Without running comps for the specific townhome, it's tough to say on the pricing.  In general, I'd say that doesn't sound unreasonable for the location, however.

C) There is high rent demand in these areas and a general lack of supply. Lots of variables to consider on rent amount, but a safer/more conservative assumption for rent IMO is $1500 - $1800.

D) Considering my answer to the first question, I have to think it's likely there is some opportunity for  appreciation. I think it's important to realize that the market is VERY hot here right now from a price and DOM perspective, so there is always a chance that if you buy now, you're betting on paying down debt to gain your equity rather than relying on price appreciation.

Does it Still Make Sense to Invest in Utah?

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