Good morning everyone,
My wife and I just bought our first home in a good area of South Ogden, Utah and intend to house hack it and move into another property in a year or so. The home we purchased already has a basement apartment with its own entrance as well as tenants paying $800 a month. The tenants are leaving when we move in (Their choice) and I'm thinking we may increase the rent to $900 (1 BD, 1 BTH about 1,000 Sq. Ft. with laundry, newly renovated bathroom, decent sized bedroom, good driveway parking for 2 vehicles, and nice, new flooring throughout). The upstairs is also about 1,000 Sq. Ft. and my wife and I will be living there for the time being. We think we could rent the top out for $1,100-$1,200 when we move out. There is also a 400-500 Sq. Ft. detached structure that has it's own electrical, heating and air, and plumbing that we hope to renovate and rent out as a studio apartment for $500-$600 a month.
All in all, our mortgage (With PMI) is around $1,700 a month. The home did not meet the 1% rule even when considering that we'll be renting out all 3 units. Once we've moved on, we'd hopefully be bringing in $2,600 a month to pay the mortgage and put some aside for repairs/reno. I'm hoping we can cash flow around $500 a month and maybe a bit more once PMI is gone.
Even though it doesn't meet the 1% rule, I feel it was a good investment on our part. My question though is, does anyone know much about the Utah real estate market? It's growing like crazy and not slowing down from what I can tell... How do you find good house hacking properties or good BRRRR properties in this market? Any advice or thoughts?
Also, does anyone know of any up and coming markets within Utah that would be wise to get into now when we're young and hold on to? We're in our early years and just starting out with this so I feel it would be wise to invest in an area like that.
I'm happy to get advice from anyone, regardless of whether or not you are in the Utah market or not.
Hi Timothy, yes, just because it doesn't meet the 1% rule doesn't mean it's a bad investment. It's actually pretty tough to meet that here in Utah. Not to say it's impossible though. With all markets there is a balance of cash flow and appreciation. Utah properties are going up in value, but not necessarily cash flowing well compared to other markets.
With that being said, rents are already starting to increase due to the high demand we're seeing right now, and that's probably just going to continue. I personally think that southern Utah County is a good "up and coming market". Utah Valley doesn't have much room to expand except south, or Lehi area, which is already priced very high.
You’re correct that the 1% Rule is a tough one to hit in UT. That said, some considerations to your strategy:
Sounds like there are two assumptions that should be validated (if you haven’t already, of course):
- Zoning - will you be allowed to rent top and bottom after moving out? This would technically become a multi-family if there isn’t access between the two units, etc. This is a complex one that is less of an issue while you’re living in the upper half, but needs to be sorted and understood before you move out.
- Zoning #2 - the detached structure would become an Accessory Dwelling Unit. Is that allowed on the parcel?
Good for you! I echo what has been said above and will take it a step further; in almost every area where you could hit the 1% rule, you'll likely see little to no appreciation and have more tenant issues than its worth. I invest in Idaho and the tenant base is high quality, appreciation is insane and its completely passive.
As for a good deal, I don't know the SLC metro market very well, but I can tell you that in the long run, if you find a place that breaks even the first year and you can start steadily raising rents while your property appreciates nicely, you won't be mad at yourself in 10 years.
Best of luck!
I appreciate all of the quick responses...
Garrett, I'll have to start looking towards Utah County to see if I can find anything good. Thanks!
Greg, it is currently zoned as a single family home and the zoning only allows that. Of course, as you stated, while I'm living there I can easily just list it as an ADU (Especially since HB82 passed), but afterwards, it's another matter entirely. As it is my first property, I did not think to check zoning or research how to get around it and I'm seeing now that there is pretty much no alternative. Do you know of any legal loopholes around zoning in Utah? Just 3 doors down from us there is an entire apartment complex zoned as multi family so I wonder if I could work that at all?
Corby, I've actually been looking into Idaho real estate quite a bit and I'm thinking of getting some long-distance real estate there. Do you have any suggestions for cities in Idaho that are a good opportunity?
Thanks again everyone!
@Timothy Roberts In a relatively short drive, you may be able to find some opportunities in Eastern Idaho. Idaho Falls, Pocatello, and other smaller cities nearby have some decent opportunities. Maybe not a ton of cash flow like in years past but good tenants and great appreciation.
@Timothy Roberts I don't know of any loopholes, sorry. Didn't want to be a downer, but I know that the ADU/MultiFamily thing was something we were looking at while we shopped for our first expansion property and it's tricky. It's an easy one to talk yourself into ("oh, we could get it re-zoned") and not a bad thing to try to make happen down the road, but I wouldn't recommend it to a newer investor (like me, for the record!) on top of everything else we juggle.