Offer accepted on a 4-br, 2-ba home. Is it a good investment?

Question

After putting 2 unsuccessful offers in on single-family homes in the Salt Lake City area, my third offer was accepted on a house in the Wallace Heights neighborhood of Sandy, Utah (south of Salt Lake City).

Here is a link to the MLS listing: https://www.utahrealestate.com/1782294

My goal is to purchase a property as a long-term investment and rent it out. I'll be occupying one of the rooms for the first few months.

The house appears to be in good condition, although we will see what the inspection uncovers. There is unfinished basement space that could be renovated into another bedroom and/or bathroom, eventually. Here are the basic numbers:

- Price: $455,000 (5% down payment of $22,750 not including closing costs)

- Monthly payment: $2,142.01 (includes principal & interest, property taxes, and homeowners insurance)

- Estimate of monthly rental income: $2,400 (bedrooms should rent for avg of $600/month individually, or I may find a family/group willing to rent the whole house)

Here is a financial analysis with vacancy assumptions and a maintenance reserve.

I would be so grateful for opinions from some more experienced investors: Does this seem like a solid long-term investment? Or, did I get a bit too loose with my analysis criteria, wind up with something mediocre, and should I walk away while I still can?

Lastly, if anyone reading this knows the Sandy, Utah area and particularly the Wallace Heights neighborhood, any advice would be welcome.

Thank you!

Andy Jenkins · Answer

You got under contract in this crazy SLC market. That's a success in itself! If you're looking to hold on for the long term, you should enjoy some great appreciation. The Northern Utah market is booming. People are coming here from all over the country and there are hardly any homes being built. Supply and demand.

Collette Petersen · Answer

That's awesome! unfinished basement leads to alot of possibilities. I would like to know where you are getting your mortgage, that is a great rate!

Zee Abbas · Answer

IRR looks ok, barely edging the S&P but the negative cash flow until year 10 would be a no go for me. I would add payout time to your metrics, I try to recover my initial cash investment as soon as possible to reinvest (through earned cash flow, not appreciation). I would also suggest to account for inflation in the appreciation portion of your analysis. Good luck - I didn’t realize the property taxes in Utah were so low.

Account Closed · Answer

You have picked a very nice area!! My sister in law as well as my wife's parents all live in Sandy and I am almost certain I've driven past that place on a few occasions. I live here and am always hunting properties. This one snuck past me and I'm happy for you! I'm interested in seeing what good comes of this for you.

Casey Hoerth · Answer

Howdy Eli,From the looks of it, you will probably be cash flow negative by a couple hundred dollars per month when all the dust settles. Repairs, updates and property management all factor in. However, my understanding of Sandy is that it is a pretty nice ZIP code in the Salt Lake area. Desirable areas tend to stay desirable, and I wouldn't be surprised to see plenty of rent growth and appreciation. '

Congrats on snagging a house in white-hot Salt Lake!

Eli Etzioni · Answer

@Miguel Lopez, great question! Airbnb is on my mind, maybe as something to do a bit further down the line. For now, the place is unfurnished, and I will be owner-occupying in one room and making it my home, so the path that makes sense is to rent out 3 of the other rooms. Priorities in my mind at this point are:1) Make a handful of small fixes identified by the inspection

2) Figure out costs to finish one of the unfinished rooms, turning this into a 5 br, 2 ba, increasing income

3) Figure out what business license/paperwork I need to get done to Airbnb, and decide if that's a fruitful option

Miguel Lopez · Answer

Have you thought of Airbnb? I have heard Sandy has great occupancy rates and is fairly lax on their ordinance.

Congrats on getting something in this crazy market! Keep me updated on what you end up doing.

Eli Etzioni · Answer

@Nicholas L., yes, planning to self-manage. Going to need to try and preserve cashflow and cut costs wherever I can.

Nicholas L. · Answer

@Eli Etzioni congratulations on getting under contract, but as others have said this seems like it will not cash flow.  Do you plan to self-manage?

Bruce Woodruff · Answer

@Kim Gibson Any good inspector should be happy to spend a half hour walking around the property with the new owner and explaining in depth any issues. That's their job.....

Offer accepted on a 4-br, 2-ba home. Is it a good investment?

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