MFR deals in Utah?

Question

Hi all,

Since joining BP a few months ago I have been living in a whirlwind of information.  It is extremely helpful and insightful, but also has me slightly overwhelmed.  I aim to purchase and owner-occupy a 2-4 unit property by the end of the year.  I am hoping to find something between Layton and Sandy as those are about as far North and South as I'd like to be.  Bountiful/Centerville, or SLC would be ideal.

It seems like all of the "deals" are being gobbled up immediately by cash investors, and that the only way someone like myself could get started would be to purchase a distressed property and do some updating.  I am familiar with the 203k loan and find that quite appealing.  I hope to truly begin my search in the next two-three months and would love to close by the end of the year, 2016.

Can anyone speak to this?  Are there still deals out there that would make sense for a first-time, owner-occupant investor looking for MFR?  Does anyone have experience with the 203k program that could shed more light on the benefits and drawbacks?  I just feel like that would be an opportunity for me to add instant value to a property in order to get the rents up to make a deal more appealing.  I don't want to be a slum-lord managing a crappy MFR in a bad part of town, but I also don't have $1/2 Million to invest in a piece of property.

I have been studying like a crazy person and listening to any information I can get my hands on, but certainly don't claim to know what I'm doing yet.  This is probably fairly novice, so thank you for your patience.  Input, advice, criticism and anything else you deem necessary and helpful will be appreciated and well-received.  Thank you in advance for your input and opinions!

Nik Krohn · Answer

@Chris Watkins you are correct. You can't legally rent the MIL out to non family although we have seen it countless times. We have rented them out for about 5 years and never had an issues. I guess if you had a nosey old neighbor you could have issues if they called the city. Otherwise I think it is a great way to use a MIL in Utah.

@David Cline We purchased 2 SFRs in Utah County that both had MIL apartments. We purchased one in Spanish Fork and one in Provo. They were primary residences for us so the down payments were pretty small. You can still find them in those areas although I still see them in SLC county as well. You can find them in the $170-$220k range.

I know you cant quite compare a SFR with MIL apt apples to apples with a duplex but the pricing is wildly different. I have yet to see a duplex meet the 1% rule in Utah the last year. I have however seen many SFR with the MIL meet the 1% rule tho. And the appreciation is much better too.

@William Hochstedler The first property that had the MIL we lived in for 13 months (Was an FHA loan), we moved out for 7 months and rented (which sucked) and then purchased the second property with MIL (conventional loan). When we moved out of the first, I sold it as a rent to own lease option. It took about 2 weeks to do. We cash-flowed $500/mo + had a minimum sales price in the contract that was also subject to appraisal so if it was higher then minimum, we would sell for that price. We didn't want to be their landlord or do any prop maintenance. They in turn rented the property themselves.

We have since moved out of the second property. Rinse & repeat same strategy.

Final note: Because it had the MIL, it was easy to sell the rent to own (woo whoo no realtor commissions). The renter/buyer could easily justify the purchase because for the 2 year contract, they could rent out the basement for $900/mo and their part of rent was only $500 which is unheard-of in Utah for a small family. We also got a nice downpayment so it would sting a little if they decided to walk away from purchasing the house

Nik Krohn · Answer

Like @David Cline mentioned, you really need to network or hustle to find a good MFR here in Utah. I personally prefer purchasing a SFR and getting a mother in law (legal) and renting that out as you live in the other half. I have done that twice. It has been great because the SFRs tend to appriciate much more than the MFRs.

If you don't plan on owner occupy I usually suggest out of state

Becca Summers · Answer

There are deals but they are few and far between. I got one from a wholesaler today but it required cash or hard money. As a first time investor I wouldn't recommend you go that route. It's pretty hard right now to cash flow on a MFR when your in one of the units because purchase prices have sky rocketed.

203k loans are a pain in the butt in a hot market. Three reasons.

1-It's and FHA loan and most sellers are worried about them because they don't want to do any repairs and you have to explain that it's a 203k not a traditional one. Some sellers get it others don't.

2-You have to use a contractors who are approved by the bank or lender do the repairs meaning you'll spend more money on the repairs. You can't do them yourself.

3-The under contract time is much longer than usual because of all the bids you have to get.

I'm not a fan, but I am willing to have someone tell me I'm wrong if they have had a better experience.

Your best bet is to buy a property from HUD or a Bank during their owner occupant time and not compete with investors who have deep pockets. I haven't seen one in recent months though. I think the MFR is out of control.

Janette Richan · Answer

I am just getting into the real estate market and will have my license on march 2. If anyone would be willing to have faith in a new agent and have patience (ha ha) Id love anyone to just help me out with any business small or large.  In return, maybe my license can be of some type of help to you. I have so so so many people I want to prove myself to. 😂😂😂

William Hochstedler · Answer

@Nik Krohn

A lease/option is an interesting way to approach the accessory unit.

Well done.

William Hochstedler · Answer

@Nik Krohn

What did you do with your property with an accessory unit when you moved out?

Chris Watkins · Answer

@David Cline and @Nik Krohn - Regarding the Mother-in-law set up: That is a great idea. There are many properties that come on the market which have a "legal accessory apartment". That is what you are looking for. You don't want a "Mother-in-law apartment" because you can't legally rent it out to anyone other than family. Sometimes it's confusing and you hear mother in law and legal accessory apartments used interchangeably. Unless you have family to rent to - go for the legal accessory apartment. Although, frequently I will see someone list their property which has a legal accessory apt for the same price as a duplex which is crazy to me. But sometimes you will find deals on homes with an accessory apartment that are much more affordable than the super hot MFR market right now.

David Cline · Answer

@Nik Krohn that is a great idea. What area and price range are you focusing on these days?

David Cline · Answer

@Tim Spjut I would seriously consider driving around the areas that you really like and look for any MFR's that are rundown. Then find out who that property belongs to and reach out to them to see if they would be willing to sell. I am planning on doing that for our next purchase.

Tim Spjut · Answer

@Becca Summers @Jennifer Dean @David Cline

Thanks for the responses!  I appreciate you all sharing your experiences with me and giving me some things to think about.  David, congrats on finding a property, I like the Holladay area a lot.  If any of you come across something that fits what I'm looking for, I'm all ears.  I want to make this work and know I have quite a task ahead of me to find something that makes sense.  As someone with little to no experience and with no real "network" yet, where should I go to find something?  I have spoken with a few realtors that have a lot of experience finding properties and they seem to be my best bet so far.   Any other thoughts and ideas are welcome.  Also, if you've had success finding a MFR lately in a good area along the Wasatch Front, please tell me about it.  I need all the motivation I can get! :)

MFR deals in Utah?

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