What works in Davis county

[Todd Summers]

I have spent the last few days analyzing rental properties in and around Logan, Utah. From everything I have found (maybe I'm doing the math wrong because I'm new to this) is that trying to use the 2% test or even the 1% test wont work. It is more like .7 or .8 of the purchase price. You can still get decent cash flow but you have to be willing to buy houses 80 to 100 years old and doing a ton of work.  I have also looked at town homes where the hoa fees eat up a good portion of cash flow. I came to these conclusions using $1100 a month rent for a 3 bed 2 bath sfr and $800 for a townhome of 2-3 bedroom. The highest cash on cash return ive seen in my analysis is 9.7% and that was on a home 100 years old that needed $35000. worth of work and that's assuming that the after repair value of a 100 year old home would be the same as a house built in 1996 that has been updated pretty similarly. Is that possible for a home of that age to have a market value as something built in the last 20 years even if it is renovated and updated? What type of properties are people buying in Davis county to use as rental properties? I know Utah state is there do most people do college rentals? Those are something I'm trying to avoid. I have found in my research that Logan has a 5-8%vacancy rating which I feel is pretty good. Is there a demand there for better quality sfr rentals that bring in rents that justify that type of investment or should I be looking for c quality rentals in b quality neighborhoods. Any information would be helpful. Thank you

[William Hochstedler]

Thanks for the ping @Caleb Rigby

@Todd Summers  Welcome to BP.  It's always great to see local folks here.

You are exactly right in your assessments of the Logan market.  To get properties to hit the 1% rule, you need to buy distressed properties at a deep discount and rehab them.  You are also right that smaller properties cash flow better.  

The problem is that builders have not built detached housing under 1600 sf in 100 years. This means that there is incredible demand for them. To solve the price point problem, all new construction of smaller units have been town homes and there are literally hundreds of them going online now. In addition to HOA fees, town home communities have restrictions limiting rentals, pets etc.

Over the past decade, the Island area of Logan (the area around E Center St from about 100 E to Riverside Dr) has become an exhibit of this dynamic.  What was once an area of deteriorating century old smaller rentals have been snatched up and rehabbed by young professionals who are not attracted to the 2700 sf homes in subdivision sprawl.  (This is a national trend, by the way).  I have several properties in this neighborhood that all rent within hours of posting.

With properties like these, vacancies are much lower.  I ran a property management company for a few years and now work closely with another one.  In Logan, cute properties, particularly those that rent for under $1000/mo and under good management have vacancies below 1% since I got into PM in 2009.  Having your rentals pet friendly lowers that even further.

Regarding renting to students, we love graduate students.  Typically they don't have a lot of kids, they work all the time and unlike undergrads, they are adults.  Moreover, they stay year round and usually renew for the course of their degree if they find a good place.  This can be 2-5 years or more.  Undergrads are a different story, but can provide great cashflow in shared environments if you are prepared for the management issues.

I could probably expound on the Logan (and Cache Valley) market indefinitely.  There is definitely opportunity here, but there isn't much low hanging fruit.  It is rather insular which is both a good thing as it has performed very consistently (albeit modestly) for a very long time even through the recession.  Because the inventory is limited and the market small, the deals are few and far between.