Provo investment property - to BYU or not to BYU?

Question

I'm looking to invest in a property in the Provo area. Should I invest in a BYU approved property or not? Pros/cons?

Jeremiah Maughan · Answer

I have found that the cap rates for BYU-contracted housing are a full percentage point (or more) lower than standard housing.  Out of state parents will often pay whatever for their kids to have a place, which inflates the prices above what market rents will support.   Buying in Provo is a good idea because it is high demand, but I specifically steer my clients away from BYU-contracted housing unless they have a kid attending the university.

Be aware also that all landlords need to also go through a process of becoming BYU-contracted, use BYU leases, follow BYU housing guidelines etc.  It's very different from standard property management.  About 60 units of our property management company are BYU contracted, and we have a team specifically dedicated to only those.

Nick Kazak · Answer

I’ve two duplexes in center of Provo under contract - produce $4K amount gross rental income - please contract me if interested - thanks Nick

Jonathan Escobar · Answer

Typically, from what I've heard from others here in Utah county, Provo is VERY VERY strict and you don't have very much freedom. Also, it's very hard to find something that will cash flow very high. The Price-to-rent ratio around here is about 0.3%-0.6% which is not very good. That is in comparison with the 2% rule (brandon turner calls it the 2% test) (can also be called the 1% test or the 0.5% test) But the main point is that the rules of thumb don't work here in Provo unless you can hustle and find a great deal off the market to someone who is very motivated to sell and you can buy something that is very below what the market is offering. Might also be a property that will require some work to be done on it so that you can force appreciation on the property to increase its value.

In my case, it's going to be even harder because I'm trying to house hack in provo/orem area. If I were to do it, I would have to find a spankin' deal or just find a property that will cost less than renting in the Provo area. Just some thoughts for you! :)

Nick Kazak · Answer

I agree with Chris as student rentals are a bit different game and requires more attention and it will have higher turner over; and more hustle and time consuming on this matter. Will require more marketing as well.

Chris H. · Answer

Agree with Jeremiah. If your numbers work for you, then great, but be aware that being contracted with BYU is a whole process. The student rentals we own are closer to UVU, which is nice because you don't have to deal with that but there is still high demand from an even larger school than BYU.

My advice is that you can make a little more in cash flow on student rentals, but they're more work. Instead of filling 1 contract, we have 3-4 spots to fill for each unit. In the past year I feel the game has changed for how these are advertised too - now there are Facebook groups where students post their criteria for a room and landlords come to them, so if you're an unknown landlord you spend a lot of time marketing. You also have to time your rentals so that you're signing contracts every Jan-Feb for the following year. That being said, it's a great niche to be in with a little bit higher earning potential. Just make sure your numbers work and you should be fine.

Chris H. · Answer

That's a tough question, and I think the answer depends on a couple of factors. Do your numbers work? I've found that cashflowing properties in the BYU area are hard to come by. Have you rented to students before?

Joel Brown · Answer

The competition in Provo for houses is over the top. You are competing with 100 other investors who want to be there and find a cash flowing or house hackable home/duplex/tri/quad.  If you can cash flow a $350K house built in 1920 and 1500 sq/ft getting $1500 rent you could make Utah County work. They will hold their value and appreciate , just not cash flow. Disclosure I own 2 condo that I'd buy the whole complex if I could get them for what I paid 6 years ago.  They were just coming out of the 2009 crash, now they sell for double, but are only appreciating slightly more than inflation now.

Nick Kazak · Answer

Thanks for insides - I agree but its all about finding the DEAL in ANY real estate - either we talking about single - family, 1-4 units or even multi - units 100 + and I do have some experience in all of these arenas. For example - I've two duplexes under contact right now for $550K producing $5,500 in rents near BYU with some value add - there will some instant equity along with the rent increases. It's all about cash flow but with hot Provo area still growing and not going to stop in the near future according to our research - we don't mind asset appreciation. Do you think it's a decent investment ?

Jonathan Escobar · Answer

Typically, from what I've heard from others here in Utah county, Provo is VERY VERY strict and you don't have very much freedom. Also, it's very hard to find something that will cash flow very high. The Price-to-rent ratio around here is about 0.3%-0.6% which is not very good. That is in comparison with the 2% rule (brandon turner calls it the 2% test) (can also be called the 1% test or the 0.5% test) But the main point is that the rules of thumb don't work here in Provo unless you can hustle and find a great deal off the market to someone who is very motivated to sell and you can buy something that is very below what the market is offering. Might also be a property that will require some work to be done on it so that you can force appreciation on the property to increase its value.

In my case, it's going to be even harder because I'm trying to house hack in provo/orem area. If I were to do it, I would have to find a spankin' deal or just find a property that will cost less than renting in the Provo area. Just some thoughts for you! :)

Suha Lingam · Answer

Thank you, Jeremiah and Chris. I appreciate the input!

Provo investment property - to BYU or not to BYU?

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