Need a boost

[Jordan Burke]

Hey BP, I'm feeling a little down. I have been looking for a place around the provo, ut area and cant find a multifamily that falls into the 50% rule. Does that mean I need to find  some exceptions to the rule, or that the rule might not apply here? I have asked a real estate agent to help me find some places, I'm not sure they really understand what I'm looking for. I feel a little stuck. 

Can someone send some hope! Maybe a little direction??

[Race Ostler]

Jordan don't lose heart.

Two huge factors in the Provo area are 1) there's two 30,000 student universities within 5 miles of each other and 2) that there's a tech boom of sorts going on.  This means that you're probably not going to find the kind of cash flow deals out of the gate that you can find in say KC or Atlanta.  

Certainly, being able to meet the 50% rule and the 2% rule and all the other little made up rules is awesome.  But in our market if you had to fit in all these little rules quite possibly the only city you could invest in is Ogden.  Is Ogden the smartest place to invest in Real Estate right now in Utah?  I'm no expert in that area but I strongly doubt it.  Let me explain:

1) Two 30,000 student universities.  There are exceptions, but the squeaky clean tenant base of Provo is arguably one of the best tenant bases in the nation (definitely not talking about single student housing here) in terms of their ability to pay and the way they treat your property.  I can attest from my own experience.  This fact has monetary value in and of itself. E.g. Your vacancy and management expenses- which are two significant components of the 50% rule- can be a lot lower in Provo than many other markets in the country which is a prime example of why the 50% rule cannot be extrapolated the same to all markets.

2) Minor tech boom.  Ever since silicon entered San Francisco there have been people saying that the real estate prices of San Francisco are unsustainable and overpriced.  But what's happened is that a lot of people have made a ton of money there off Real Estate because of the crazy money people have in the tech world.   I'm not saying anyone should base a particular real estate investment decision based solely on the speculation of the value of the home going up in the future.  What I am saying is that Provo has the fundamentals which is why a Forbes article just barely ranked Provo the 2nd best place to invest in Real Estate in 2015 (http://www.forbes.com/sites/erincarlyle/2015/01/09...).  The Provo, Lehi, and Salt Lake area is no Silicon Valley but I believe that to a certain extent the same thing that has driven up prices there is happening and will continue to happen here because of the boom that is happening in Lehi and surrounding areas and the fact that we're close to running out of land.

There are needle-in-a-haystack deals in all markets. But I believe that in general and especially in our market, focusing so heavily on cash flow and ratios can sometimes lead one to stay out of the game.  Consider the compensating factors of areas like ours that might not have golden cash flows- such as more appreciation and way easier tenants.  The numbers always have to make sense from day 1 but don't let the perfect be the enemy of the good!