All Forum Posts by: Jeremiah Maughan

It's 3, related or unrelated in Provo.  However, there are many properties that are closer to BYU campus that have grandfathered in a "batching singles" designation that can be between 4 and 6 per unit.

Are you looking specifically for Ogden area or somewhere more north than that?

@William Hochstedler, Good point about the DOM being an indication health and sanity. It did get scary there when everything was selling immediately at full asking price.  Regarding the new construction numbers, that came from a recent economic forum co-hosted by the Utah Central Assoc of Realtors and the Utah Apartment Association.  James Woods was one of the speakers and covers such topics each year: http://gardner.utah.edu/team/james-a-wood

The historic highs for new construction volume were 2007.  I went back to 2004 to try to capture the time before the 2006/7 run up.  I concur that Utah typically lags other metro areas and this time it seems we're a more prominent state.  Good things are happening here, I feel like we just need to be vigilant.

PS - Hi @Adam Willis. Always fun to see a buddy on these forums!

William makes good points about potential indicators. My lead-lined crystal ball tells me that we are in a decelerating market. Good indicators are absorption rate and the affordability gap. Days on market seem to be stretching out, prices are outpacing ability to purchase, and I think we're on borrowed time with interest rates. The minute those go up you'll see some things shift. How much time that actually turns into I'm not really sure, maybe year or two and we'll be at more of an equilibrium?

Here is my opinion, as posted on Facebook about a month:

"Yes, the real estate market is back to 2006/2007 prices but you have to remember it is doing so with 2013 interest rates. If we put the interest rates back to 2007 rates, then we would need to cut something like 25% off the values to have the same monthly payment. Something to think about when you look at home values and consumer buying power."

That got me thinking about other factors, so I followed it up with this:

"What about income and inflation? Here are some more numbers for everyone to consider. I did some digging using the US Census Statistics, median home sales prices as recorded by the MLS (kept in a table by the Salt Lake Trib), and some inflation calculators. I went back to 2004 which is before our home prices started going crazy and we were still on a natural progression. Check this out:

Since 2004, inflation has totaled 27%

Since 2005 to 2014, median household income in Utah County has gone up 30%

Since 2004, median home price has gone up 59%

I'm not economist nor statistician, but based on that, I surmise that inflation can offset all but 3% of income and all but 32% of home price growth. Here's the kicker:

A 6% interest rate on $250k loan is a payment of $1,500/mo

A 3.5% interest rate at the same payment allows a loan of $333k.

A 32% increase in buying power.

"Well that's ironic isn't it? So, in conclusion, the home value spike of 2005-2008 was due to easy to get loans. The home value spike of 2013 to 2016 can be significantly attributed to cheap money. So does that mean that home values should be 32% lower? I would not go that far, but certainly if we had normal interest rates the home values would HAVE to be 32% lower.

"We have a massive demand right now and significant shortage of quality homes available to purchase. New construction, as busy at it looks, is still significantly lower than historic highs. So that looks like a legitimate supply and demand issue. We also have land constraints driving prices up. But is that significant demand only due to the fact that money is super cheap which means we have more buyers than we normally would have? I think so. Does it matter though, since if the money was more expensive, prices would be lower so we could all still buy the same house it would just be a different price points (higher rate, therefore lower value and same payment).

"So the moral of the story to me is the interest rates are going to really hose everyone if they spike too fast. I think we are fine IF the rates don't go crazy. Eventually they have to go up though, so I expect we will see them start to creep up which will mean home values will flatten out and stay that way for several years."

Good feedback here.  I'll echo what some of the others have said. I'm a property manager/realtor of 14 years managing a portfolio of 900 doors here in Utah and I'm pretty much telling clients to sit this one out right now or look out of state.  The best investor deals are privately transacted or built from the ground up on the development side (if you're the early investor with a good build team).  Otherwise you pay too much for a piece of junk.  If it isn't in bad shape then you're paying too much so someone else can reap all the profits.  I know that sounds discouraging but it's the reality of all investment markets:  Opportunities are a moving target and right now the typical targets aren't there in a way that makes a lot of sense.  Some people are willing to buy on the promise of higher future rents and improved cash flow, but that's a quick way to get into trouble like so many did in '07+  Be careful, be patient. 

In Provo you need a PRO zone passed, which basically rezones a portion of the space. However the city typically requires one acre minimum.  Both cities have effectively shut down duplex conversions.  They do allow accessory apartments though, but that means owner occupied is required to rent out the accessory apartment.  Both cities have the guidelines for adding an accessory apartment.  If a house is already used as a duplex, sometimes you can do some legal research and have it recognized as a duplex, but it would have to be a continuous, ongoing use for decades.

Hi David.  My team and I at Vision Real Estate could help you.  We are all licensed agents and manage about 800 doors in Utah County so we have extensive experience both with buying and selling.  Would you occupy one of the units in a multiplex? If so that's a great way to get into a rental. We have several clients and agents who have done that.  Drop me a line and I'd be happy to talk more with you.  We've got some great lenders we work with also.  ~Jeremiah Maughan, Managing Broker.