Buy N Hold Strategy A Roadmap to Financial
Buy ‘N Hold Strategy A Roadmap to Financial Freedom John Jonkman jonkmanj@cs. com Ph/txt: 801 -262 -3296 www. slreia. homestead. com Salt Lake Real Estate Investors Association 12 February 2020 copyright: 2020 John Jonkman
How I Got Started • • Came to USA in 1973 Lived in apartments for 5+ years Bought duplex in mid-1978: rented out 1 side Job transfer: sold it 12 weeks later Bought 4 -plex in Dec. 1978 – Sold it in Dec. 03 Bought duplex in July 1979 – Sold it in Jan. 04 Bought 4 -plex in April 1980 – sold in Sept. 1997
How I Got Started • Started Partnership in 1983 – Bought five 4 -plexes in 1983/1984 – Rental market collapsed in 1986/1987 – Went broke; lost properties, credit, etc. • Started Partnerships in 1989 – Bought 11 more 4 -plexes; 1989 – 1992 – Sold them 1997 – 2000 • Used cash to become a private RE lender – Received deeds in lieu of foreclosures during crash • Now own 10 single family homes, condos, townhomes
My Strategy • Buy properties from distressed situations - very cheap • Make them livable/rentable asap - interior • Initially rent them out cheap • Use cash flow to fix up exterior – curb appeal • When vacant: improve interior: raise rents
My Formula Improve the Building Increase Value of the Property Charge Higher Rents Attract Better Tenants
Buy and Hold - Factors • Establish your long-term goals – But… if you can’t make it in the short term, then the long term doesn’t matter much. • • • Establish a cash flow system Be selective in what you invest in Realize your dependencies Understand your continued responsibility You make your money from your tenants, not from your buildings
Take Advantage of Cycles and trends Average Rents SL County
Management Philosophy Loyal Happy Tenants Maximize Tenants Value Profitable Tenants
Salt Lake County rental Rates
HUD - Section 8: Fair Market Rents for 2020 County 0 BR 1 BR 2 BR 3 BR 4 BR Salt Lake $790 $964 $1, 176 $1, 649 $1, 870 Davis, Morgan, Weber $673 $802 $1, 024 $1, 438 $1, 697 Utah, Juab $723 $814 $926 $1, 336 $1, 626 Summit $818 $981 $1, 256 $1, 565 $2, 205 Tooele $684 $792 $952 $1, 373 $1, 671 Wasatch $776 $835 $1, 100 $1, 455 $1, 904 In general, the FMR for an area is the amount that would be needed to pay the gross rent (shelter rent plus utilities) of privately owned, decent, and safe rental housing of a modest (non-luxury) nature with suitable amenities * For larger units: add 15% per bedroom to amount for 4 BR unit Subtract Utility Allowance www. huduser. org
Wasatch Front Rents by Unit Type Mid 2019 Size Unit Average Rent Studio $ 910 1 Bedrm, 1 Bath $1, 041 2 Bedrm, 1 Bath $1, 086 3 Bedrm, 2 Bath $1, 513 Source: CBRE Greater Salt Lake Area Multifamily Market Report H 1, 2019
2 vs. 3 bdrm – same complex New Construction Source: utahrealestate. com
2 vs. 3 bdrm – same complex Existing Construction Source: utahrealestate. com
East vs. West Rental Rates Source: https: //gardner. utah. edu/wp-content/uploads/Apartment. Report-June 2019. pdf
East vs. West Rental Rates Source: https: //gardner. utah. edu/wp-content/uploads/Apartment. Report-June 2019. pdf
SL County Home Prices 2018 - Q 4 Median Home Price and change from 2017 - Q 4 Source: https: //www. sltrib. com /homeprices/
East vs. West Rental Rate Change Source: https: //gardner. utah. edu/wpcontent/uploads/Apartment. Report-June 2019. pdf
East vs. West Rental Rate Change Source: https: //gardner. utah. edu/wp-content/uploads/Apartment. Report-June 2019. pdf
SL County Vacancy Rates Sources: www. equimark. com www. comre. com/research CBRE Greater Salt Lake Area Multifamily Market Report H 1, 2019
Salt Lake County Transportation Infrastructure Source: 2019 -2050 Regional Transportation Plan https: //t 4 america. org/maps-tools/local-successes/salt-lake-city/
Apartment Rental Historic Trends Source: https: //gardner. utah. edu/wp-content/uploads/Apartment. Report-June 2019. pdf
Current Rent and Vacancy Trend Salt Lake County Source: CBRE Greater Salt Lake Area Multifamily Market Report H 1, 2019
Rent Trends Source: https: //www. huduser. gov/portal/datasets/fmrs/FY 2020_code/2020 summary. odn
Utah’s Housing Cycles From Peak to Peak 1. 1972 – 1977 - 2 –year contraction, then record-setting residential construction 2. 1977 – 1984 - Previous overbuilding resulted in free-fall in home values; 5 -yr slide; 2 -yr swift recovery - Recession: 1981 – 1982 (Avg. mortgage rates: 16%; max. : 18. 5%; Inflation: 15%) - 1984: 7, 496 SF homes permitted and 11, 325 multi-units statewide. 3. 1984 – 1996 - Contraction from ‘ 84 – 89, then 7 -year upswing - 1988: 400 apartment units permitted; 4, 000 – 6, 000 units/yr. in the 90’s 4. 1996 – 2005 - No significant downturn in values; interest rates: < 7% - Major expansion of West Jordan, South Jordan, Riverton, Herriman, Lehi, Eagle Mountain, and Saratoga Springs. Source: Utah Economic and Business Review www. bebr. business. utah. edu
Utah’s Housing Cycles From Peak to Peak 5. 2005 – 2012: the Great Recession Cycle - 4 Years of falling housing prices, then slowest/longest post-WW 2 recovery - $25 B equity loss for Utah home owners - Record number of foreclosures - Loss of 70, 000 jobs - 21% decline in home values - 1, 000’s of doubling up of households Source: Utah Economic and Business Review www. bebr. business. utah. edu
Utah’s Housing Cycles From Peak to Peak 6. 2012 - Current: the Great Economic Boom - Utah’s booming economy and job growth outpaced the rest of the nation - Prices for condos/townhomes have risen faster than prices for single-family homes; 9. 7%/yr - Condominium/townhome sales: 30% of total home sales - Record breaking number of home sales each year - Record low mortgage interest rates: < 5% - Record number of apartment units developed since 2014: over 27, 000 units - High demand for luxury rental units - New apartment communities target the high-end apartment market - Little relief in sight for renters - Erosion of housing affordability - The Utah economy exceeded expectations in 2018, adding a total of 48, 500 new jobs over the year. Source: Utah Economic and Business Review www. bebr. business. utah. edu
Current Situation - Relatively low rental vacancy rate - New apartment construction is well below demand: - NIMBYism and local zoning ordinances. - shadow market developing: - single family homes, condominiums, twin homes, and town homes - Population share in the 18– 39 -year-old age group is declining as the population ages - Foreclosure Rates—At the end of the third quarter of 2019, Utah ranked 2 nd lowest with 0. 29% of all loans in foreclosure. Source: Utah Economic and Business Review www. bebr. business. utah. edu
Major Crash Factors for the US Housing Market • • • Home prices at peak Stock market at peak Persistent push to raise interest rates Fed raises interest rates too quickly in 2 nd half of 2020 and given the size of the loans, a 2% increase would create defaults and panic selling Global economic failing impacts US economy Housing bubbles in NY, Boston, Los Angeles, San Jose and San Francisco collapse Single-family housing permits decline Homeowners get scared and begin dumping overpriced homes and condos Home down payment simply out of reach for most buyers Investment tax breaks end Stimulus spending ceases Source: https: //gordcollins. com/real-estate/us-housing-market-crash/
Outlook - Annual apartment construction at an all-time high New projects not affordable by average renter Strong demand for luxury apartment rentals near urban and employment centers Shortage of affordable units 1 st time homebuyers are strapped for cash Slower household formation Historic shift away from buying towards renting Homeowners are staying in their homes much longer Utah’s population expected to double by 2050 Internal risks to the Utah economy include the supply of workers, increasing interest rates, housing affordability, and air quality. Large players entering SFR market (American Homes 4 Rent, Blackstone, Colony American Homes) Source: Utah Economic and Business Review www. bebr. business. utah. edu
Buy ‘N Hold Strategy A Roadmap to Financial Freedom John Jonkman jonkmanj@cs. com Ph/txt: 801 -262 -3296 Salt Lake Real Estate Investors Association 12 February, 2020 copyright: 2020 John Jonkman
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