Northern Utah’s housing market is booming. In only a year, home values in Davis, Morgan and Weber counties increased more than 12 percent. In both Davis and Weber counties, the median sales price is about $30,000 higher than last year, according to the Utah Association of Realtors’ July report.
In the rental market, rates are up 6.5 percent in Salt Lake, according to a report from Cushman & Wakefield. While the record-low vacancy rates are likely to head up, experts still expect rental rates to grow about 4 percent in 2018.
In light of the increases in both housing prices and rental rates, you may be thinking about buying some real estate as an investment.
Even though the gains won’t always be as high as this banner year, real estate can be a profitable investment, particularly over the long term. Here are some ways to get involved in real estate investing if you’re interested in taking advantage of Utah’s strong demand for housing.
Buy a rental property
This is a simple strategy of buying a property and renting it out to tenants. As a landlord, you’ll pay for the mortgage, maintenance, repairs, taxes and management costs. Your goal is to have rental payments cover your monthly expenses plus some.
Over time, you’ll also pay down the mortgage, increasing your equity in the home. If you buy in the right area, you’ll also likely benefit from rising property values, giving you a more valuable asset. In fact, home prices have increased 38 percent in the Ogden-Clearfield metro area over the past five years, according to the Federal Housing Finance Agency.
While you will benefit from historically low mortgage rates, be prepared for more stringent qualifications as an investor. For an investment property, you will likely have a higher interest rate and down payment. Many lenders also require a reserve account to cover six months of expenses in case of vacancies.
Rent out a room
If you don’t have the financial wherewithal to buy an investment property, you could consider renting out a room or accessory apartment in your primary residence. Before buying a property or finding a tenant, however, make sure to verify that local laws and regulations allow you to do this.
If you’re looking to purchase a property with an accessory apartment or intend to have roommates, Fannie Mae’s HomeReady Mortgage may allow you to use that extra income to help you qualify for a purchase loan.
Flip a property
In this strategy, you hold the real estate for a shorter time. An investor looks for a property in need of repairs, fixes it up and sells it at a profit.
To do this, you’ll need to work with a team of professionals, including a home inspector, contractor and Realtor. Make sure you thoroughly inspect the property and get accurate estimates on how much it will cost to rehab the property. Otherwise, you risk losing your profit by paying for too many unexpected repairs.
It’s also essential to work with a Realtor who can help you identify favorably priced properties, provide information on pricing trends and eventually sell the home after your renovations.
Invest in a REIT
If you’re interested in making money on income-producing real estate but want to do it with a hands-off approach, a real estate investment trust, or REIT, may be right for you.
A REIT is similar to a mutual fund. A company pools investor funds and buys or finances income-producing real estate — such as shopping malls, medical centers and office buildings — and distributes the profits as dividends. Like traditional real estate, REITs also tend to benefit from long-term appreciation.
REITs may be private or public and may be traded on the stock exchanges, thus providing much more liquidity than traditional real estate. To learn more about investing in a REIT, talk to your financial advisor.
As you can see, there are many ways to invest in real estate. To find the investment property that fits your needs, contact a local Realtor who specializes in helping investors. Find a Realtor at NWAOR.com.
Sonya Smithing is president of the Northern Wasatch Association of Realtors.