Evaluating a Property

14 June 2009

You’ve made the decision to purchase a rental property. That’s an excellent choice, but what should you do to ensure that you are getting the most for your money and that you don’t get stuck with something that is going to be a problem. There are several things that you should check before making your purchase.

Financial

The most important aspect of any property is whether it is going to have a positive cash flow. That is, will there be money left over at the end of the year after paying the mortgage principal and interest, taxes, utilities, vacancy, property management and other expenses. I have a system that I use to evaluate a how well the property should cash flow, but that is an involved discussion and I’ll save it for its own article. In the mean time if you want me to represent you as your buyer’s agent, I would be happy to share it with you in detail. Just write me at dean@utahdean.com

Zoning

How the property is zoned is one of its most important aspects. You should validate the zoning shown in the listing at the county or municipality. Every listing says, “Information deemed reliable but not guaranteed. Buyer to verify all information.” Caveat Emptor! Buyer beware! Especially for multi-unit properties like duplexes you should verify that the zoning allows that use or that it is a legal non-conforming use. Legal non-conforming usually means that property was configured that way before zoning laws were created and the use is legal. Zoning started around 1976 in Salt Lake County. You don’t want to depend on the income that a duplex offers and be told by the county that only single family residences are allow on your property. There are also unpleasant ramifications if you get into a legal battle with a tenant and you are violating zoning regulations.

On the other hand, knowing the zoning of a parcel might help you identify a real gem. One example is finding a single-family house that would be easily converted to a duplex on a lot zoned for multi-family homes! Converting such a property to such a use could be quite lucrative. In my case I when I was evaluating my Magna property that had a house and triplex, I realized that the zoning would allow it to be subdivided. Doing that subdivision netted me some serious coin. It can also be interesting to read what is allowed in a certain zone. The zoning of one of my properties allows worm farming. Is that glamorous or what!

You can check the zoning of a property at the county or municipal office that zones your property. For unincorporated areas in Salt Lake like Magna the county does the zoning. You want to find the zoning of the parcel and then read the zoning ordinance of that zone to see what is and is not allowed. For Salt Lake County you can go to this site and find the zoning map for the property by entering the tax id or street address:

http://maps.slco.org/website/devserv/viewer.htm

Once you know the zoning of the lot in Salt Lake County, read the ordinance at

http://www.municode.com/Resources/gateway.asp?pid=16602&sid=44

and look at “Title 19”. Some of the municipalities have the zoning maps and ordinances on line and others do not. In Table 1 at the end of this article I have posted contact information for the cities in Salt Lake County. If any of this information is out of date, you know how to use Google or the phone book.

Taxes

The first thing that you want to know about the taxes when considering a property is have they been paid. You don’t want to wait for the title company to find unpaid taxes until after you have paid for a building inspection and an appraisal. Since all taxes are collected by the county for all municipalities, you can contact the Salt Lake County Treasurer’s Office to ask whether taxes have been paid.

Since property taxes will be one of your largest expenses, you want to verify that the listing had the correct amount. For all properties you can see the current tax amount and what the county thinks the property is worth on line. This site also shows the last 10 years of history of taxes and valuations. This information can be found at:

http://www.slpropertyinfo.org/

Other information about the property is also shown under different tabs. Some municipalities also have a door tax or large business license tax. You should find out if this is the case for the property that you are considering. The Utah Apartment Association has this information.

Building Inspection

Just as I would never own an improved property without fire insurance, I would not purchase a property without a building inspection done by a qualified inspector. An inspector should find any major problems with the structure that you did not notice, allowing you to walk away from the deal. One of the worst things that I can think of is buying a property only to find that I have to spend tens of thousands of dollars that I did not expect to fix some problem. Better to be able to walk away before the deal is done. So that you can walk away, be careful about the date that you specify in your offer for inspections or “Due Diligence Deadline” so that you have time to get an inspector there in time. Once you have an accepted offer make sure that you get the inspection completed and reviewed before the deadline.

Table 1

Municipality Contact List

Alta City

PO Box 8016

Alta, UT 84092

801.742.3522/ 363.5105

www.townofalta.com

Bluffdale City

14350 South 2200 West

Bluffdale, UT 84065

801.254.2200

www.bluffdale.com