1. Building Your Portfolio 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 10 June 2015 copyright: 2015. John Jonkman

2. 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

3. 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. Sta rted Partnerships in 1989 – Bought 11 more 4-plexes; 1989 – 1992 –Sold them 1997 – 2003 Now own 12 single family homes & condos

4. www.jj2.us

5. 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

6. My Formula Attract Better Tenants Charge Higher Rents Improve the Building Increase Value of the Property

7. 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

8. Take Advantage of Cycles and trends Source: www.bankrate.com 30 fixed mortgage rates Average Home Values SL County Source: www.zillow.com Average Rents SL County

9. Management Philosophy Loyal Tenants Profitable Tenants Happy TenantsMaximize Value Value

12. HUD - Section 8: Fair Market Rents for FY2015 County0 BR1 BR2 BR3 BR4 BR Salt Lake $606$727$901$1,285$1,513 Davis, Morgan, Weber $485$594$778$1,097$1,317 Utah, Juab $500$639$763$1,103$1,351 Summit $682$749$1,014$1,406$1,411 Tooele $538$568$757$977$1,241 Wasatch $659$732$868$1,279$1,283 Subtract Utility Allowance www.huduser.org * For larger units: add 15% per bedroom to amount for 4 BR unit

13. Wasatch Front Rents by Unit Type Source: www.comre.com/researchwww.comre.com/research (July 2014) 2.6 percent vacancy rate for properties with fewer than 100 units. The rental inventory of Salt Lake County is nearly “fully occupied.”

14. Wasatch Front Rents by Unit Type Source: www. equimark.com

15. East vs. West Rental Rates Source: www.comre.com/researchwww.comre.com/research (July 2014)

16. SL County Vacancy Rates Sources: www. equimark.com www.comre.com/research www.comre.com/research

17. Salt Lake County Traffic Infrastructure

18. 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

19. Utah’s Housing Cycles From Peak to Peak 5. 2005 – present: the Great Recession Cycle - 4 Years of falling housing prices, then slowest/longest post-WW2 recovery - $25B 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 - 2000 to 2010: average annual growth rate for renter-occupied units 2.65% percent owner-occupied units: 2.11%. - Mortgage interest rates since 2010: < 5% Source: Utah Economic and Business Review www. bebr.business.utah.edu

20. Current Situation -Lowest rental vacancy in 2 decades -New apartment construction is well below demand: - NIMBYism and local zoning ordinances. -2000 – 2010: 21,137 new apartments constructed; 60,000 new renter households formed -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 -International migration in 2005: 8,100; 2013: 4,350 Source: Utah Economic and Business Review www. bebr.business.utah.edu

21. Current Situation Source: Utah Economic and Business Review www. bebr.business.utah.edu

22. Outlook -Annual apartment construction to triple in the next 3 years -SL area: from 1,223 to 3,261/yr. Highest in 30 years; might reach saturation point -Mostly 1 or 2 bdrm, Class A units; $1,000 - $1,400/month -Sugarhouse and Downtown SL: Rents at $2.00/sq. ft. -New projects not affordable by average renter -Shortage of affordable units -1 st time homebuyers are strapped for cash -Slower household formation -Historic shift away from buying towards renting -US homeownership rate is at 20-year low; from 69% in 2004 to 64% in 2014 -Utah’s population expected to double by 2050 -Since 2007 the median household income has fallen by 7 percent when adjusted for inflation. -Large players entering SFR market ( American Homes 4 Rent, Blackstone, Colony American Homes) -2 Subgroups of renters -Millenials: 25-35 yr. olds; smaller units, mobility, public transport, homeownership not important -Do not want a house, 2 cars, a picket fence, and a long commute -Boomerang baby boomer parents: living with adult children’s households Source: Utah Economic and Business Review www. bebr.business.utah.edu

23. Building Your Portfolio A Roadmap to Financial Freedom John Jonkman jonkmanj@cs.com Ph/txt: 801-262-3296 Salt Lake Real Estate Investors Association 10 June, 2015 copyright: 2015. John Jonkman