Thinking about buying a Terraine townhome in West Jordan as a rental but not sure how to model the returns? You are not alone. Townhomes add layers like HOA dues, warranties, and rental rules that can shift your cash flow. In this guide, you will learn a practical framework to underwrite ROI with conservative, local assumptions and clear stress tests. Let’s dive in.
Start with your goal and timeline
Before you plug in numbers, get clear on your strategy. Are you planning to rent long term, house hack for a year, or hold and resell in 3 to 5 years? Your answers guide financing choices, rent assumptions, and reserves.
If you plan to rent immediately, confirm that the Terraine HOA allows it. If you plan to live in the home first, your financing and PMI rules may differ from an investor purchase. Set these ground rules up front so your model reflects reality.
Gather the right local inputs
Solid underwriting starts with reliable, local data. For each item, use a primary document and back it up with one corroborating source.
Purchase price and sales comps
Confirm a realistic purchase price using recent comparable sales. Check how the county and MLS classify the property as townhome or condo. Classification can affect insurance scope and HOA structure, so note it in your assumptions.
HOA dues and documents
Request the full HOA disclosure packet. Pull monthly dues, what those dues include, any planned special assessments, reserve study findings, and rental rules. Pay close attention to master insurance coverage, exterior maintenance, and whether water, trash, or pest control are included.
Property taxes
Use the Salt Lake County Assessor or the current property tax bill. If the assessed value trails the purchase price, a conservative approach is to apply the current tax rate to your purchase price and note potential savings if the assessed value remains lower.
Insurance
Ask for an owner’s HO‑6 and liability quote that aligns with the HOA’s master policy. Confirm whether coverage is bare walls or all in. This tells you what interior items you need to insure and helps you budget accurately.
Rent comps and vacancy
Pull 3 to 6 rent comps within roughly 1 to 3 miles. Adjust for bedrooms, size, garage, finishes, age, and included utilities. Choose a conservative rent near the low end of the adjusted range. For vacancy and collection loss, suburban Salt Lake County typically models in the 5 to 10 percent range. Use the conservative end when in doubt.
Financing terms
Collect a current mortgage quote that reflects your plan. Note loan type, loan to value, rate, amortization, PMI rules, and any prepayment penalty. Your rate and down payment will drive cash flow more than almost any other input.
New‑build warranties
If you are considering a newer Terraine unit, get the builder’s warranty booklet. Typical formats include 1 year for workmanship and materials, 2 years for systems, and 10 years for structural coverage. Confirm transferability, exclusions, and any steps required to keep the warranty valid.
Build your base case pro forma
Your base case should be simple, supportable, and conservative. Then you can layer on scenarios.
Acquisition and total basis
Total acquisition cost usually includes purchase price, closing costs, and any immediate repairs or prepaid items. Investors often model closing costs in the 2 to 3 percent range. Add any initial reserve deposit if the HOA requires it at closing.
Income: conservative rent and EGI
Pick a conservative monthly rent based on your comps. Compute gross scheduled rent by multiplying by 12. Then apply a vacancy rate to get effective gross income. If you are stress testing, consider using 7 to 8 percent vacancy to see the impact on cash flow.
Operating expenses
Include every recurring line item you will actually pay:
- HOA dues times 12, adjusted if utilities are included.
- Property taxes using the tax bill or rate times price as a conservative proxy.
- HO‑6 and liability insurance.
- Professional management at 6 to 10 percent of collected rent. Many investors underwrite at 8 percent.
- Maintenance and repairs. For a well maintained, newer townhome, budget a lower figure in early years, then increase over time.
- Turnover costs. Amortize one month of rent every 3 to 5 years.
- Owner paid utilities, landscaping, pest control, and a contingency for HOA special assessments if the reserve study or minutes suggest risk.
NOI, cap rate, cash flow, cash‑on‑cash
- Net operating income equals effective gross income minus operating expenses.
- Cap rate equals NOI divided by purchase price.
- Debt service equals your annual mortgage payments.
- Cash flow before tax equals NOI minus debt service.
- Cash on cash equals cash flow before tax divided by initial cash invested.
These metrics help you compare opportunities and see how financing shifts returns.
Model warranties and capex reserves the right way
New‑build warranties can reduce near term capital expenditures. Do not assume they remove risk entirely.
- Years 0 to 1: Set major capex to near zero and include a small allowance for warranty service. A modest reserve covers minor fixes that fall outside warranty.
- Years 1 to 2: Systems may still be covered, but plan for exclusions and user damage. Keep a small reserve.
- Years 3 to 10: Increase reserves as systems age. Many investors target 1 percent of property value per year in this phase, with a higher figure after structural coverage ends.
- Year 11 and beyond: Escalate reserves or use lifecycle estimates for HVAC, water heaters, and other big ticket items.
A conservative approach is to carry at least 0.5 to 1 percent of property value annually in years 0 to 10 even with warranties. This cushions for exclusions and tenant damage.
Evaluate HOA health and risk
The HOA is a major part of your expense and risk profile. Review these items before you finalize your model.
- Reserve study: Look for the recommended annual funding and the current funded ratio. A low funded ratio increases the risk of special assessments.
- Budgets and minutes: Scan for upcoming projects, insurance changes, or rising utility costs. Note any planned amenity upgrades or deferred maintenance.
- Insurance: Read the declarations page. If the master policy has unusual deductibles or gaps, increase your contingency.
- Rental rules: Some HOAs cap rentals or set minimum lease terms. If capacity is full, your leasing plan may require a waitlist.
If you cannot obtain a current reserve study, model a downside case with a one‑time special assessment and see how it affects cash flow.
Run sensitivity and scenario tests
Stress testing shows you where risk lives and how resilient your returns can be.
What to stress test
- Rent underperformance at minus 10 percent.
- Vacancy increase by 5 percentage points.
- HOA dues increase by 20 percent.
- One‑time special assessment in year 1 or year 3.
Run at least three cases: conservative, base, and optimistic. Keep your conservative case close to what you would accept in a slower leasing season or during nearby construction.
A simple, conservative example
Below is a hypothetical example that illustrates the math. Replace the placeholders with current West Jordan numbers.
- Purchase price: 350,000 dollars
- Closing costs at 2.5 percent: 8,750 dollars
- Immediate repairs: 3,000 dollars
- Down payment at 25 percent: 87,500 dollars
- Monthly HOA: 300 dollars, annual 3,600 dollars
- Conservative monthly rent: 1,900 dollars, GSR 22,800 dollars
- Vacancy at 8 percent, EGI 21,096 dollars
- Operating expenses: HOA 3,600 dollars, taxes 3,200 dollars, insurance 800 dollars, management 1,688 dollars, maintenance 1,200 dollars, total 11,488 dollars
- NOI: 21,096 dollars minus 11,488 dollars equals 9,608 dollars
- Debt at 75 percent LTV, 6.5 percent rate, 30 year amortization, annual payments about 19,764 dollars
- Cash flow before tax: 9,608 dollars minus 19,764 dollars equals negative 10,156 dollars
Interpretation: financing costs and rent levels drive outcomes. Test different down payments, rates, and rent assumptions supported by local comps. Then add warranty adjusted reserves to reflect the townhome’s age.
West Jordan and Terraine specifics to verify
A few local items can tilt returns, especially in a growing community.
- Rental restrictions: Confirm minimum lease terms, caps on the number of rentals, and any owner‑occupancy ratios.
- Ongoing construction: New deliveries in the subdivision can create near term competition or noise that affects rent and absorption.
- Parking rules: Limited parking or strict guest parking can affect demand and turnover.
- Transit and corridors: Proximity to commuter routes such as Bangerter Highway and Redwood Road can influence demand and days on market. Verify any planned projects that might change access or noise.
- Tax classification: Confirm how the county assesses the unit. Some townhomes are assessed like condominiums, which can affect both insurance structure and tax expectations.
Document each assumption in your model and note where you sourced it. If two sources disagree, lean on the most current primary document and seek a second opinion from a local professional.
Quick underwriting checklist
Use this list to move from interest to actionable numbers.
- Pull 3 to 6 rent comps and select a conservative rent for your base case.
- Obtain the HOA packet, reserve study, and minutes. Record dues, inclusions, and reserve health.
- Get the current tax bill or compute taxes using the current mill levy times purchase price.
- Secure an HO‑6 and liability quote that matches the HOA master policy coverage.
- Collect a current mortgage quote. Model both your target LTV and a lower LTV case.
- Build conservative, base, and optimistic scenarios with warranty adjusted reserves.
- Run sensitivity tests for rent, vacancy, HOA increases, and a one‑time special assessment.
- Save sources for each input so you can defend your assumptions.
How Jason J. Real Estate can help
You do not need to underwrite this alone. With local experience across the Wasatch Front and a practical, investor‑friendly approach, you can get support sourcing rent comps, reviewing HOA documents, and building a clear pro forma. If you plan to lease, we can also help you evaluate management options and pricing strategy so your numbers align with the market.
Ready to model a Terraine townhome with confidence? Let’s talk through your goals, your timeline, and the numbers that matter most. Let’s Connect with Jason J. Real Estate.
FAQs
What does the HOA fee usually include for West Jordan townhomes?
- It commonly covers exterior maintenance, common area utilities, and a master insurance policy, with some HOAs also including water, trash, or pest control. Always confirm in the HOA packet.
How should I pick a conservative rent for a Terraine townhome?
- Gather 3 to 6 nearby comps, adjust for size and finishes, and choose a rent near the low end of the adjusted range to create a margin of safety.
Do builder warranties remove the need for reserves on a newer townhome?
- No. Warranties reduce near term capex risk, but you should still carry reserves for exclusions, tenant damage, and items not covered.
What vacancy rate should I use when underwriting in suburban Salt Lake County?
- A conservative approach is 5 to 10 percent, with 7 to 8 percent used for stress testing your effective income and cash flow.
How do I model the risk of a special assessment from the HOA?
- If the reserve study or minutes suggest risk, add a one‑time assessment in year 1 or year 3 as a downside case and see how it affects cash flow and cash‑on‑cash.
Which expenses do investors most often underestimate in townhome underwriting?
- HOA dues increases, turnover costs, and insurance gaps between the HOA master policy and the owner’s HO‑6 are common misses. Build in contingencies and confirm coverage details.
