Idaho market is on FIRE so what are all the investors doing?

Question

So the great news is that the real estate market in Idaho for single family is on fire and shows no signs of stopping.  In fact it appears that the hotter it gets,the more it attracts people from out of the area.  And as a resident of Idaho for the last 40 years, I can honestly say I have never seen it like this, yes even in 2007 and 2008 it wasn't this hot.  On top of record transactions happening we are seeing inventory at the lowest levels in years and no real silver bullet to fix this.  Not only are lumber prices at 135% in comparison to last year, the PNW is literally on fire while Canadian lumber industry is being devastated by the pine beetle and labor is nowhere in site because rental supply is non-existent.

So if you are selling to actual home owners, you are up to your eyeballs in buyers and y'all are chasing sellers with multiple offers and 4 hour pending on listings becoming the norm. Multi family has been a rare find for the last 3 years here in Idaho and what does hit the market is not pretty. So what does that mean for investors trying to deploy capital? What are you seeing with the opportunities for cash flow? What is happening to the seller who bought in 2011 sitting on a pile of undeployed equity? Is everyone just standing around and clamoring about the need for product in an asset class overburdened with buyers or are people doing different things?

Inquiring minds want to know!

Cody Stone · Answer

I get it, those with cash sitting on the sideline want to invest. They see Boise area with these huge appreciation gains and want to cash in. The fact is that I know investors who are buying for negative cashflow, willing to take a loss every month to realize their gains with appreciation. aka gamblers. Locals are getting priced out on rent and purchases. They are moving to the outlying areas. Once the mass migration from the densely and cyclical areas comes to an end, prices will become realized.

Shannon Robnett · Answer

@Caleb Brown  Those are all great points and sound advice.  The current market in Boise Idaho is 1/2 the inventory of your market in Kansas city and houses go multiple offers in a matter of hours in our current market.  Besides that we have seen about a 25% uptick in property values this year from what I have been told.  Its crazy here in Idaho right now.

Caleb Brown · Answer

I think many markets across the country are in the same boat. Here in Kansas City it is the same story. The market supply is around 1.4 months here(anything under 6 is a sellers market). What I have been doing to find deals for my clients is...

1) Cold call/cold text to find multi family/commercial from 2-100+ unit places. Having inventory not on MLS is valuable.

2) Be the first to offer or find MLS deals. I very diligently look through and find the deals before they sit for a day.

3) Connecting with wholesalers or other players to have deals before anyone sees them.

The biggest thing I have learned in hot markets is being creative. Can't only rely on the MLS, off market is where you can find MANY deals.

Shannon Robnett · Answer

@Cody Stone If you would ever like to know more about syndication of MF and industrial deals in Idaho for excellent cash flow lets chat I am always available to share what I know.  Making Idaho a better investing community is always a priority of mine.

Jonna Weber · Answer

Hi @Shannon Robnett Some of our Boise sellers are opting for smaller markets,  others are building new construction.  Interesting market for sure!  Buyers here need to be proactive like never before.   If a seller wants to move up in this market, they typically are pleasantly surprised with their new payment because the low low interest rates afford more buying power, and they can get more for their current home than anticipated. It's a challenging but fun time to be helping our clients with strategy on what is best for them.

Shannon Robnett · Answer

I agree @Jonna Weber that investors are finding more value in new construction when looking for something for an investment.  @Anna Strausbaugh This is exactly the pivot I am speaking of.  There is increasingly less cash flow in existing but everyone is still clamoring for it without looking at the rather lucrative returns in building new MF in our market.  We have built several MF projects and have several more slated to start this year but its very rare to hear of someone playing the development game as a single buyer.  While a lot people chase after low returns rather than "miss out" even more look, see the state of the market and then do nothing because of the state of things.

I am always glad to see the entrepreneur spirit is still alive in some that are actively trying to find good deals in the market by pursuing new avenues instead of just flogging you poor realtors to find the non existent 6 CAP.  Hopefully you find more of these problem solving type that want to explore a nontraditional route.  And if they need any help I would love to be of assistance in that arena.

Shannon Robnett · Answer

@Justin Thorpe  DId I leave out the retirees?

https://idahobusinessreview.co...

Justin Thorpe · Answer

@Shannon Robnett

Thanks for the insights. Good to know there is job creation. That is key.

In the end a place can only sustainably grow RE prices if there is a pick up in local economic activity, via setup of new businesses leading to rapid and sustained job creation or if there if it is turning out to be an attraction as a retirement town.

In my opinion, Everything else that might be driving prices up is either speculation or very transient.

Shannon Robnett · Answer

@Justin Thorpe Historically was have struggled in Idaho from a perceived cost of living approach.  And what I mean by that is someone living in Seattle looks at moving to Idaho but taking a 30% wage cut finds it hard to stomach, even when overall cost of living difference city to city was really closer to 40% difference with housing and taxes figured in.  But as more and more make the move regardless of wage disparity and finding out they are actually afforded a better quality of life, then they tell their friends and family.

We have  been on a steady increase in our local economy for quality of life, affordability and yes more importantly job growth.  As we have continued to see areas around Idaho become less and less affordable and desirable to live and raise a family in a more suitable environment AND working remotely become a "thing" over the last 24 months the traffic has increased.

We are also a very land lord friendly state and when Cap rate compression in the surrounding states has pushed into the questionable range people have looked elsewhere and found us.  For instance 36 months ago you could still find some MF and cap rates in the high 5's low 6's while CA sat at a solid 4%.  So we have seen a migration of smaller investors willing to venture out.  Also we have seen REIT's like Kennedy Wilson come into the market and begin to build and hold large apartment complexes that has brought national attention from other large multi family players.  I have heard of existing value add MF with a decent remodel needed going for sub 5 cap.  And new product going even higher.

Throw in COVID and you have added gas to a roaring fire and we have seen!  Its a spicy meatball!!!

Justin Thorpe · Answer

@Shannon Robnett

What is causing this fire? Is there massive job creation in the local economy or something else that is driving it?

Idaho market is on FIRE so what are all the investors doing?

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