How Are Investors Making Money In The Boise Market?

Question

The Boise, Idaho market has been on an insane ride the last few years, with prices exploding to levels many people who live and grew up here never thought possible (I remember back in 2006 when I got out of the Air Force, you could get new-construction houses in Nampa and Caldwell for $70-80k).  With cashflowing properties becoming an endangered species here, I was just wondering what strategies people are using to invest in the Boise Metro.  How’ve you pivoted in your investment strategy here, or have you?  What kind of returns are y’all seeing or looking for?

Corby Goade · Answer

@Jason Bohling The treasure valley market is definitely a different beast than most of the markets you'll see people chatting about here in BP- rapidly growing, aggressive appreciation, low vacancy, etc. With all of that going on, usually the cash flow side of things comes in time, but not right away. You can get excellent cash flow and equity here, it just takes a bit of time.

Lots of helpful and good people here in the area that would be glad to help you get rolling. @Stephen Pendl has been doing some really creative stuff, defintely a good resource.

Best of luck!

Corby Goade · Answer

@Stephen Pendl Thanks for the shout out! Been a blast working together!

@Jason Bohling Good question about affordability, many dynamics at play there. The biggest thing we've seen on the PM side is that with Covid, employment has changed, I think for good. Many of our tenants are transplants from other cities with higher paying jobs- they used to have to work in an office and are now 100% virutal. I'm not making any political commentary here, but they are making San Fransico salaries and paying Idaho cost of living. We manage nearly 200 properties right now and all of them are rented at or above market rates and we have zero problems collecting rent on time.

That being said, rents are leveling out right now, the insane appreciaion we saw last year (40% YoY in August) and rent increases (12% in 2020) aren't sustainable and shouldn't factor in to your numbers. However-demand for housing is not going away here, as you mentioned. As long as there is a housing shortage, people will fight for those resources and create demand.

There are two things I'd encourage you to consider while thinking about your investment strategy- one; there is inherent risk in any investment, no matter the deal, the location, etc, your first couple purchases are bound to feel stressful. Heck, I've seen new investors walk away from AMAZING deals because the seller wouldn't make a $500 repair, they just couldn't handle the stress.

Second- renters set rent prices in any market, not landlords. As landlords, we don't just decide to rent something for an insane amount and watch the money start rolling in, if a tenant isn't willing to pay, they place sits vacant, so the tenants decide what is affordable and what is not. We've had sub 5% vacancy in the Treasure valley for about 8 years now- earlier this year it was below 1%. Even with rapidly rising rents, people are moving here and renting properties, it's not stopping anyone. Yes- it's pushing locals out to the suburbs, but that's what happens when any city begins to boom.

Let me know if you have more questions.

Stephen Pendl · Answer

Hi Jason,

What my partner and I have been doing is making high, competitive offers on properties where we can force value. For example, a SFH on a property that’s zoned for two dwellings. We add the second unit, and then it cashflows. With this method, we’ve been able to be competitive with other offers on SFH’s and avoid the overpriced, over competitive investor cash offers on traditional multifamily (2-4plexes). We closed on two deals recently and have been moving forward with city approvals on both, fingers crossed! If all goes well, they will cashflow just as much if not more than if we’d bought duplexes several years ago. Another method to consider is short term rentals to increase rental income. I’m open to chatting if you want to connect! Best of luck to you!

Ryan Myhre · Answer

@Jason Bohling I buy my houses off market.  Occasionally I will get one that I can BRRR although they are hard to find right now.  I have been able to only pick up 2 new rentals this year using this method.

I also get owners to carry.  I might pay market value doing this but I can make sure I structure the deal to cash flow.  As long as I can cash flow a little I am good.  I will make more money on the appreciation (inflation) of the property than I ever will with cash flow.

Third,  I look for properties to buy, fix up and sell but only after I split the lot.  When I do this I can usually get a free and clear lot to build a rental on. Without a lot cost and my company GCing the build I can get a great cash flowing property.

Fourth, I am buying land to build and partnering with my private lenders.  I find the land, my private lenders uses their funds to buy it, I determine what we are building and pay all the permitting and design fees and they will pay for the build.  Once we are done we will refi all our money out and we both recoup our money.  We than split the properties.  For example, I am working on building 10 townhouse.  When we are done I get 5 and my private lender gets 5.

Hope that helps.

Stephen Pendl · Answer

@David Abbate short answer is Yes! But of course there was much consideration and due diligence involved before making an offer and during the time we were in contract. Being familiar with the zoning code (or engaging someone who is ;) ) is key here. For our highest risk deal, a SFH on land zoned for 10 units, we developed a concept design with an architect and complete a pre-app meeting with the city all prior to closing. Not to mention, we had a secret weapon in our corner (realtor @Corby Goade) who kept us very well-protected with how he structured all our offers - highly recommend him and his team.In terms of construction costs, you're right there is much volatility there these days. My entire W2 career has been in commercial construction management, and the approaches we're implementing to lock-in pricing in that side of the industry can be emulated on the small scale multifamily level. Additionally, if bids come in way too high to the point where it's not feasible to turn monthly cashflow right away, an exit strategy is to get the design through entitlements, produce a permit set of drawings, and sell to a larger developer who has the resources to be able to control their own construction costs.Kudos to all for the various creative approaches to adding value to the Treasure Valley community - exciting to see all the positive growth that's happening and it starts with people like you. Cheers!

Account Closed · Answer

Thanks for elaborating on that a bit, especially the "My entire W2 career has been in commercial construction management" part. People looking to get started in REI without any background can end up reading something like that and thinking they can get "creative" without knowing what they are doing... and as I'm sure you know it won't be hard for them to find a realtor all too eager to egg them on.

Jason Bohling · Answer

Thanks, I appreciate it!  Good luck on your 8-plex, hope it works out for you.  Thanks for the advice; I totally agree with you on the specificity aspect.  That's why I'm trying to dial in my plan of attack so I can be hyper focused and avoid the shiny object syndrome...one of the last things I want to do is waste anyone's time.  That's crazy about that house in Kent!  I was stationed at McChord for several years and my wife and I have wanted to move back.  We went house hunting for a new primary residence out in Thurston County/Lower Pierce County a couple years ago and even then, we'd give our agent a list of houses at 4pm to see the next day, and come morning the list would be cut in half because of offers that came in.  We found 1 house we liked out in Lacey and the listing agent told us not to even bother because they already had 12 offers in 2 days come in and they weren't even going to consider a contingent (we had to close on the sale of our house in Eagle, ID before closing on that one).  Hard to fathom a property, investment or primary residence sitting for that long, under value and especially that close to Seattle!

Account Closed · Answer

So you bought before you had a clear greenlight from the city? I hope not

but if so, then my other question might be valid as well. What if the costs on that construction end up not being what you planned. How much room for error do you have to keep that deal from ending up a low or no cashflow "appreciation play".

Jason Bohling · Answer

@Stephen Pendl , @Corby Goade , @Brandon Vukelich , @Ryan Myhre , and anybody else, what are your thoughts on the state of rents and growing unaffordability in the area?  I personally have known several people who have either made the migration from Boise to Kuna, then out to Nampa and on to Caldwell or have moved out of Idaho altogether due to not being able to afford the current market rent.  I met a vet at the VA hospital a few weeks ago who told me he works in Boise but lives in Mountain Home because that’s the closest he could afford (didn’t get into his personal situation, so don’t know his finances, but it appears at least like I’m encountering more and more people getting ‘tapped out’).   What’re y’all’s thoughts on current and future rent affordability for the Boise market and how is that affecting your investment strategy?

Corby Goade · Answer

@Jason Bohling Sure- I'd be happy to help you strategize, that's the fun part! Shoot me a PM and I'll buy you lunch or a cup of coffee, just say the word.

How Are Investors Making Money In The Boise Market?

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