Financial Analysis For Buy & Hold In Boise Area

[Kristopher Derentz]

Hey guys, 

As a newb I am looking to buy my first property. I have spent a LOT of time reading as much as possible and found Brandon Turner's book "The Book On Rental Property Investing" to be one of the best reads so far. Also the Bigger Pockets pod casts have been another great source. With that said it seems like the returns that Brandon and other investors are getting on buy and hold rentals are not possible here in Treasure Valley. For example Brandon in his book and on the pod cast said he shoots for the following:

CoCROI = 12% w/ Appreciation = 3%

When he interviewed David Osborn (Podcast #226), David said he expects a minimum of 15% CoCROI. 

Brandon says that CoCROI is Cash Flow / investment.

Where Cash Flow = Monthly Rental Rate - Mortgage payment, property taxes, insurance, vacancy rate, repairs & main, cap ex, and PM fees. 

Investment = down payment + closing costs 

When I'm doing my calculations on local properties I'm not seeing anywhere near these numbers. Brandon also suggested some rules of thumb in the book such as the 2% rule. The 2% rule is taking the rental rate and dividing it by the purchase price to get a %. If that % is over 2% then the property is worth investigating. When running the 2% test on properties here they work out between 1% on the highest side to 0.7% on average and as low as 0.6%. Looking at REOs improves this a bit but still not close to 2%. 

With that said anyone care to share what they realistically are shooting for with their criteria when investing here? What kind of CoCROI are you guys seeing? Are most investors here basing their investments heavily on Appreciation since prices are averaging over 6% increases annually?

[Nathan Carter]

@Kristopher Derentz I think you are correct in your analysis of Boise.  I have been investing in Boise for about 12 years, mostly after prices dropped dramatically in 2010.   The appreciation since 2010 has been outstanding, but as you point out rents are below 1%.  Home prices have climbed significantly since 2010, as have property taxes, but rents have not kept up in tandem.  In the nicer neighborhoods, near good schools you can find great tenants who will take care of your property, but it is very difficult to cash flow.  If you can find a property that needs work, you can add value and the numbers can be better.  Personally, I think we are due for a price correction in Boise and I am no longer looking to buy.  I am just keeping an eye on prices and sales activity.  I do not factor in appreciation in my returns, it is just an extra bonus.  The numbers should work on their own without appreciation.  It may be a good time to save cash so you can buy when the correction happens or look at other markets that might have better cash flow for your first deal.   Good luck on your search.