Value add opportunities under new Boise Zoning code create cashflow opportunities.

[Robert Frazier]

In December 2023, the Boise City Council approved a vast rezone of almost all land types across the city. This increased the average density by 50% and opened up opportunities for multifamily and ADU to be built on almost all residential zones.

In a situation like this, new opportunities are bound to present themselves to homeowners and to investors. As we underwrite, new, small multifamily developments, and lot splits we are seeing that there are cash flow rental opportunities that we’re not there before.

 New opportunities are bound to present themselves to homeowners and to investors. As we underwrite, new, small multifamily developments, and lot splits we are seeing that there are cash flow rental opportunities that we’re not there before.

For example, a 1200 square-foot house on a .2 acre lot is now able to be turned into a 2, 3 or four unit small multi family with opportunities even to add an ADU to the back of the property. An investment of just $450,000 for the land and the 1200 square-foot house now has the possibility of creating two or three more units of housing cash flow as a rental and force equity of two or three times the initial value.

I found that most investors are not paying attention enough to the zoning and opportunities available to each property. When we look at zoning and we see the density available, it starts to open up new possibilities for creating housing that is somewhat affordable and also building low cost units for example a second story edition could cost as little as $180-$200,000. This would be the lowest cost unit available within most midsize cities across America.

Where are you seeing zoning opportunities for redevelopment and additional units in single-family home zoning across America and how are you taking advantage of it? I love to work with investors to develop small infill parcels and help them find rental properties across the Treasure Valley in Southwest Idaho. Looking forward to connect.

[Zachary Deal]

Thanks for flagging Robert! I visit Warm Lake, Idaho every year (2.5 hrs north of Boise) and have seen Boise transformed over the last 25+ years. It's an amazing city and very underrated rental market in my opinion!

[Dan H.]

Ca has been passing statewide ADU laws for the last half dozen years. Most years a few new laws are being passed.

Adding a single ADU in southern CA is typically a poor investment. Small unit in small unit count is the most expensive development. In most single family zoned areas, a single ADU has a value far less than the hands off cost to develop it. They even have a value add less than performing a garage conversion. This initial negative position can consume years of the small real cash flow (when using realistic expenses). It explains why very few flippers are adding single ADUs and if they are they are usually a conversion of exhisting habitual space (bunk houses, detached offices, workshops, craft rooms, etc.

Some jurisdictions are taking the statewide ADU rules and going much further extreme. This land was from my initial protege. I told him I am glad I did not live on that street. https://www.cbs8.com/article/news/local/working-for-you/new-...

In these extreme cases there is money to be made like most large development. But for the homeowner adding a single ADU, they likely have far better investment options. They need to do all their due diligence including understanding the value that will be added by the ADU, the finance options available, the consequences of adding the ADU (rent control, property taxes, rental limitations, etc), etc.

Good luck

[Robert Frazier]

Quote from @Dan H.:

Ca has been passing statewide ADU laws for the last half dozen years. Most years a few new laws are being passed.

Adding a single ADU in southern CA is typically a poor investment. Small unit in small unit count is the most expensive development. In most single family zoned areas, a single ADU has a value far less than the hands off cost to develop it. They even have a value add less than performing a garage conversion. This initial negative position can consume years of the small real cash flow (when using realistic expenses). It explains why very few flippers are adding single ADUs and if they are they are usually a conversion of exhisting habitual space (bunk houses, detached offices, workshops, craft rooms, etc.

Some jurisdictions are taking the statewide ADU rules and going much further extreme. This land was from my initial protege. I told him I am glad I did not live on that street. https://www.cbs8.com/article/news/local/working-for-you/new-...

In these extreme cases there is money to be made like most large development. But for the homeowner adding a single ADU, they likely have far better investment options. They need to do all their due diligence including understanding the value that will be added by the ADU, the finance options available, the consequences of adding the ADU (rent control, property taxes, rental limitations, etc), etc.

Good luck

 As with all things, it depends on the investor and the equity.

If they are able to leverage existing equity to buy it under a HEL or HELOC, then they are adding equity with no out of pocket expenses, and adding immediate and longterm cashflow to existing stock.

We like ADU's because there isn't more land being created in our city that is landlocked...but there is more density available to those with large lot under-utilized sfh.

[Robert Frazier]

Quote from @Zachary Deal:

Thanks for flagging Robert! I visit Warm Lake, Idaho every year (2.5 hrs north of Boise) and have seen Boise transformed over the last 25+ years. It's an amazing city and very underrated rental market in my opinion!

 I love Warm Lake. I grew up going to a camp there every summer.

Boise has a lot to offer in terms of rental market, especially in equity growth. One of the best.

[Dan H.]

Quote from @Robert Frazier:

Quote from @Dan H.:

Ca has been passing statewide ADU laws for the last half dozen years. Most years a few new laws are being passed.

Adding a single ADU in southern CA is typically a poor investment. Small unit in small unit count is the most expensive development. In most single family zoned areas, a single ADU has a value far less than the hands off cost to develop it. They even have a value add less than performing a garage conversion. This initial negative position can consume years of the small real cash flow (when using realistic expenses). It explains why very few flippers are adding single ADUs and if they are they are usually a conversion of exhisting habitual space (bunk houses, detached offices, workshops, craft rooms, etc.

Some jurisdictions are taking the statewide ADU rules and going much further extreme. This land was from my initial protege. I told him I am glad I did not live on that street. https://www.cbs8.com/article/news/local/working-for-you/new-...

In these extreme cases there is money to be made like most large development. But for the homeowner adding a single ADU, they likely have far better investment options. They need to do all their due diligence including understanding the value that will be added by the ADU, the finance options available, the consequences of adding the ADU (rent control, property taxes, rental limitations, etc), etc.

Good luck

 As with all things, it depends on the investor and the equity.

If they are able to leverage existing equity to buy it under a HEL or HELOC, then they are adding equity with no out of pocket expenses, and adding immediate and longterm cashflow to existing stock.

We like ADU's because there isn't more land being created in our city that is landlocked...but there is more density available to those with large lot under-utilized sfh.

In my market, it typically costs $2 to add less than $1 of value on single build ADUs.  Even if the rate was 0%, that is not the type of investment I seek.  The cash flow borrowing full cost via heloc will be marginal, possibly even negative if using realistic expense estimates (I.e. something near the 50% rule).  

In larger volume, you can get better return.  Someone tackling that type of development effort can achieve returns without ADU laws.  

good luck

[Robert Frazier]

Quote from @Dan H.:

Quote from @Robert Frazier:

Quote from @Dan H.:

Ca has been passing statewide ADU laws for the last half dozen years. Most years a few new laws are being passed.

Adding a single ADU in southern CA is typically a poor investment. Small unit in small unit count is the most expensive development. In most single family zoned areas, a single ADU has a value far less than the hands off cost to develop it. They even have a value add less than performing a garage conversion. This initial negative position can consume years of the small real cash flow (when using realistic expenses). It explains why very few flippers are adding single ADUs and if they are they are usually a conversion of exhisting habitual space (bunk houses, detached offices, workshops, craft rooms, etc.

Some jurisdictions are taking the statewide ADU rules and going much further extreme. This land was from my initial protege. I told him I am glad I did not live on that street. https://www.cbs8.com/article/news/local/working-for-you/new-...

In these extreme cases there is money to be made like most large development. But for the homeowner adding a single ADU, they likely have far better investment options. They need to do all their due diligence including understanding the value that will be added by the ADU, the finance options available, the consequences of adding the ADU (rent control, property taxes, rental limitations, etc), etc.

Good luck

 As with all things, it depends on the investor and the equity.

If they are able to leverage existing equity to buy it under a HEL or HELOC, then they are adding equity with no out of pocket expenses, and adding immediate and longterm cashflow to existing stock.

We like ADU's because there isn't more land being created in our city that is landlocked...but there is more density available to those with large lot under-utilized sfh.

In my market, it typically costs $2 to add less than $1 of value on single build ADUs.  Even if the rate was 0%, that is not the type of investment I seek.  The cash flow borrowing full cost via heloc will be marginal, possibly even negative if using realistic expense estimates (I.e. something near the 50% rule).  

In larger volume, you can get better return.  Someone tackling that type of development effort can achieve returns without ADU laws.  

good luck

Here in Boise, I have a client, he is having an ADU put on his property this week:

1 br 1 ba, 448 sq ft. 32 feet long, 14 wide. All in, his cost was $136,000.

In our market with a standalone ADU, the equity would be about 1:1 immediately if he wanted to price and sell the property. 

Cost to borrow on a HELOC right now is about 7.25%, which puts the interest costs at $9860 per year. Lets say $10,500 with taxes. (these numbers would go down significantly with a refi down the line).

Rental income would be $12-14k per year, so your netting $1500-3500 the first year before lowering the interest cost over time and increased rent (rising at 8% per year).

So for $0 out of pocket you get another unit, equity growth(over time), income that grows and you created a unit of housing that didn't exist before. Not bad at all. 

[Dan H.]

Quote from @Robert Frazier:

Quote from @Dan H.:

Quote from @Robert Frazier:

Quote from @Dan H.:

Ca has been passing statewide ADU laws for the last half dozen years. Most years a few new laws are being passed.

Adding a single ADU in southern CA is typically a poor investment. Small unit in small unit count is the most expensive development. In most single family zoned areas, a single ADU has a value far less than the hands off cost to develop it. They even have a value add less than performing a garage conversion. This initial negative position can consume years of the small real cash flow (when using realistic expenses). It explains why very few flippers are adding single ADUs and if they are they are usually a conversion of exhisting habitual space (bunk houses, detached offices, workshops, craft rooms, etc.

Some jurisdictions are taking the statewide ADU rules and going much further extreme. This land was from my initial protege. I told him I am glad I did not live on that street. https://www.cbs8.com/article/news/local/working-for-you/new-...

In these extreme cases there is money to be made like most large development. But for the homeowner adding a single ADU, they likely have far better investment options. They need to do all their due diligence including understanding the value that will be added by the ADU, the finance options available, the consequences of adding the ADU (rent control, property taxes, rental limitations, etc), etc.

Good luck

 As with all things, it depends on the investor and the equity.

If they are able to leverage existing equity to buy it under a HEL or HELOC, then they are adding equity with no out of pocket expenses, and adding immediate and longterm cashflow to existing stock.

We like ADU's because there isn't more land being created in our city that is landlocked...but there is more density available to those with large lot under-utilized sfh.

In my market, it typically costs $2 to add less than $1 of value on single build ADUs.  Even if the rate was 0%, that is not the type of investment I seek.  The cash flow borrowing full cost via heloc will be marginal, possibly even negative if using realistic expense estimates (I.e. something near the 50% rule).  

In larger volume, you can get better return.  Someone tackling that type of development effort can achieve returns without ADU laws.  

good luck

Here in Boise, I have a client, he is having an ADU put on his property this week:

1 br 1 ba, 448 sq ft. 32 feet long, 14 wide. All in, his cost was $136,000.

In our market with a standalone ADU, the equity would be about 1:1 immediately if he wanted to price and sell the property. 

Cost to borrow on a HELOC right now is about 7.25%, which puts the interest costs at $9860 per year. Lets say $10,500 with taxes. (these numbers would go down significantly with a refi down the line).

Rental income would be $12-14k per year, so your netting $1500-3500 the first year before lowering the interest cost over time and increased rent (rising at 8% per year).

So for $0 out of pocket you get another unit, equity growth(over time), income that grows and you created a unit of housing that didn't exist before. Not bad at all. 

 Let’s project realistic expense estimates via the 50% rule:

$12k rent / 2 (50% rule) - $19332 P&i = negative $13332/year or negative $1,111/month.  

That is huge negative.  If we use your interest only numbers:

$12k / 2 (59% rule) - $9860 = negative $3860/year or negative $321/month. 

>the equity would be about 1:1 immediately if he wanted to price and sell the property. 

Can you provide an address where you believe a refi appraisal valued a single ADU addition at the same cost as the hands off addition. This is contradictory from what I see locally and what I have been told by multiple national lenders.

There are far better investment options. In addition, adding an ADU is a lot of work. Likely more than most brrrr, but with an ideal brrrr I can make infinite return. In addition, the capital outlay starts long before any income and the detracting of something from the primary structure even if it is just yard space.

As indicated, my original protege made a lot of money (over $500k) on a land transaction associated with a large count ADU development. However, this was not adding a single ADU. https://www.cbs8.com/article/news/local/working-for-you/new-...

In large counts, there is money to be made in ADU additions. In single count, the ADU development costs are too high to typically not have a negative initial equity position

Good luck

[Robert Frazier]

Quote from @Dan H.:

Quote from @Robert Frazier:

Quote from @Dan H.:

Quote from @Robert Frazier:

Quote from @Dan H.:

Ca has been passing statewide ADU laws for the last half dozen years. Most years a few new laws are being passed.

Adding a single ADU in southern CA is typically a poor investment. Small unit in small unit count is the most expensive development. In most single family zoned areas, a single ADU has a value far less than the hands off cost to develop it. They even have a value add less than performing a garage conversion. This initial negative position can consume years of the small real cash flow (when using realistic expenses). It explains why very few flippers are adding single ADUs and if they are they are usually a conversion of exhisting habitual space (bunk houses, detached offices, workshops, craft rooms, etc.

Some jurisdictions are taking the statewide ADU rules and going much further extreme. This land was from my initial protege. I told him I am glad I did not live on that street. https://www.cbs8.com/article/news/local/working-for-you/new-...

In these extreme cases there is money to be made like most large development. But for the homeowner adding a single ADU, they likely have far better investment options. They need to do all their due diligence including understanding the value that will be added by the ADU, the finance options available, the consequences of adding the ADU (rent control, property taxes, rental limitations, etc), etc.

Good luck

 As with all things, it depends on the investor and the equity.

If they are able to leverage existing equity to buy it under a HEL or HELOC, then they are adding equity with no out of pocket expenses, and adding immediate and longterm cashflow to existing stock.

We like ADU's because there isn't more land being created in our city that is landlocked...but there is more density available to those with large lot under-utilized sfh.

In my market, it typically costs $2 to add less than $1 of value on single build ADUs.  Even if the rate was 0%, that is not the type of investment I seek.  The cash flow borrowing full cost via heloc will be marginal, possibly even negative if using realistic expense estimates (I.e. something near the 50% rule).  

In larger volume, you can get better return.  Someone tackling that type of development effort can achieve returns without ADU laws.  

good luck

Here in Boise, I have a client, he is having an ADU put on his property this week:

1 br 1 ba, 448 sq ft. 32 feet long, 14 wide. All in, his cost was $136,000.

In our market with a standalone ADU, the equity would be about 1:1 immediately if he wanted to price and sell the property. 

Cost to borrow on a HELOC right now is about 7.25%, which puts the interest costs at $9860 per year. Lets say $10,500 with taxes. (these numbers would go down significantly with a refi down the line).

Rental income would be $12-14k per year, so your netting $1500-3500 the first year before lowering the interest cost over time and increased rent (rising at 8% per year).

So for $0 out of pocket you get another unit, equity growth(over time), income that grows and you created a unit of housing that didn't exist before. Not bad at all. 

 Let’s project realistic expense estimates via the 50% rule:

$12k rent / 2 (50% rule) - $19332 P&i = negative $13332/year or negative $1,111/month.  

That is huge negative.  If we use your interest only numbers:

$12k / 2 (59% rule) - $9860 = negative $3860/year or negative $321/month. 

>the equity would be about 1:1 immediately if he wanted to price and sell the property. 

Can you provide an address where you believe a refi appraisal valued a single ADU addition at the same cost as the hands off addition. This is contradictory from what I see locally and what I have been told by multiple national lenders.

There are far better investment options. In addition, adding an ADU is a lot of work. Likely more than most brrrr, but with an ideal brrrr I can make infinite return. In addition, the capital outlay starts long before any income and the detracting of something from the primary structure even if it is just yard space.

As indicated, my original protege made a lot of money (over $500k) on a land transaction associated with a large count ADU development. However, this was not adding a single ADU. https://www.cbs8.com/article/news/local/working-for-you/new-...

In large counts, there is money to be made in ADU additions. In single count, the ADU development costs are too high to typically not have a negative initial equity position

Good luck

 Sounds like you got it figured out. Send me your perfect rental opportunities to invest in.

[Austin Wolff]

During my day job of Market Analysis here at BiggerPockets, Boise, ID consistently comes up as one of the best markets for real estate investors. Its growth rate is intimidating, and my personal interpretation of the data is that the market is actually still undervalued. 

Thank you for posting this. Even I was unaware about this new zoning law. This opens up so much more opportunity than I previously thought possible. Every out-of-state investor should be paying attention to this.

[Josh Havekost]

The tough thing about Boise is that there isn't a huge high dollar labor market. So rents are up but not up as much as property prices and construction costs. It's tough to pencil buying a 550k house that you can rent for $1850. For buy and holds I'm investing out of state.

I have a couple rentals here in Boise and I am subdividing a property near downtown. I think the the value is in the dirt. I think the play would be buying a property that needs some rehab and you can split off a new lot due to new lot sizes and setbacks. Rehab the house while you get lot split approved. A lot of times the house is worth the same as it was before half the land was parceled off. Now you own the new lot outright- you can build yourself or sell it to a builder. Plenty of those options out there right now in my opinion. 

[Robert Frazier]

Quote from @Josh Havekost:

The tough thing about Boise is that there isn't a huge high dollar labor market. So rents are up but not up as much as property prices and construction costs. It's tough to pencil buying a 550k house that you can rent for $1850. For buy and holds I'm investing out of state.

I have a couple rentals here in Boise and I am subdividing a property near downtown. I think the the value is in the dirt. I think the play would be buying a property that needs some rehab and you can split off a new lot due to new lot sizes and setbacks. Rehab the house while you get lot split approved. A lot of times the house is worth the same as it was before half the land was parceled off. Now you own the new lot outright- you can build yourself or sell it to a builder. Plenty of those options out there right now in my opinion. 

 We’re working a few of those opportunities right now.

[Robert Frazier]

Quote from @Austin Wolff:

During my day job of Market Analysis here at BiggerPockets, Boise, ID consistently comes up as one of the best markets for real estate investors. Its growth rate is intimidating, and my personal interpretation of the data is that the market is actually still undervalued. 

Thank you for posting this. Even I was unaware about this new zoning law. This opens up so much more opportunity than I previously thought possible. Every out-of-state investor should be paying attention to this.

I think you’re right. With significant growth (20,000 per year) across the valley, growth in wages and $15B in investments from the CHIPS act at Micron I am bullish long term.

[Josh Havekost]

Quote from @Robert Frazier:

Quote from @Austin Wolff:

During my day job of Market Analysis here at BiggerPockets, Boise, ID consistently comes up as one of the best markets for real estate investors. Its growth rate is intimidating, and my personal interpretation of the data is that the market is actually still undervalued. 

Thank you for posting this. Even I was unaware about this new zoning law. This opens up so much more opportunity than I previously thought possible. Every out-of-state investor should be paying attention to this.

I think you’re right. With significant growth (20,000 per year) across the valley, growth in wages and $15B in investments from the CHIPS act at Micron I am bullish long term.

I'm out on site regularly for that project for my W2 job, there are rumors of it growing in scope too. Some of the NY project happening here instead. A solid 20 years of work on the construction side. 

I think it's a good place to be, man there sure is a lot of multi family inventory coming in the market right now, but I guess it's getting absorbed?