Financial Analysis For Buy & Hold In Boise Area

11 Replies

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?

@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.

Great job on doing your research and seeking wisdom! You've clearly demonstrated you're off to a good start.

Boise is not my market, however if you start looking into multi-family you may find a higher ROI.

Good Luck!

@Kristopher Derentz

Good work!

As @Nathan Carter stated, the market here (especially SFH) is insane. I have only found a few true buy & hold opportunities in the past year. I base my purchase decision on true cashflow and do not factor appreciation in that calculation.

MLS deals are just not happening as retail buyers are paying over asking even for serious fixers. The flipping opportunities that existed 3-5 years ago are seldom found there. Auctions, once a haven for cash buyer investors, are also getting over reasonable retail.

Off market deals are what I have to focus on and they are out there.   Takes a lot more work than it used to in finding deals, but you can.

If you are set on finding cashflow, there are duplex, triplex and fourplex opportunities occassionally that often yield good returns.  Cost of entry is higher and not sure how that fits your situation.

You might also consider joining into an investment pool.

I believe rents are adjusting upward now (evidenced in statistics for Ada & Canyon) and rental inventory is below market needs.

Back to sales prices of SFH in the Treasure Valley ... I believe we will see considerable change in the marketplace in about 18 months. Cash will be king again -- both BRRR and flip opportunities will re-surface. Creative financing solutions will also be possible again that are not effective in today's market.

Sorry, this response rambled all over ... just thinking aloud.

I have this conversation every day.

@Kristopher Derentz , I have to agree with your experience so far. I've been saving money, learning and looking in the Treasure Valley for more than three years. When I started looking I didn't know enough and had no money saved, and recently the pickings have been less than slim, so even now with enough money to invest, things just won't cash flow. Now I'm exploring other options such as crowdfunding and REITs for my RE investments. I don't really want to be a long distance landlord, and I'm not moving, so that limits my options. You might be more willing to invest in other markets outside the area - I know others are finding success in different markets. It is an unfortunate situation when you really want to invest in your local area and can't find the deal. Just have to keep saving and looking!

Thanks guys for the feedback. Much appreciated. I also looked at Nevada (I moved to Meridian from Henderson) and it doesn't seem to be any better. It just seems like in sellers markets its very very difficult to make the #s work. 

Are any of you investing in other states? and if you do mind sharing? Or is there anywhere on biggerpockets that is a good are to find markets that the #s do work in? 

Hey @Kristopher Derentz

Have you looked into other cities in Idaho other than Boise or Meridian? I was able to close on a house beginning of April with 16.21% CoC ROI and monthly cashflow of over $300 based off my calculations using the rental property calculator tool. The best part was I had the unit rented in under 72 hours of posting. Reach out if you have any specific questions. I'm a fairly new investor as well as this is our second rental property we've secured for our buy & hold strategy.

The opportunities are out there but you have to be quick. 

Wishing you the best of luck. 

@Steve Allen apologies for dragging you back to this thread so late, but I was interested in your reasoning of why you think the Boise area marketplace with change in 18 months (17 now I suppose).

Is this based solely on the belief that a economic recession is coming soon or are their other factors in play?

https://www.biggerpockets.com/users/TravisD33

My belief in the market changes is based on historical trends in the Treasure Valley and other similar markets.  Most of the seasoned agents I have discussed this with in the first six months of this year concur.

@Steve Allen I couldn't agree more. Went to a Downs auction recently and a strip of 1.25 acres in Eagle with demolition work required went for over 300k. Basically they were purchasing just land. All I can say is the auctioneer and seller had an amazing day. 

What's the (housing) temperature in the Treasure Valley these days?

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