Boise Property Management Blog

Metric Trends

Tony Drost - Thursday, March 7, 2019

We continue to see Ada County 4 plex values increasing at a steady rate.  The good news is that rents have been increasing as well.  According to the financial information on the Intermountain Multiple Listing Service and financials provided by listing agents, February's Gross Rent Multiplier (GRM)  dropped to 143 from 149 in January.  Compared to sales price, rents have increased.  The trailing 6-month average for GRM still remains at about 150.  With the higher rents, February's Cap rate also increased to 5.36 with a trailing 6-month average of 5.29%, which indicates Buyer's Net Operating Income has increased when compared to sales price.



Tony A Drost , MPM® RMP®

Blog I Income Property Sales I Rentals

Chairman, First Rate Property Management, Inc

A Certified Residential Management Company

Associate Broker, Swope Investment Properties

EM:  Tony@FRPMrentals.com

Economy by the Numbers

Tony Drost - Thursday, February 7, 2019

The following post is from Jack Harty, a commercial lender with Harty Mortgage Advisors.


Various observers of the economy see threats to the economy coming from opposite directions for two different and contradictory reasons.  Some think the economy is weakening; others think it is too vigorous and on the verge of excessive inflation.  That puts the economy somewhere between Scylla and Charybdis aka a Rock and a Hard Place.  We have been warned about mutually exclusive risks of impending recession and an overheating economy (read: inflation). 


The ancient Greek economist Homer gave us a graphic depiction of the twin threats to the economy in his epic economic treatise the Odyssey.



Photo:  Scylla (Inflation) on left; Charybdis (Recession) on right.


Those who see higher interest rates in the future can still cling to that vision because some day that prediction will be correct…just not in Q1 2019.


Is the sky falling?

Related image


For those who still cling to the quaint notion that facts-matter, below are some happy facts.


Interest Rates Edge Downward:


The Fed ceased tapping the economy’s brakes in January.  Since November, long-term rates have fallen over 50 basis points (1/2%).


10 Yr T Bond Yield - Past 3 Months:



On January 30 CNBC quoted Fed Chairman Powell:  “The case for raising rates has weakened somewhat,” Powell said during a news conference following this week’s two-day Federal Open Market Committee meeting.

The Fed vowed to take a “patient” approach toward further hikes. Powell added that the funds rate [short-term interest rate] is “in the committee’s” range of a neutral rate estimate, a key measure for the Fed.


Unemployment:


Idaho unemployment number ranks 4th lowest in the nation at 2.6% (as of 1/18/19).  This compares to Dept of Labor (BLS) numbers for the month of January which showed national unemployment rate at 4.0% (based on U-3 measure).


An equally meaningful measure of unemployment rate is the U6 measure, which for December was at 7.6%.  U6 is at a virtual decade low. 


The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts "marginally attached workers and those working part-time for economic reasons." The "marginally attached workers" include those who have gotten discouraged and stopped looking, but still want to work. 


U-6 UNEMPLOYMENT RATE:  2000 - 2018



Labor Force Participation Rate:


In January Labor Force Participation was 63.2%.  It has been in that range for the past 5 years.  Combined with U6 Unemployment, there appears to still be available labor on the sidelines to satisfy labor needs for economic expansion without ginning-up high inflation.


Wage Growth:


Given the ample supply of labor still on the sidelines, it may explain why January average hourly earnings growth was a tepid 0.1%.  In contrast, for the prior 12 months wage growth was 3.3% which is in excess of 2018 inflation of 1.9% (see graph below).  Higher wages in an approximately 70% consumer-driven economy is a good thing.

Industrial Capacity Utilization:


Industrial Capacity Utilization is also a meaningful measure of national economic health.  That number stood at a virtual 10 year high of 78.4% in December.  By comparison, from 1960 - 2000 that rate typically was in the 80% - 85% range.



Annual Inflation Rates (2008 to 2018):

 Currently inflation is <2% - productivity growth (1%) is somewhat mitigating wage growth (3.3%) which has yet to fuel big inflation.

Jack Harty


HARTY MORTGAGE ADVISORS


950 W. Bannock St - Ste 402

Boise ID 83702


Main:   208 344 4141

Email:  jharty@harty.biz

Investment Sales Still Strong

Tony Drost - Tuesday, January 8, 2019

FRPM manages hundreds of fourplexes and I tend to sell more fourplexes than anything else within Ada County (mostly Boise and Meridian), so I gather and report the data.  The trends from the 4 plexes' sales seem to be a good indicator of the Boise real estate investment market.   Below are some graphs to help illustrate my points.  Please note that there were no fourplexes sold within Ada county for the month of November.

Absorption rate:   Is the rate at which available fourplexes are sold.  Currently there is less than one month's supply listed on the MLS.  We have a low supply and the demand continues to be great, so they are selling quickly.  Obviously this is a good sign for Sellers.  It means that new listings are going pending fairly quickly.  So as a buyer, you want to have your ducks in a row.  You will want to be in position to make a strong and clean offer quickly.

Average Price for Fourplex:   Prices continue to creep upward.  In January of 2017 the average was $372,000 and in September of 2018, the average was nearly $600,000.   One could look at the chart and because we saw a drop in October and December, they could think values are dropping.  I don't believe that is the case.  We had a couple older 4 plexes with below market rents sell and skew the data.

Gross Rent Multiplier (GRM):  Is the ratio of the price/value to its monthly rental income.  The current 6-month average GRM for Ada County 4 plex is 152.  I use GRM for a quick ballpark value as there are many more factors in determining actual value.  To illustrate how to use GRM, let's assume that rents are $950 per month per unit. Using GRM, the ballpark value would be $950*4*152=$577,600.  It's not uncommon for Landlords not to push rents.  This is one reason why GRM alone won't determine value.  But it's also a good reminder to potential sellers that if you are planning on listing soon, you should consider getting rents to market before listing.

Capitalization rate:  Is the ratio of Net Operating Income to value/price.  Since 4 plexes are considered residential, cap rate is just one of the factors used by a residential appraisers to determine value.  Comparative sales weigh heavy on Fourplex appraisal valuations.  As you can see, we've had a very slow, yet slight drop in cap rates over the past two years.  This is a good trend in comparison to huge drop we saw in 2005.  Values have continued to rise and they are rising just a little faster than rents.

Average Days-On-Market:  Even in a super-hot market, It's hard to believe the average days-on-market for a Fourplex could be as little as 18 days.  There are a couple of factors here.  We are seeing a fair number of cash deals which can close much faster.  But the biggest factor I see here is new construction.  At least one brokerage is not posting their newly constructed Fourplexes on the MLS until the property is sold, which in affect shows zero days on market.


Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.