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Will Spike in Property Values Mean Higher Taxes?

There’s no question that home values in and around Boise, have been on the rise. Just about anyone can attest to the hot market here in Boise, whether they’re from Treasure Valley, the West coast or the County Assessor’s office.

 

The question homeowners ask is about their property taxes. That figure doesn’t hit mailboxes until the end of the year, but the property assessment notices are heading our way now and they are a big part of the equation.

 

You may recall the days when assessed values seemed to lag behind market values.

 

The operative word of today is accuracy. The Ada County assessors are mandated to be within plus or minus 10% of the true market value at end of the year, and their data says they’re getting close, but closing a gap. And that gap likely got bigger last year by steps taken to reduce taxes during the pandemic, which is something that Idaho did, where other states did not.

 

“A $60,000 - $80,000 increase in single family home values is not unheard of,” said Dan Curtis, from the Ada County Assessor’s office. His office struggles to keep pace, has some new assessors on staff, and is willing to address any inevitable errors that arise in their value numbers.  Ada County includes Boise, Eagle, Garden City, Kuna, Meridian, and Star.

 

When you receive your assessment notices, here are some steps to take.


1. Remove jaw from floor.
2. If you think the value is above your true market value, immediately start steps for an informal appeal.
3. If you are not sure, contact your agent at Boise Investment Properties,who can help you determine if it is, and help provide data to support an appeal.
4. If you wish to play an active role in the impact this will have on your property taxes, attend the budget hearing meetings listed on the back of your assessment notice.

 

The Tax Formula

Property Taxes = Assessed Value x Levy Rate.
Assessed property values are a key part of the formula that’s used to create your property tax bill. The other part, the levy rate, is determined by the budget hearings, where they figure out how much money they need. Those hearings are public, although few attend.

 

The Assessed Value Appeal

Gather supporting sold property comps and adjust for time to 12/31/2020.
Your real estate agent at Swope Investment Properties can help with that. Call the assessor listed on your assessment notice.
Informal appeals may be advantageous, but should be done early.
June 28th is a firm deadline for any appeal, formal or informal.

 

Estimated Ranges for Assessed Value Increases in Ada County


1 unit/single family: 10-40% increase with a 25%-28% median. Older properties could reflect larger increases due to wider gap to close. Be sure to file for Homeowners and Circuit Breaker exemptions, if eligible.

 

2 -4 units/multi-family: 10-40% increase with a 30% median for duplexes, and 20% median for triplexes and 21-22% median for fourplexes.

 

5+ units/multi-family: 27% median increases in values with some as high as 45%+. These apartments are being reappraised this year, for the first time since 2016. Their rent study shows a 1% spread between market and current rents. With appeals, they’ll ask for trailing 3 year and January 1st rent rolls, said Craig Church.

 

Industrial: 27% median increase

 

Office: 10% median increase

 

Stacy McBain, Association Broker, Swope Investment Properties

Your Boise Investment Properties Team

 

 

Strong Rental Market Continues to Push Prices

As rents continue to increase in the Boise area, Ada County fourplex prices continue to increase.  April 2021, was a big month for fourplexes, with nine sales, of which included 7 in Boise, 1 in Meridian, and 1 in Kuna.

 

Double click the image to enlarge the graph, or call us for a full explanation of the data and what it means for your fourplexes value.

 

 

 

 

Average Fourplex Price:  Year-to-date average sales price for four plexes within Ada County, which consists of Boise, Meridian, Kuna, and Star is nearly $200,000 per rental unit.  Two fourplex share the high this year at sales prices of $900,000 each.  One was located in SE Boise and the other was in NE Boise.

 

Price Per Square Foot:  Investment properties are rarely valuated by a price per square foot.  We track the data solely for trending purposes.  Investment properties prices in Boise continue to increase, and it’s no surprise to see the price per square foot trending upward as well.

 

Gross Rent Multiplier:  Is the ratio of the price of the real estate investment to its annual rental income before accounting for expenses such as property taxes, property insurance, and utilities.  For a prospective real estate investor, a lower GRM may represents a better opportunity.

 

The GRM is useful for comparing and selecting investment properties where depreciation effects, periodic costs (such as real estate taxes and property insurance) and costs to the investor incurred by a potential renter (such as utilities and repairs) can be expected to be uniform across the properties (either as uniform values or uniform fractions of the gross rental income) or insignificant in comparison to gross rental income. As these costs are also often more difficult to predict than market rental return, the GRM serves as an alternative to a measure of net investment return where such a measure would be difficult to determine.

  

The current trailing 6-month average GRM is 205.  As an example, if you have a fourplex that you want to sell with gross monthly rents of $4,100, value using Gross Rent Multiplier, would just a value of about $840,000.

 

Today, it is quite common for GRM to be quoted by real estate professionals using annual rents rather than monthly rents. A 205 GRM (monthly rents) = 17.08 GRM (annual rents).

  

The common measure of rental real estate value based on net return rather than gross rental income is the capitalization rate. In contrast to the Gross Rent Multiplier, the cap rate is not a multiplier but a rate of annual return.

 

Capitalization Rate:  The trailing 6-month average for cap rate is currently 4.12%, but the trend has been sub 4 cap.  The capitalization rate (also known as cap rate) is used in real estate to indicate the rate of return that is expected to be generated on a real estate investment property. This measure is computed based on the net income which the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage. It is used to estimate the investor's potential return on their investment in the real estate market.

 

While the cap rate can be useful for quickly comparing the relative value of similar real estate investments in the market, it should not be used as the sole indicator of an investment’s strength because it does not consider leverage, the time value of money and future cash flows from property improvements, among other factors. There are no clear ranges for a good or bad cap rate, and they largely depend on the context of the property and the market.

 

We will continue to follow and measure the Boise investment property market.  Feel free to contact us with any questions.

Boise Hits Record Low Rental Vacancy

The SW Idaho Chapter of NARPM just released its 1st quarter vacancy survey and the results are record breaking.  The data collected indicates that the trends in Ada (Boise, Meridian, Kuna, Star, and Eagle) & Canyon county vacancy rates have decreased by 3.47% from the 1st quarter of 2020 to the 1st quarter of 2021. This is the lowest point vacancy rates have been reported in over 15 years that the SW Idaho Narpm Chapter has been collecting data. 

Melissa Sharone, with First Rate Property Management states that the company's average vacancy of the past 6 months is half of one percent for the past 6 months and sees that trend continuing. Currently the only vacancy that First Rate is experiencing is the time that it takes to get the turnover completed, which is about 5 days.  Our average days on market right now is 10 days which is also at an all time low and 20 days prior to the current tenant vacating that same rental. 

Ada County single family market rental rates increased this quarter by $105.00 per unit in monthly rent cost. While multi-family units in Ada County increased by an average of $46.00 in rent per month in the 1st quarter of 2021.  The high demand and low supply is continuing to support rental increases across the board.  First Rate Property Management expects the rental market to continue to strenghen into the 2nd quarter.

To see the full report, please vits First Rate Property Management's website  2021 NARPM Vacancy Survey

 

Considering Refinancing you Investment Property?

 

When financing an investment property with five units or more, the investor looks to commeciail lenders.  For those of you with rental properties with 4 units or less, such a fourplex or duplex, you will obtain a residential loan.  Here is what is happening in the commercial lending world.

 

For the past 12 months, T Bond Yields have been at historic lows.  How low you may ask…so low that T Bond Yields had never seen such low yields for the entire 230 year history of US T Bond yields.

 

In 1791 under Secretary Hamilton, the US assumed the Revolutionary War debt of the Colonies and confederation of States.  To pay the debt the US issued Treasury bonds at a yield of 3%.  

In the ensuing 230 years the T Bond Yield was never as low as we’ve seen in the past year.  

 

The Good News: On Tuesday (2/16/21) the 10 Yr T Bond Yield was at 1.30%.  

 

The Bad News:  In August (8/4/20) we saw a historic low yield of 0.52% 

 

Half Full - T Bond Yields are and have been in the lowest range ever seen by anyone currently alive.

 

Half Empty - Rates have more than doubled since the August low.

 

This begs the question:  Will rates continue to trend upward as they have since August?

 

The Answer:  Don’t believe anyone who proposes an answer.

 

The Black Swan is circling the US and world economies.  Last year the Black Swan brought the Pandemic.  This year the Black Swan is in flight but no one knows what unforeseen event is in the clutches of its claws.

 

Some think they see inflation in its claws.  Inflation fears are rising, but the Fed wants inflation to rise.  Fed Chairman Jerome Powell, Janet Yellen (Hamilton’s successor) have cautioned that inflation could accelerate for a time in coming months as the country opens up. But Powell and many private economists believe this will be only a temporary rise and not a sign that inflation is getting out of control.

 

Rush for the Exit:  Last year many lenders moved wholly or partially to the Exit. They viewed current yields as too low to compensate for the risk of investing in real estate.  That reaction was exacerbated by Pandemic influence on tenant capacity to pay rent.  

 

Fortunately many lenders have dipped their toe back into the lending market.  

 

Pick your Poison:  Lenders have to make a choice:  invest in a risky low yield stock market or invest in a risky low yield real estate market.  Fortunately, real estate mortgage investment is again seen as a viable place for lenders to place money.

 

If you own a commercial property or an apartment complex that requires commercial financing, we always suggest speaking to Boise's own, Jack Harty, with Harty Mortgage Advisors.  He's about as smart as they come.  Jack's contact information is below.

 

Jack Harty
HARTY MORTGAGE ADVISORS

950 W. Bannock St - Ste 420
Boise ID 83702
Mobile:  208 863 0655
Email:    jharty@harty.biz

 

Your Boise Investment Properties Team

Tony A Drost, Associate Broker, Swope Investment Properties

Stacy McBain, Associate Broker, Swope Investment Properties

Boise Hits 15 Year Low Vacancy

The Southwest Idaho Chapter of the National Association of Residential Property Managers, just released the 4th quarter, vacancy and rental survey results.  The data collected indicates that the trends in Ada, which includes Boise and Meridian, and Canyon county vacancy rates decreased by 2.96% from the 4th quarter of 2019 to the 4th quarter of 2020. This is the lowest point vacancy rates have been reported in over 15 years that the SW Idaho Narpm Chapter has been collecting data.

Ada County single family marketed rental rates increased by $142 per unit in monthly rent cost. While multi-family units in Ada County decreased by an average of $35.00 in rent per month in the fourth quarter of 2020. The overall marketed rent per unit increased by $42 in Ada County making the average marketed rent rate $1438 per month. One bedroom and studio multifamily units decreased during the 4th quarter of 2020 by $163. The largest increase in rent rates in Ada County was in pricing of available 3 and 4 bedroom homes increasing $138 per month on avarage for Ada County 3 bedrooms and $264 per month in 4 bedroom home pricing.

In Canyon County rental rates were marketed at an increased overall monthly rate of $120 putting the average at $1236. Single family homes in Canyon County had the largest increase in marketed 4 bedroom single family homes, where monthly rents increased $303 per unit and multi family units increased an average of $90 per unit, the 1 bedroom and studio marketed rents only increased an average of $2 per unit.

 

 

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