Boise area real estate and rental management blog
We’ve tracked the Ada County, which includes the cities of: Boise, Eagle, Meridian, Kuna, and Star, fourplex metrics for 17 years now and it’s something we look forward to sharing each month, because they are so telling.
Each metric has a purpose and each trendline helps tell a greater story about the overall market. Unlike the other metrics, Gross Rent Multiplier (GRM) is a good "first look" formula to apply. It is the ratio of sales price to gross rents. Anyone can multiply the gross monthly rent times the multiplier. If gross monthly rents are $5,000 per month and the multiplier is 200, a ballpark value is $1,000,000.
This month, we’re focusing on Gross Rent Multiplier (GRM) and the incomplete messages it may be sending. At a glance at the rising GRM might lead and investor to believe that the sales prices are incrreasing faster than rents. Surprisingly, that’s not actually the case, despite that upward trend line which might suggest otherwise. Rents are increasing rapidly right now. Current rents are generally not market rent, especially in this crazy Boise market.
The reason for this data “discrepancy” starts with events that occurred well over a year ago.
In late March of 2020, the State of Idaho and the city of Boise issued the stay-at-home order. As businesses closed and folks lost their jobs, Landlords became concerned about tenants’ abilities to pay rent. If rent wasn’t paid, how would landlords cover their expenses, such as the mortgage, property insurance, and property taxes? All of a sudden, the notion of collecting some rent, seemed better than taking the risk of receiving no rent. In the midst of a global Pandemic, the term “market rent” was quickly excused.
The Pandemic was affecting us all, and we had to work together to get through it. The Landlords needed rent to cover their expenses and tenants needed a place to live. As a result, many investors and property managers focused on renewing their valued tenants at current rent, or in some cases, at a lower rent through the months of April and into the summer. Most lease renewals were for at least 12-months. As we all know now, the “pause” in Boise, was short lived and the Pandemic and stay-at-home order only fueled the appeal of Boise and the migration continued stronger than ever.
Now, there’s some catching up to do.
We use actual rents when calculating GRM, becuase historcially, many embellished the published market rent within the MLS. In most cases, the actual rents for these fourplexes being sold are far below market rent. Due to what we just described what happened last spring with lease renewals, we’re seeing actual rents around 30% below the current market. When evaluating an investment property, it’s important to use a market rent. That will help bring the GRM back down and balance out the otherwise alarming GRM.
In summary, the Pandemic caused some panic and fear, which locked rents for a year or more. Meanwhile the Boise market exploded and most of the rents for income properties hitting the Boise market today, are far below actual market. Most investors realize this and are applying market rents in their valuations and the inclining GRM is not as concerning.
Your Boise Investment Properties Team
Stacy McBain, Associate Broker, Swope Investment Properties
Tony A Drost, Associate Broker, Swope Investment Properties