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.