Psst! Wanna Hot Deal?
Investors are buying rental homes in unlikely spots like Pocatello, Idaho. Why? Low prices.
Pocatello Prices: (top left) 10 BR, 6 bth, 4,200 sf sixplex sold for $230,000; (top right) 3 BR, 1 bth, 940 sf ranch sold for $69,000; (bottom right); 5 BR, 4 bth, 2,800 sf triplex sold for $120,000; (bottom left) 4 BR, 2 bth, 1,800 sf duplex selling for $130,000
http://www.msnbc.msn.com/id/8598955/site/newsweek/July 25 issue - Until a few years ago, Judy Peterson, a special-education teacher who lives near Sacramento, Calif., had never heard of Pocatello, Idaho. Nor did Peterson, 59, ever expect to own any real estate aside from her own home. But last year, tired of earning mediocre stock-market returns, she cashed in her retirement accounts and spent $120,000 on a three-family house in Pocatello. Then she bought another property. And another. Today, Peterson owns eight rental units in the city, which she's visited just twice. "I have friends who go, 'You did what?' " she says. But with rental income paying the properties' mortgages, she's pleased. "You can't find investments like this in California," she says.
You've heard about the current real-estate boom. You've read about investors who are "flipping" properties in hot markets like Las Vegas or Miami. Maybe you've even participated in a dinner-party discussion of what's becoming America's most tiresome question: will the housing bubble burst or not? Pocatello, a city of 51,000 set in a river valley 150 miles from anyplace you've heard of, seems far from this debate. Home prices there have risen just 22 percent over the past five years, compared with 50 percent nationally; today, the median house there sells for just $98,000. But those low prices and a strong rental market are turning Pocatello into some investors' idea of a can't-miss proposition. Dozens of investors, many of whom heard about the city at real-estate seminars and on the Internet, have begun buying up rental properties. In fact, Pocatello recently ranked third among the nation's cities in the percentage of mortgages being taken out by investors rather than by borrowers who intend to occupy the homes they're buying. Just as some investors bought value stocks during the tech boom, these folks are sidestepping the hot markets to buy low in Idaho—and dream of the upside. But they may be disappointed, especially if vacancy rates or interest rates rise or rents languish.
A strange mix of factors—economic and otherwise—have turned this faraway city into a destination for newbie real-estate investors. Pocatello is home to Idaho State University, whose 14,000 students form a solid base of renters. Some of the area's biggest employers don't pay well enough for workers to buy their own homes, boosting the pool of renters. Compared with other states, Idaho's laws are landlord-friendly, offering swift recourse if a tenant turns into a deadbeat. Even geology plays a part: because of the area's low water table, homebuilders typically dig deep basements, which are often turned into apartments.
Driving through a working-class neighborhood on Pocatello's north side recently, Realtor Greg Johnston shows off typical investment properties. Most are ranches or bungalows of about 1,500 square feet or drab multiple-unit apartment buildings. Some lie in well-kept neighborhoods; others, not so much. Inside a typical unit, conditions are ripe for a kegger: earth-colored carpeting, lots of linoleum, Nixon-era bathrooms. Out-of-staters call Johnston each day looking to buy places like this, but he urges caution, preferring that folks actually visit Pocatello. "Two years ago it was easy ... but now because of all of these out-of-state investors, it's difficult to find a really good property," Johnston says. That demand helped Pocatello home prices rise 2.15 percent in the first quarter—more than they grew all year in 2001 or 2002.
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