LEVERAGING | REAL ESTATE PORTFOLIO
During the supply chain challenged time of 2021, with threats of rising interest rates, one property manager saw opportunity. A couple of years ago, La Mesita Property Management had sold a property in another state, liquidating funds that availed the acquisition of multiple properties in the Boise area. Within a 45-day period, provided by the 1031 exchange, they purchased five properties. J S D A Inc was asked to team with La Mesita as they began the process of becoming landlords, hiring a property manager and understanding the accounting and investment realities of the properties purchased. Many of the properties were older, and as the tenants naturally moved on, J S D A was asked to enhance the properties with their a unique blend of functional and aesthetic ideas to increase rental rate and long term value.
Critical to the maintenance and upgrades necessary, the build dates tend to indicate possible issues. The first property to undergo the construction ‘knife’ was a 1908, very small bungalow near a public park downtown Boise. The home on Union Street had great bones and a tired kitchen. It was a two-bedroom, one bath and the bath was in decent shape. The second bedroom, more like a child’s room had no closet, so that was the first order of business. The original, wood double hung windows were not operable, so we repaired and replaced the chain weights to make them double hanging (where the upper window pulls down for passive air conditioning flow) and the bottom window slides up. We upgraded some cabinetry in the kitchen and improved layout, repainted and finished off interior wood base details. The small square footage made it a better candidate for selling, rather than a rental. It sold quickly.
About a year into their new relationship with a property manager, and after leases were signed with new tenants, the owner noticed that the monthly checks were not coming through from the property manager, Phillips Property Management. After consulting with an attorney, and a little detective work on the part of the owner, it was found that the property manager was not honoring their contract and holding the funds for their own benefit. This was a significant and costly lesson to the new owners, as they were unable to sue for damages. La Mesita hired an attorney and J S D A consulted. La Mesita Properties had valid leases with tenants, so they informed the tenants of the legal debacle and collected the rent payments directly.
The next home to be upgraded was a 1930’s classic two-story well located in the near west end of downtown Boise, a bike ride to the central business district. Upgrades involved new stainless steel appliances, granite countertops, plumbing repairs, new HVAC systems, sprinkler systems, an additional bedroom and even new trees provided by the City of Boise. Several nearly 100 year old Elm trees needed a heavy pruning, and some needed to be removed. The carriage house, the original one car garage was remodeled into a home office, retaining the original gridded glass sliding window adding lighting, exhaust and wall heater. Eventually, this space may become a separate ADU. This property continues to perform well for the owners.
A mid-century modern (1948) property that boasted only 850 square feet presented an opportunity for square footage expansion to the home. When the site plan was surveyed and documented, it was found that the land had some deep right-of-way issues, limiting expansion of the footprint. The open air carport, distinctly 1950s with slatted upper wall and decorative concrete block lower wall set the stage for the period interpretation. Converting a storage room into a heated bonus room, complete with new double hung window provides the added optional room for the teen, home office space or home school. The bonus room is detached, but accessed via a covered patio to the rear of the home. When the renter vacated, who was unfortunately smoking in the home against the requirements of the lease, much had to be done to erase the damage to the home. A fresh repaint, kitchen and lighting upgrade, bath reappointment and wood flooring repairs were completed. New laundry facilities and cabinetry made the kitchen/utility quite functional for the small home. Adding to the floor plan, a new primary bedroom with clerestory and double hung windows, walk-in closet for two and large new bath suite for the new family. Many elements in the construction avoided supply chain issues and maximized sustainability by using upcycled elements, like stainless steel sinks, porcelain sinks and toilet. The creative use of “new” or previously gently used allowed for the pre-staging of all purchased products prior to point needed in construction, advancing the construction schedule.
The decision to add on to the property was wise, taking advantage of limited resources, a thankful general contractor, and products that were less expensive purchased prior to cost increases in the inflationary period that followed. An addition is a large investment, however, the continued solidity of the Boise marketplace assured that the risks were small, and the investment sure to be recaptured. The net benefit of the added bonus room together with the primary bed/bath addition, resulted in a home that almost doubled its square footage with a certain financial return. As a property owner, there are two profit centers- the increased real estate valuation and the monthly cash flow.
Another property, preferred by Micron technology employees is a single-level craftsman three bedroom, two bath home with an extended living room on the south east part of Boise. This residence with two car garage is the epitome of simple, suburban living (built 1980s) with the ease of indoor-outdoor access, and spaces that double the interior square footage with a park-like setting and patio to the north, protected from the warm sun at the south and west at the end of the workdays. It features, like many of the homes, gorgeous original wood floors that make maintenance easy. The light fixtures have an industrial aesthetic, softening the gourmand stainless steel kitchen.
Simple staging made the recent photography look terrific and the new property owners collected their portfolio of images to be used throughout the years. Virtual staging assisted the remarketing of the spaces and saved the client significant costs, and we gained speed to market in leasing the craftsman home only a couple of weeks after the tenant vacated.
The strategic application of soft color palettes, neutrals but not white, show wear and tear less and also contribute to a sustainable overarching idea. Less paint, less labor, less cost and better for the long term maintenance of the property. Appliances were selected for their performance and aesthetic, stainless steel sinks performing well during construction and through the duration of the year-long leases. Wood floors, another long term sustainable solution may require slight repair, but can be done in small sections of the floor rather than large product replacement. Often the damage is not from humans, but from pets. Cleaning and touch up become the necessary routines at the conclusion of each lease. And with the repetition of re-leasing, the increased valuation of the properties adds to the cash flow generated by each tenant making property management quite financially rewarding, particularly to retirees, now invested with a significant equity stake in an estate increasing in value by the day.
Despite this client’s venturing into becoming a landlord with a rocky beginning, the properties have been carefully analyzed and improved for long term performance, ease of maintenance and readyness to sell should that be the strategic plan. J S D A Inc. is an important counsel to the significant (over 50%) increase in value for this investor’s real estate portfolio.
