Cap Rates Explained - Boise ID Investment Properties

What is a cap rate? Whenever searching for an investment such as a stock, currency, commodity, real estate, or any other type of investment, typically an important factor is what is my return on investment? If you’re new to the investment real estate game or trying to learn more you probably have not heard of a cap rate or have, but don’t quite understand what it means. This article will discuss what a cap rate is and what a bad cap rate is and what a good cap rate is.

To start, simply put, a cap rate is just a return on investment. It applies to any real estate investment you may be considering and the cap rate will help you determine if the investment is worthwhile. To calculate the return you must take the net operating income and divide it by the price you pay for the property, and then multiply it by one hundred. That will give you the percentage of return for the investment property.

The next question, how do I know what a good return is? Well, the answer to that question is it depends on certain variables. The most important concern for any deal should be that the return is greater than the interest rate of your mortgage. For example, if you have a property that has an 8% return and you are looking at mortgages for the property. It is best to have a mortgage below 8%, ideally the lower the better of course. The reason for this is that if the interest rate exceeds the return, then you are essentially paying for every percentage point past your return on that mortgage. It means you lose money, typically a lot.

Thus, it is best to always have a return that is much higher than the interest, not always possible, but best to aim for it. You probably now can figure out what a bad cap rate is based on what I have just discussed, but I would like to add one thing. We now have established what a good cap rate is and what is bad. This does not mean go and buy any investment property that is less than the return. You must make sure that there is a reasonable safety net, for example an interest rate of 5.8% and a return of 8%.

In the investment real estate business you must realize there is a possibility of vacancies, there are unexpected costs, and more. If any of your costs end up exceeding expectations or you have a vacancy, the property will quickly result in a negative cash flow. Thus, you will be spending money to keep your property a float. In some cases it may be best to work with a partner so there is more cash involved in the deal to reduce risk of losing money in a deal.


The Iron Eagle Realty Team's mission is to assist you, our client, in the sale and acquisition of real estate properties in the state of Idaho, specifically the Boise Idaho Real Estate Market. Whether you are buying or selling a home, whether it is a foreclosure, short sale or equity property, we handle our customers and clients with empathy and honest truths so they can make informed decisions as they advance in the process of buying and selling real estate that meet specific needs.

PS: We've Helped More Buyers and Sellers than 99.8% of any Local Realtor
Click Here to Search 24/7 for The Best Real Estate Deals in Boise!Click Here to Download Our Free "Selling Your Home" Pre-Listing Plan! Click Here to Pre-Qualify for a Loan Online!

Regards, Michael Hon, REALTOR®CEO, The Iron Eagle Realty Team
Associate Broker, Silvercreek Realty Group
Certified Short Sale Specialist®
Investment Property Consultant
Direct: 208.919.0458 Office: 208.939.9033 Fax: 208.514.1422
www.IronEagleRE.com Michael.Hon@IronEagleRE.com

BOISE AMONG WORST PLACES TO BUY A FORECLOSED HOME

Here's great article from the Idaho Business Review by Brad Iverson-Long
Published: February 5,2013


The Boise metro area is one of the worst places to buy a foreclosed home, according to national real estate data company RealtyTrac.

The data company based its finding on measures including the supply of foreclosed homes and the average savings of foreclosures. Local real estate agents say that distinction is a sign that the market is improving, though there are still good deals to be found.

“If we’re the worst foreclosure spot, then we should be rated as the best place and on the rise,” said Craig Zuber, president of Zuber Group Real Estate.

Zuber said the Boise market improved in 2012, with traditional home sales now making up most of the market, rather than foreclosures and distressed sales. That’s also leading to more construction of new homes in the area.

“If you’re in a distressed market, you don’t see sticks in the air,” Zuber said of the new construction apparent in the Treasure Valley. “We do.”

RealtyTrac’s 2012 metro foreclosure report said foreclosures make up nearly one in every six home sales. Foreclosure activity in the Boise area in 2012 was down 28 percent  from 2011 and down 55 percent from 2010. Foreclosures were up in a majority of the top 212 metro areas in the nation. Boise was seventh on RealtyTrac’s list of worst places to buy a foreclosure, behind Salt Lake City; Las Vegas; Ogden, Utah; and cities in Arkansas and Texas.

Boise ranked just 40th on foreclosure activity for all of 2012, based on the percentage of housing units with a foreclosure filing. For December, Canyon and Ada counties led the state in foreclosure activity, both in total number of foreclosures and as a ratio of foreclosures to total housing units.

Florida had eight metro areas in the top 20 nationally in foreclosure rates and places six cities among the 20 best places to buy a foreclosed home.

While the supply and discount of foreclosures may be low, Tim Bassett with West USA Realty in Garden City said foreclosures can still be good for homebuyers.

“A foreclosure property is still your best value, next to a short sale,” he said, though he acknowledged that there aren’t many to buy in the area right now. Bassett said the availability of foreclosure kept prices for conventional homes down, but now home prices are on the rise.

The low supply isn’t unique to foreclosed homes. The Ada County Association of Realtors reports that the inventory of all homes in its market area is at a 12-year low.


The Iron Eagle Realty Team's mission is to assist you, our client, in the sale and acquisition of real estate properties in the state of Idaho, specifically the Boise Idaho Real Estate Market. Whether you are buying or selling a home, whether it is a foreclosure, short sale or equity property, we handle our customers and clients with empathy and honest truths so they can make informed decisions as they advance in the process of buying and selling real estate that meet specific needs.

PS: We've Helped More Buyers and Sellers than 99.8% of any Local Realtor
Click Here to Search 24/7 for The Best Real Estate Deals in Boise!Click Here to Download Our Free "Selling Your Home" Pre-Listing Plan! Click Here to Pre-Qualify for a Loan Online!

Regards, Michael Hon, REALTOR®CEO, The Iron Eagle Realty Team
Associate Broker, Silvercreek Realty Group
Certified Short Sale Specialist®
Investment Property Consultant
Direct: 208.919.0458 Office: 208.939.9033 Fax: 208.514.1422
www.IronEagleRE.com Michael.Hon@IronEagleRE.com