How do you know if an investment property in the Boise rental market will be profitable? This is a question that even experienced real estate investors grapple with when they’re identifying opportunities and preparing to make an offer.
A number of formulas are available, based on the cost of the property as well as the projected income and expenses. You’ll want to dig in a little deeper, however, and take into consideration location, property condition, and the trends in the current market. By knowing your own investment goals and surrounding yourself with professional experts, you can be sure you’ll spot a profitable Boise investment property.
What We Mean by “Profitable”
Many investors make the mistake of thinking that rental properties are only profitable when they have cash flow. Obviously, you want to own rental homes that generate positive returns and real monthly income. However, there are other ways that rental properties can prove their own profit.
Consider equity capture. This is instant equity that’s earned as soon as you purchase a property. If it immediately becomes more valuable, you’ve got a profitable rental property. With the market as strong as it is and home values increasing quickly, you’re likely to have some equity capture soon after closing on a good Boise rental property.
You also need to think about profit in terms of your mortgage. When a tenant is paying down that loan, you’re making money. The asset stays with you, but it’s being paid for by someone else. So, a Boise rental home that attracts great, long-term tenants and enjoys low vacancy and turnover rates will be incredibly profitable.
Financial Formulas to Predict Profitability
Most investors, when evaluating a potential rental property, will use the one-percent rule or study the cap rate.
The one-percent rule is simple math. It says that a property should rent for one percent or more of its total upfront cost. So if you pay $250,000 for a property, it will be profitable if it earns $2,500 a month.
The cap rate helps you calculate a property's potential return on investment. You’ll divide the property’s net operating expenses by its purchase price. Multiply the cap rate by 100 to find the percentage of your potential returns on the property. If that number is what you want, you’ve got a profitable rental property.
Evaluating Boise Rental Property Investments
There’s more to evaluating a rental property for potential profit than running numbers. You should also consider the following:
- Rental property location. You want a healthy neighborhood with high occupancy rates and proximity to schools, shopping, and entertainment.
- Rental property condition. Don’t buy something that will require a lot of time and resources. That will only delay how quickly you’re able to rent it out, limiting what you earn.
- Curb appeal. Prospective tenants will want to rent properties that look desirable from the outside.
- Strong local economy. People live where there’s a possibility for employment. Your rental home won’t be profitable if the pool of tenants begins to shrink.
As you’re evaluating whether or not to invest in a Boise rental property, talk to a local property management company. We work with all types of rental homes and a diverse pool of tenants. We can help you estimate how much you’ll earn in rent, how long it will take to find a tenant, and what kinds of renovations or updates may be necessary to prepare it for the rental market.
We’d be happy to help you decide which property is worth your investment dollars. Contact us at Wave Property Management.
Wave Property Management is a full-service leasing and management company serving Boise as well as nearby communities such as Meridian, Garden City, Nampa, Mountain Home, and Caldwell. We work with new rental property owners as well as established investors with growing real estate portfolios.