For anyone thinking about investing in Idaho real estate, there are multiple potential investments that can work out well.
Real estate investing often has two different objectives:
- The investment should create a positive cash flow, or
- The investment should produce a capital gain when the parcel is ultimately sold
For investors looking for a positive cash flow, a forecast needs to be carefully prepared that includes the potential rental income from the property, the costs of maintenance and any upgrades, the cost of renting the property and any vacancies between tenants, and the costs of the financing involved in the purchase.
For investors that are looking for a capital gain, the investors must predict future prices of real estate in the local market. Planning on an increase in real estate in today’s environment could be risky until the current downturn is complete and we begin to see some appreciation.
Boise real estate parcels that can interest an investor include residences, commercial buildings, or even raw land.
Residences are frequently valued by home buyers with a more emotional appeal - appliances, counters, flooring and landscaping all go into the mix. The investor looks beyond that and frequently will select homes that are not as upgraded. A more basic home can rent for less and be more likely to have a positive cash flow. Keep in mind that upgrades to the home are not completely reflected in the likely sale price. Do not buy an investment and put in expensive new items. Use the least expensive appliances and flooring if necessary and charge a rent that more people can afford.
Idaho commercial real estate is generally valued more as an investment, with income and expenses clearly identified and forecast. Look carefully at the rent roll to see the length of leases and assess the credit worthiness of the current tenants. The income from the property is measured against the price of the property to determine the “cap” rate - capitalization rate - which can run from a minimum of 6% to more risky investments above 10-12%. The cap rate is a good measure of how attractive the purchase is and you agent should be able to determine that measure.
Financing investments is more complicated than a personal residence. The most attractive option for a commercial venture is likely the SBA 504 program that can provide a 10% down program. Otherwise investment loans have a minimum of 20% down.
Every investment needs an exit strategy. There are several ways for the investor to move to the next investment, including 1031 tax swaps. If your investment has appreciated, a tax swap allows the investor to use leverage to “swap” into a more expensive property and defer all capital gains tax.
With today’s lower prices, investing in Idaho properties can be a start to wealth building for you.Kevin Hughes