Boise area real estate and rental management blog
As rents continue to increase in the Boise area, Ada County fourplex prices continue to increase. April 2021, was a big month for fourplexes, with nine sales, of which included 7 in Boise, 1 in Meridian, and 1 in Kuna.
Double click the image to enlarge the graph, or call us for a full explanation of the data and what it means for your fourplexes value.
Average Fourplex Price: Year-to-date average sales price for four plexes within Ada County, which consists of Boise, Meridian, Kuna, and Star is nearly $200,000 per rental unit. Two fourplex share the high this year at sales prices of $900,000 each. One was located in SE Boise and the other was in NE Boise.
Price Per Square Foot: Investment properties are rarely valuated by a price per square foot. We track the data solely for trending purposes. Investment properties prices in Boise continue to increase, and it’s no surprise to see the price per square foot trending upward as well.
Gross Rent Multiplier: Is the ratio of the price of the real estate investment to its annual rental income before accounting for expenses such as property taxes, property insurance, and utilities. For a prospective real estate investor, a lower GRM may represents a better opportunity.
The GRM is useful for comparing and selecting investment properties where depreciation effects, periodic costs (such as real estate taxes and property insurance) and costs to the investor incurred by a potential renter (such as utilities and repairs) can be expected to be uniform across the properties (either as uniform values or uniform fractions of the gross rental income) or insignificant in comparison to gross rental income. As these costs are also often more difficult to predict than market rental return, the GRM serves as an alternative to a measure of net investment return where such a measure would be difficult to determine.
The current trailing 6-month average GRM is 205. As an example, if you have a fourplex that you want to sell with gross monthly rents of $4,100, value using Gross Rent Multiplier, would just a value of about $840,000.
Today, it is quite common for GRM to be quoted by real estate professionals using annual rents rather than monthly rents. A 205 GRM (monthly rents) = 17.08 GRM (annual rents).
The common measure of rental real estate value based on net return rather than gross rental income is the capitalization rate. In contrast to the Gross Rent Multiplier, the cap rate is not a multiplier but a rate of annual return.
Capitalization Rate: The trailing 6-month average for cap rate is currently 4.12%, but the trend has been sub 4 cap. The capitalization rate (also known as cap rate) is used in real estate to indicate the rate of return that is expected to be generated on a real estate investment property. This measure is computed based on the net income which the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage. It is used to estimate the investor's potential return on their investment in the real estate market.
While the cap rate can be useful for quickly comparing the relative value of similar real estate investments in the market, it should not be used as the sole indicator of an investment’s strength because it does not consider leverage, the time value of money and future cash flows from property improvements, among other factors. There are no clear ranges for a good or bad cap rate, and they largely depend on the context of the property and the market.
We will continue to follow and measure the Boise investment property market. Feel free to contact us with any questions.