Property Evaluation Criteria

[Leila Moussavi]

Hi BiggerPockets!

My name is Leila, and I'm a 19 year old college student looking to investing in a buy and hold property out of state. I would eventually like to become financially free by 30 years old, living off of rental income.

I am unable to quality for a conventional loan, but do have enough saved for a small down payment and some potential investors (family, friends) who would be willing to work some sort of deal out with me so I have the funding to purchase a property. Also they could be potential co-signers on a loan. I may even have a potential partner, as well. I am open to creative financing.

My game plan is to create a set list of criteria for properties, then research markets, then find an agent and analyze properties from there until I find one that fits my standards. So far my criteria looks like this:

• Neighborhood - B class

• Property size (square feet)

• SFH: 1100-1200
• Bed/Bath: SFH: 3 bed 2 bath
• MFH: ??
• Bed/bath: MFH: 1, 2, or 3 bed units? Bath? What's ideal?

• Lot size

• SFH: 6000 with 2 car garage
• MFH: What's a normal lot size?
  

• Property condition - ??

• Number of units - SFH or MFH (2, 3, or 4)

• Cap rate - ??

• Cash flow - 8-12% return

• Appreciation potential - ??

A. How would I determine if I want to invest in a MFH or SFH out of state? Does it depend on the market/location? MFH seems good for scaling and less risky as far as vacancies. I'm leaning towards MFH.

B. What criteria would you suggest I edit/add into my list above, keeping in mind my experience level and funding?

C. Any other extraneous advice from out of state investors would be more than helpful.

Thank you!

[Chris Clothier]

@Leila Moussavi,

Welcome to BP and congrats on having the insight to start planning!

Here are a couple of pieces of advice I can offer after reading your query.  

1.  I love that you are already looking at possible ways to start and continue building.  Don't get too creative in your financing if you are not familiar with the ins and outs of how you are going to progress. You can get yourself into real trouble, but keeping a relatively small group of partner/investors is wise and a willingness to go in with your own capital is important.

2.  Forget the whole alphabet grading system.  It is arbitrary and can get investors into trouble especially when investing away from home.  People selling homes will always see their properties as nicer and buyers should always be skeptical.  Instead of using this type of arbitrary system, come up with a few key points you are looking for.  You should know the median price point of a city and then break it down to the zip code and area.  This will help you to know are you on the upper end or lower end.  Look at services near by such as grocery stores, convenience stores and food locations.  Look for parks amenities like golf courses and lastly look at schools.  You can start to formulate a picture of the area surrounding a property and it will make the rest of your research easier.

3. Something to understand in general about the differences in single family and multifamily. MFH is going to be inherently more transient. This is very general in speaking, but turnover should be higher and more often with MFH. You think it's less risky because there are more doors, but if those doors are vacant more often then it defeats the purpose. Done properly, SFH can be scaled and tends to attract residents that seek to stay in one place rather than bounce more often as in MFH.

4. Riverside CA is an amazing place to invest in real estate. Close enough to the city and coast to remain hot, but far enough out to not pay a heavy beach tax. I would definitely look to meet with and connect to as many Los Angeles and specifically Riverside investors as you can. Search out investors in your area who are finding great opportunities and taking them right there and throughout the inland empire. Whether you go SFH or MFH there are a plethora of opportunities for you right there and there are a lot of investors right her on BP from that area. I would look to join and attend the many local REIA meetings and start networking. It could really help jump start you toward your goals.

5. Listen to the podcasts. Attend the REIA meetings. Buy a few cups of coffee for local investors and learn, learn, learn. There is lot you don't know yet and none of us can answer here on BP. The number of things you need to be thinking of could take pages and pages here. And they all come at different times and in different orders and sometimes you have to consider things that other times you don't. Meaning every house, every opportunity, every deal are different in some way. I have been doing this for two decades and there are still things I learn often just from talking to other investors. If fact, I learn a lot from new investors who through research and diligence figured out something that I didn't know.

Be patient and act like a sponge absorbing everything that you can.  Best of luck as you make your way toward that first deal. - Chris