YOUR BUYING CRITERIA PROTECTS YOU FROM RISK

[Jason Malabute]

As a refresher from yesterday's blog post, my buying criteria for my first apartment deal are:

1. B or C neighborhood in indianapolis

2. built between 1960-2000

3. 85% occupied (minmum)

4. 8-20 units

5. 50% of units should be at least 2 bedroom units

6. 4-7% cap

7. 12% roi (I'll go to 10%) and 15-20% irr

8. in certain college towns I want no more than 10% student tenants

9. no crime areas

10. pay $30-60k per unit. No big ticket items to be replaced.

These criterias are designed to help the investor mitigate risk. Most beginners already know not to buy in D neighborhoods because the crime, drama, and headaches outweigh the imaginary returns on paper. 

However, there are also other criterias that should not be overlooked.

For example, I am looking for properties that are built between 1960-2000 that do not need any big ticket repairs (furnace, boiler, water heater, HVAC, roof) to be replaced. By doing these items we can hopefully manage rehab cost better.

I want at least 85% occupancy not only for financing purposes, but also the stability of a property limits risk.

If the property is in a college town I want the student tenants to be less than 10% of occupancy. Universities scare me. I am a firm believer that we are moving towards a online class  country in the future. Colleges will be obsolete soon.

Lastly, I learned something new from @Sterling White this week. You want at least 50% of the units in your complex to be 2 bedrooms. 2 bedrooms attract tenants with families. Your renter pool will not be limited. Also, as an entrepreneur you always have to think about the exit strategy. You should avoid buying apartments that are all studios and 1 bedrooms  because you will have a harder time selling it when the time comes!

[Nick B.]

$30-60K a unit is problematic in this market unless it's a full gut rehab.