Is the deal worth it, or not?

Question

When initially analyzing a deal to see if it is a good one, what are the first things you look for? What are the quick indicators that turn you away? Or the ones that immediately spark a further deep dive? I'm just curious as to what indicators other investors love to use when purchasing a rental property to help them more quickly get to the answer of "Is it worth more of my time".

Thank you to all who respond to this post! Your input is always very appreciated!

Mike Dymski · Answer

25+% IRR over 5 year period; otherwise, best to invest passively with others and get returns in the teens

Josef Hardi · Answer

Hi Thomas,

As a new investor, after going through numerous investment strategy specific for my area in So Cal. Here's what works for me:

1. Since I have a capital restriction and I don't have a good network of contractors, I tend to look for properties with minimal rehab and closer to turn key investment.

2. Knowing my limitation above, in order to be competitive, I look for properties that allows me to put a 15-20% downpayment for a conventional loan.

3. If I find properties with the above scenario, I am open to negative cash flow as long as the appreciation will cover it annually. For example, negative cash flow of $5k on first year, but conservative appreciation rate of 4% amounts to $20k will more than cover it.

4. I also can afford a year or two of negative cash flows, but knowing that it will start to cash flow afterwards. Considering as well, appreciation will make this a stronger investment as time passes.

If I find properties that fit my scenarios above, then I reach out to my realtor to see if we can proceed with the deal. I am still fine tuning my strategy of course, but hope that helps!

Thomas O'Donnell · Answer

I wish you nothing but the best on your journey! Thanks for sharing this. You have a pretty good system for yourself I see. Yeah I am leaning more towards cosmetic rehabs at the moment as opposed to full ones.