How have you gone about defining your property criteria?

Question

I understand criteria are an important part of being able to evaluate deals quickly. As I'm trying to define my own criteria I am running into questions like "should I stick with brick only or is siding ok?", "how much of a rehab can I take on and what work would/woudln't be ok?", "why not just take anything that cash flows and has good resale?".

What has been your process for defining your criteria, and if you are a buy and hold investor, what is wrong with the criteria being only 1) must cash flow at x amount and 2) must have good resale potential as an exit strategy?

Ned Carey · Answer

@Joe Henry since I am usually fully invested I am often cash poor. So the second criteria - the ability to make the deal happen screens out a lot of deals fast.

My main funnel of deals is through tax sale foreclosures. We literally look at thousands of properties a year preparing for the auction.  This means I know my market extremely well and can filter through deals pretty quickly as long as they are in Baltimore city.

So my criteria while effective for me, may not be helpful to many other investors. However the great deal part is a good idea. To many are motivated buyers and take on marginal deals.

For example right now we have two tax foreclosure deals that would make great rentals. i would love to add them to our rental portfolio but we are just not in a cash position to do so at this time. Sadly we are going to have to sell them off.

Ned Carey · Answer

Having criteria is an excellent idea.

My struggle with it at the beginning is I didn't know enough about what I wanted to do. I didn't have enough background to create appropriate criteria.

My criteria today

• It has to be a great deal
• i have to be able to pull it off.

Richard Ayvazyan · Answer

Joe,

There is nothing wrong with that, however I am sure you would agree that not all properties will have both 1) must cash flow at x amount and 2) must have good resale potential as an exit strategy.

If I was to choose, I would choose no 2.  For me this makes more sense.  I don't usually buy and hold, maybe that is why.  I would much rather buy and flip as much as I can and keep stacking those reserves for eventually buying commercial buildings.

I guess going back to your question, it really depends on what your ultimate goal is.  If you are looking to buy and hold then brick would be just as fine. You can always do more modifications/additions in the future, if you decide to exit.  But if you are looking to resale, then I would go that extra mile and rehab with the standards that are trending in that immediate neighborhood.

My most important criteria is the ARV. If the subject is anywhere close to 70% of the ARV, then I would spend the extra time inspecting the property for the rehab repairs.

Hope this helps..

Justin Hoggatt · Answer

I think everyone has different criteria and I'm sure it differs greatly across the country.  But, in my opinion, there are a few things you may want to consider when creating your criteria. I like to look at the safety of a neighborhood and more importantly to me, what type of tenants am I expecting to get into my homes.  Just because it cash flows, doesn't mean I want to deal with people that won't respect my properties.  Furthermore, I don't want to always be fixing things people may break, or always going to a neighborhood that I wouldn't want to live in myself.  But, as you can tell, I manage my own properties so if you have property management taking care of things and the cash flow is so good that you can fix things all day long, it may not matter to you.

As a last note, I want a stable house that isn't going to nickel and dime me.  So, when I look, I want to make sure I have enough budget to fix/upgrade things as they should be because it brings in that better tenant and keeps me from visiting the house a lot.

Alex Franks · Answer

A n b Assets, and strong exit strategies. I like cash flow at least $400 month prefer newer construction on SFH. Preferred only areas where 10 to 20 % of the homes or less are rentals.

Multifamily different animal and learning my self

Alex

Joe Henry · Answer

Thanks guys, very insightful comments.

Joe Henry · Answer

@Ned Carey, interesting. So would you say you don't really have criteria other than that? Neighborhood quality, school zones, property features, etc? If this is what you mean, how does that affect your prospecting? Do you just run through a lot more properties?

How have you gone about defining your property criteria?

Most Popular Reply