Let's develop a Criteria list for new buy & hold SFR investors

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Let's develop a Criteria list for new buy & hold SFR investors

Axel MeierhoeferPro Member
Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes

I have decided to look for a new OOS Turnkey market to invest in and wonder if the list of criteria I have used in the past is complete. While contemplating that question I realized that many other people here on BP would love to have a list as complete as possible.

By adding your criteria to my list below, I hope to get as close as possible to a complete list that I plan to post as a blog article here on BP and then share in this discussion.

Here is what I have on my list:

  1. What are the home values?
  2. What is the household income?
  3. What can I learn about the local economy?
  4. How much are property values increasing/decreasing historically?
  5. Is the economy growing (by how much annually)?
  6. How likely is it to find tenants that have 3x  monthly income?
  7. What is the unemployment rate and how did it develop over time?
  8. What is the rent level in certain neighborhoods (using Rentometer.com)?
  9. What is the quality of schools (elementary, middle, high) using  Greatschools.com ?
  10. Will the properties meet the 1% rule
  11. What's the local crime rate and how did it develop over time?
  12. What is the economic plan of the area (city/county master plan)?
  13. Should I find a local lender or is my nationwide lender better suitable?
  14. What has been the appreciation of values in the last few years
  15. On a map, annotate where are the A, B, C, D category areas (according to real estate agents)
  16. What's the situation with titles in the area? Do you have to expect a lot of liens? Do I need title insurance?
  17. Are the people I deal with familiar with 1031 exchanges (in case I want to do one)?
  18. What software is the PM company using and how are their services scheduled each month?
  19. What is the quality of renovation of properties?
  20. Who does the renovations and do I have an impact on the scope of work?
  21. What is the inventory/pipeline for regular deals? 
  22. Does the seller offer new construction deals?
  23. Will there be a "first year rent guarantee"?
  24. Will there be a warranty on all renovations - how long?
  25. Will the seller apply my extended warranty approach for everything that has electricity, gas or water running to/through it?
  26. What's the reputation of the title company
  27. How far away is shopping?
  28. How far away is healthcare (doctors, hospitals, VA clinics, etc.)
  29. How far away are schools (bus routes)?
  30. What is the property tax structure and level?
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Julius Chinn
Member since 2020 · 104 posts · 54 votes
5y

31.  What year will i finally actually making a profit?

Definition:  the year my rental will have paid off the TK premium.  Near history i calculated year 4 ish.   Thats if the rental went smooth sailing.  

Just by your 1% rule.  Are you happy with at best C class property.   No decent property is meeting 1% rule today.

Today baseline for bread n butter rental  is in the 60s.   Maybe .65? .66? .67?  with a down ARROW approaching 50s?

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  • Julius Chinn
    Member since 2020 · 104 posts · 54 votes
    5y

    31.  What year will i finally actually making a profit?

    Definition:  the year my rental will have paid off the TK premium.  Near history i calculated year 4 ish.   Thats if the rental went smooth sailing.  

    Just by your 1% rule.  Are you happy with at best C class property.   No decent property is meeting 1% rule today.

    Today baseline for bread n butter rental  is in the 60s.   Maybe .65? .66? .67?  with a down ARROW approaching 50s?

    1Reply
  • Axel MeierhoeferPro Member
    OP
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    5y

    @Julius Chinn thanks for sharing

    I will add that. The last part with the arrow pointing towards 60's I am not sure what you mean. Are you referring to the Year built or what is that number for?

    If that's it, maybe 32. should be: What is the extend of reno (the difference between acquisition price and sales price minutes TK provider profit)

    1Reply
  • Julius Chinn
    Member since 2020 · 104 posts · 54 votes
    5y

    I forgot theres already companies doing what you are attempting to do.  Dont quote me on numbers. $100,000 a month subscription gets you all the info you will ever need- in real time.   Not after it becomes Headlines in New York Times.

    0Reply
  • Axel MeierhoeferPro Member
    OP
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    5y

    @Julius Chinn I am not really understanding what you mean. $100K subscription for what?

    0Reply
  • Julius Chinn
    Member since 2020 · 104 posts · 54 votes
    5y
    Originally posted by @Axel Meierhoefer:

    @Julius Chinn I am not really understanding what you mean. $100K subscription for what?

     Real Estate Data.   

    0Reply
  • Greg WeikBusiness Member
    Property Manager · Denver, CO · Member since 2020 · 264 posts · 327 votes
    5y

    If you focus on 14, you'll find it answers pretty much all the other questions.  Areas that have steady appreciation over time, tend to be established and desirable areas, where there's little-to-no room for new construction to push down appreciation. 

    I like the idea of your list, but I think it's too long and you have not assigned weights to each number. I.e., appreciation and unemployment rates should be weighted very differently. Ultimately, I don't think you need to look at all those factors to have a successful SFR buy/hold.

    Finding the best SFR deal that is a solid 14 on your list is where I focus my energy. If it's a buy and hold, always talk to a professional property manager (the one you'll be hiring to manage) before closing the deal. They have data that is nearly impossible to accurately acquire elsewhere.

    303-586-5560
    Real Estate Solutions4.3382 Reviews
    WebsiteView Page
    0Reply
  • Axel MeierhoeferPro Member
    OP
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    5y

    @Julius Chinn I am pretty confident that our BP community can identify a lot of criteria without spending that much.

    Thanks for clarifying, though

    0Reply
  • Axel MeierhoeferPro Member
    OP
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    5y

    @Greg Weik Thank you. I know the list includes and hopefully will in the end, a lot of things that might not impact a deal that much. On the other hand, having awareness of the factors that actually impact success will be helpful.

    I agree that relatively few factors ultimately make the numbers work well.

    At the same time, if people don't like the schools and keep leaving or crime rates are high, it can lead, just as an example, to a lot of turnover. The property itself might be doing well but the cash flow is hurt a lot with turnover, even if appreciation is fine. 

    I have seen it where one of my investment areas has a lower quality of the tenant population versus another. Turnover, frequent issues with complaints, interruptions of rent payments with minor interruptions in the economy requires me to be in touch with my PM much more than the other area where things run very smoothly and appreciation in both areas was the same.  

    0Reply
  • Greg WeikBusiness Member
    Property Manager · Denver, CO · Member since 2020 · 264 posts · 327 votes
    5y

    Hi @Axel Meierhoefer, very good points.  I think where I'm coming from is that you simply won't have historically strong appreciation in an area where there's high crime, bad schools, or a marginal tenant pool.  

    My experience has been that appreciation itself covers all these bases.  Strong appreciation in a given area is the result of all the other factors, not independent of them.  

    303-586-5560
    Real Estate Solutions4.3382 Reviews
    WebsiteView Page
    0Reply
  • Julius Chinn
    Member since 2020 · 104 posts · 54 votes
    5y

    This is a must read for OP.  He wont like it but its TRUE dat.  Its a bigger pockets thread.  Guy is not a rah rah guy.  More a been there done that kind of thread.

    As an Out-Of-State Investor for 9 Years…
    0Reply
  • Axel MeierhoeferPro Member
    OP
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    5y

    @Greg Weik You are probably right in most cases. I have seen that neighborhoods that are not terrible but still low C category can appreciate a lot when a change in the area occurs, like a new Amazon distribution center or a manufacturing site. They can make it look like a great investment but only works out of the change is sustained and really improves the neighborhood and not temporary due to speculation or a short-term impulse.

    Maybe a good way to combine our ideas would be to say: 

    1. Take a look at appreciation and how long it has been sustaining. Also, check against the averages in the region

    2. When you find factors that could be suspicious, like sudden spikes in appreciation, take a closer look at the details of the areas as mentioned in the list.

    That way down-selecting can happen quickly and a deeper review can reveal or eliminate cases that initially looked good but later turned out to miss a criterium or two.

    0Reply
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