Process for selecting properties for further review

From available properties - which ones fit your needs the most. For apartments there was a rule of thumb of not paying over 7X gross or 10X net income. Others look at the 2% rule for a quick screening process to see if the property warrants deeper research.

Bottom line - always go for the cash flow. If the property will support itself and have positive cash flow left over each month - it is a keeper.

Bryan Hancock

Real Estate Investor · Austin, Texas

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Dec 11 '10, 08:09 PM

We look for properties we can add value to, reposition, and sell. For long-term buy-and-holds I use Ray Alcorn's underwriting techniques with a WACC to screen deals. This is a much better screening process than using the 50% rule IMO.

After things are screened we model them using as much data as we can find.

Bryan Hancock, Bullseye Capital Real Property Opportunity Fund
E-Mail: b.hancock@bullseyecap.com
Telephone: 1-800-577-0401
Website: http://www.bullseyecapfund.com
I help busy people profit from real estate

Charles Perkins

Landlord · Seattle, Washington

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Dec 12 '10, 02:46 AM

Adding value has always been a big part of any of my investment decisions. I also want to know a property will cash flow even if the market is stressed. Obviously if a property can't cash flow under the best conditions it makes absolutely no sense for me.

Part of screening needs to consider what an investor is comfortable investing in. Office/Retail is different than working with storage, MHPs, multi-family.

I'm taking on a small mixed use building that cash flows well and has tremendous upside. It will be an interesting way to expand my horizons.

I would love to hear about how others screen commercial property deals. Someone new getting into commercial properties may not realize some of the hurdles.

Bill Gulley

Real Estate Investor · Springfield, Missouri

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Dec 12 '10, 03:26 AM

Charles, first clearly understanding the zoning codes and compliance is a first test, especially in mixed use properties. I was involved in the process of assessing the use of mixed use properties here and specific zoning might be applied and restrictive. Having a retail code with residential may not mean you can put in a resturant with a bar on the ground floor and apartments on upper levels. So identifying a potential property for a given strategy will need to be investigated carefully.

When moving in the speculation mode, understand what the proceedure is in your area for special use permits and who you may need to obtain permission from or better said, who may object, because there will be objections.

Also, changing the use of a property will most likely kill any grandfathered protections from current code compliance, which can be very expensive to comply with in an older building.

Next, I'd check the existing utility services. Actually, in some areas, you may have limited utility capacity for a commercial undertaking.

What lines of cummincations will be required for a project. Are roads sufficient, traffic loads, ingress/egress, traffic counts. When you get into smaller towns and rural areas, you might find that the infrustructure is not adequate. a motel might require a sewage treatment facility, better know that before you buy the property!

I'll stop.....just tons of things to investigate, good luck Charles.

When you get to a specific property, it's all about due diligence.