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Successful Investing while Holding a Full Time Job – Key #3: Establishing a Buying Criteria

by Michael Zuber on April 9, 2012 · 6 comments

  

Assume you are following the series of successful tips to Real Estate Investing while working full time, you know that you need full and complete support from your significant other and you need to invest time doing “The Homework” in your market.

Once you have a handle on your market and a good understanding of a bad deal, average deal, good deal and great deal, you are ready for the next step.  I suggest the next thing you do is sit down and review your homework and document your buying criteria.

Establishing Your Real Estate Investing Buying Criteria

Let me be clear, the more specific buying criteria the better.  For Example:

  • I want to get a good deal is a terrible buying criteria!
  • I want to get a deal that returns 15%+ on my cash is a great buying criteria!
  • I want to get something at a 20% discount.

This last one sounds like a good goal but who gets to decide the price or the discount level?  I know lots of investors use this or similar criteria.  I would argue that the criteria is too subjective and open for interpretation.  Buying criteria like this can lead you to lie or mislead yourself into thinking you have found a good or great deal.  Don’t let this happen to you.

Once you decide on your buying criteria I need you to do two things.

First, write it down and put the buying criteria in a couple of places.  I suggest putting it near the computer you do your research on.  I also recommend putting it in your wallet or purse to ensure it is always with you.  It wouldn’t hurt to put it in your car as well.

By writing it down you can hold yourself accountable and remind yourself of what you are looking for.

Second, tell your significant other.  Remember they are already on board with you, so share the buying criteria with her/him and tell them why you have decided on the criteria.  I would also share the homework you did from key #2 to ensure they completely understand the buying criteria under the lenses of the effort you have already expended.

Sharing the buying criteria with your significant other ensures they understand and they can help you hold yourself accountable.  I am a huge fan of teamwork and families working together in this business.

A quick caveat about buying criteria:
I have one additional filter I put all my deals through to ensure I don’t get too focused on the numbers.  I use the following rule to insure I am not too numbers focused.

Would I be comfortable with my wife driving to the house during the day, getting out of her nice car and going into the house alone? 

If the house or property doesn’t pass this test, I don’t care if it is the best deal on the planet.  I won’t buy it.

I use this filter to avoid war zones.  I love buying properties in older areas and showing how much we care by remodeling the property, but I won’t take a risk in areas where I am afraid to drive and review my property.  It is just not worth it.

Key #4 coming next Week

Good Investing

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{ 6 comments… read them below or add one }

Greg April 10, 2012 at 3:01 pm

I have read that another good criteria is: would you put your own mother in the property as her home?

Reply

Mike Z April 10, 2012 at 3:03 pm

Hi Greg

I like but unfortunatly my Mother likes really nice houses ;-)

Good Investing

Reply

Tod R April 13, 2012 at 5:54 pm

Thanks Michael,

Do you have a different criteria for MF compared to SF?

Also, I have another criteria I would add:
Do I want my mother-in-law to go into the house alone? If so, I wouldn’t buy it…JK!

Reply

Mike Z April 15, 2012 at 8:16 pm

Tod,

Nope same rule applies for MF and SFH.

Good Investing

Reply

Luis@wealthsteps April 16, 2012 at 9:02 am

Buying criteria should be even more detailed than just saying I want a 15% cash return, that is only part of the criteria. If I find a deal that gives me 15% return but only gives me a profit of $10,000 then I don’t want it.

The more specific your criteria is the easier it will be to find it (as long as it’s realistic). For example, you can say: I want a house that is at least a 3/2, preferably with a basement, in the xxx school district, that needs no more than $xxk in repairs and that can rent out for at least $xxx/month. Or if it’s a flip then you can specify that the ARV is at least $xxx or 2x the purchase price…

Reply

Bruce May April 19, 2012 at 10:55 am

Good advice Michael. Many new investors find themselves flopping from one idea to the next. Having SMART goals and objectives really helps keep us focused.

Reply

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