How to define criteria

Question

My wife and I have been saving and have enough for a down payment and a couple of pre approvals. Our agent is sending us lots of different stuff and it's becoming apparent that we need to really define our criteria. What list of criteria do you guys use to decide if a property fits. I would guess stuff like

Property Location
Property Class
Price
Condition
The numbers (this could or should be broken out into specifics?)
Age of Property

Etc.

I'd love to see what the consensus is for SF rental criteria.

Basit Siddiqi · Answer

I think the location and the condition of the home are the most important. You can change most things regarding a property but you can never change the location.The condition of the home is important because it shows what you are willing to handle or update on a property.When I first started out, I just wanted to handle 'lipstick' type updates. Now, I handle most types of properties as long as it does not have water, fire or foundation issues.Best of luck!

Michael Smythe · Answer

@Christopher D billik you may want to use this BuyBox outline to help yourselves: • Motivation for Investing: _____________ • Risk Tolerance: High Medium Low • Type of Investing: Wholesaling - How are you going to find motivated sellers willing to sell for LESS than market value? Flipping - How are you going to find reliable contractors? - How will you estimate & budget so profitable? - How will you monitor quality of work? Rentals - LTR: 12+ months - MTR: 30+ days - STR: < 30 days • Rental Property Plans: BRRRR: Buy, Renovate, Rent, Refinance, Repeat House Hack: live in property while repairing • Property Class: A: Tenants with 680+ FICO scores B: Tenants with 620-680 FICO scores C: Tenants with 560-620 FICO scores D: Tenants with < 560 FICO scores Other: ____________ • Property Type: SFR Small MFR (2-4 units) Medium MFR (5-20 units) MFR 20+ units • Finances: Cash: $_____ Mortgage Pre-Approved Amount? Conventional Mortgage DSCR Mortgage DSCR Renovation Mortgage Other: $_____ • Purchase Budget: $_____ • Repair Budget: $_____ • Property Condition You are Willing to Work With: Turnkey < $3,000 BRRRRR > $3,000 BRRRR > $15,000 • Target Rent-to-Price Ratio: _____ • Target CAP Rate or ROI: _____ • Target Cash-on-Cash: _____ • Deed/Title: Your Name: required for FNMA, FHA & VA mortgages LLC: required for most DSCR mortgages Trust Partnership Other

Greg Kasmer · Answer

@Christopher D billik - I think most investors consider all the items above, but by far "The Numbers" eliminate the most properties. If you review (online) properties then I'm guessing that 8/9 out of 10 of them will not cash flow with their current asking price or close (+/- 15%) to their current asking price. I would suggest you first focus on location, underwrite/review/run the numbers on 25-50 properties and you'll start to see patterns of the type of homes that work and don't work. Generally, I would say that most people aim for $200-$300 cash flow per month on SFR or 6-10% Cash on Cash return. Good Luck!

Crystal Smith · Answer

We have a hurdle rate objective (ROI/cash of Cash) for our purchases.  We adjust the rate every 6 months.  The rate drives our strategy, which is to purchase distressed, renovate, and then pull as much cash as we can out of the property after the updates are completed through financing or refinancing.   What we have found is that the hurdle rate drives all of the other criteria (location, class, price.

Christopher D billik · Answer

But then you are just looking at potential properties all over the map figuratively and literally no? Don't you need criteria to get the "to analyze" pile together? That's what I do with stocks.

Melissa Justice · Answer

@Christopher D billik,

Great question - dialing in your buy box early will save you a ton of time and keep you from chasing every shiny object your agent sends. A lot of us use a checklist like this when evaluating SF rentals:1. Location:School district quality (impacts both tenant pool and exit strategy).Neighborhood class (A, B, C) depending on whether you want appreciation vs cash flow.Distance to major employers, highways, retail.Local landlord/tenant laws.2. Property Characteristics:Bedrooms/Bathrooms (3/2 is often the sweet spot for single families).Square footage (avoid the oddball tiny or huge homes that don’t rent easily).Lot size (tenants like a yard, but oversized lots can add maintenance headaches).Parking/garage availability.3. Condition / Age:Roof, HVAC, plumbing, electrical age (big CapEx items).Year built - older homes can cash flow well but expect higher maintenance.Renovations done recently (kitchens, baths, flooring).4. Financials ("The Numbers"):Rent-to-price ratio (a lot of investors target at least 0.8–1% monthly rent vs purchase price).Cash-on-cash return (many aim for 8–12%+).Cash flow after ALL expenses (PM, taxes, insurance, vacancy, CapEx, repairs).Appreciation potential (secondary to cash flow but still worth considering).5. Other Filters:HOA or no HOA (most investors prefer no HOA).Tenant profile (families, students, military, retirees, etc.).Exit strategy (will it resell well to homeowners if you ever want to exit?).A lot of us literally write this out as a one-page "buy box" and share it with agents so they stop sending things that don’t fit.

Always happy to chat more!

Best of luck!

Sultan Ali · Answer

Congrats on getting pre-approvals! A simple buy-box helps a lot. For SF rentals I look at: location, price, rent-to-price ratio, condition/CapEx, tenant demand, and whether it cash flows + fits long-term goals. Keep it clear and it’s easier to filter out deals.

Amir Khan · Answer

@Christopher D billik from your posting I am assuming your strategy is LTR focusing on SF?

If that that is overall strategy, before you even setup your criteria, I would suggest be a bit more specific on your goals:

1) Property location: where are you planning on investing? This would drastically vary and will affect all other goals/criteria.

2) How much are you willing to afford: what is your price point that you are willing to borrow?

3) What kind of returns are you expecting: do you have realistic expectation knowing a LTR has ongoing expenses: property management, maintenance/repairs, property tax, property insurance, vacancy factor, turnover cost etc.

Once you have answers to above, you can then go into specifics of criteria. Hope that helps..

Crystal Smith · Answer

You are correct.  We look all over the map in the markets where we do business.   But we do not do it manually.  We use software to pull data on all properties  & provide us with results on the properties that have the highest probability of meeting our criteria.  The goal is to go from the insignificant many to the significant few, then we roll up our sleeves on those few.  I imagine you do the same thing with stocks.

How to define criteria

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