I would like to know what criteria you currently use for your buy and hold properties.
My current buy and hold criteria are:
sfr built after 1990
1300-2000 sq. ft.
3 bed 2 bath
Central air/ heat pump
City water and sewer
basement
Garage
3-5 minutes from shopping
cul-de-sac or corner lot
Light traffic
20% below market price
$300 cash flow minimum
Redding, CA · Member since 2016 · 224 posts · 143 votes
9y
Rick
Some food for thought. Here is my way of investing for meaningful cash flow.
For 40+ years in Northern Calif. I did all kinds of real estate investing. I love it all.
But I quickly found that buying one single family house at a time with no "real" cash flow and hoping for appreciation was not a recipe for financial success in my lifetime. Way too slow and boring.
Fast forward. Here is the plan I used to get 250+house rentals at my high mark (they are houses but not like the one mentioned above).
Plan:
-Buy GROUPS of older houses on a single parcel.
-These could be a combination of small houses, cottages, duplexes, conversions, legal non-comforming, small apartment on a SINGLE PARCEL.
-Older parts of town, not dangerous parts.
-Ideally they need fix up, probably because of weak management.
-5 or more units. This makes it ideal for seller financing. Banks will not loan on rundown properties with 5 or more units. The seller knows this and will almost always be open to carry the financing. 85% + of mine had seller financing.
-Seller financing can be terms that are beneficial to you: Term, no payments for awhile, graduated payments. What ever you need to get cash flow.
-I usually put about 10% down.
-Because the units are run down, the rents at time of purchase are almost always below market.
-Because they are run down the GRM (gross rent received from property for a year) is lower than it would be if units were fixed up.
-My goal over a 2 year period was to fix up the units, get better tenants over that period and raise rents by 50%. Remember they were already below market and fix up raises rents. Because I fixed the units up I will raise the GRM that an investor will pay( IF I were to sell) by 2 points.
-Raising rents by 50% and the GRM by 2 just about DOUBLES the value of the property. Very doable.
-I manage them. I developed this to keep my sanity in the property management part of the business. Way less personal contacts with tenants.
-Years later when it came time to sell, I INSISTED ON CARRYING BACK THE FINANCING. I call this PAJAMA MONEY. Remember I forced up appreciation at the beginning by fix up and have many many years of general market appreciation (if no market appreciation, I still do very well). At the beginning of each month I can go to my mailbox, pick up the checks for the buyers of my properties..........I can do this in my PAJAMAS.
-Buying groups of houses is way safer than just buying one. A vacancy with 1 house is 100% vacancy. If I have vacancy with 5 houses, it is only 20% vacancy. 80% of other rent keeps rolling in each month.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y
IMO, the house configuration and amenities are highly variable & to me immaterial.
The ABSOLUTE criterion is cash flow - - hey, it's an investment & I want something for my time, effort and initial cash-in as an annual ROI. I was happy with an NOI of 350/mo/door - - you may want more or be happy with less.
SFR vs MFR are personal choices especially on BP, but I held a 6-plex for 19yrs myself
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
9y
Rick S.
My criteria has changed a lot since I started. Before I wanted only 4 plex properties with all 2 bed units. Now I look at single family as well as multis.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
9y
I keep it simple.
1 - Net CF >= 10% of All cash in cost
2 - Net CF >= minimum of $500/month (w/PM; no debt)
Now, I'm paying all cash for this because within a few months (or days even) I'm getting ALL of the cash I put in back...with profit. I re-invest all of the cash into the next deal(s), and repeat. I repeat until I start spending only the profits (I never spend my seed money...even after it grows), but I continue to re-invest the growing seed money.
Rental Property Investor · Sumter, SC · Member since 2015 · 334 posts · 531 votes
9y
Minimum 3 bedrooms, at least 1100 sq. ft. Don't care when it was built, but it does need to be in a B/C neighborhood in town, close to shopping and restuarants, and never on a busy main street. Carport or garage is preferred but not a deal breaker. Must have an indoor laundry room and either have a dishwasher or space for me to put one in.
Multi family with positive cash flow based on 100% financing numbers. Located in a B class rental property neighbourhood. Each property assessed on it's own merit. Stringent requirements beyond rent ability and cash flow only narrow your options. Every investment property has a pool of potential tenants.
Redding, CA · Member since 2016 · 224 posts · 143 votes
9y
Rick
Some food for thought. Here is my way of investing for meaningful cash flow.
For 40+ years in Northern Calif. I did all kinds of real estate investing. I love it all.
But I quickly found that buying one single family house at a time with no "real" cash flow and hoping for appreciation was not a recipe for financial success in my lifetime. Way too slow and boring.
Fast forward. Here is the plan I used to get 250+house rentals at my high mark (they are houses but not like the one mentioned above).
Plan:
-Buy GROUPS of older houses on a single parcel.
-These could be a combination of small houses, cottages, duplexes, conversions, legal non-comforming, small apartment on a SINGLE PARCEL.
-Older parts of town, not dangerous parts.
-Ideally they need fix up, probably because of weak management.
-5 or more units. This makes it ideal for seller financing. Banks will not loan on rundown properties with 5 or more units. The seller knows this and will almost always be open to carry the financing. 85% + of mine had seller financing.
-Seller financing can be terms that are beneficial to you: Term, no payments for awhile, graduated payments. What ever you need to get cash flow.
-I usually put about 10% down.
-Because the units are run down, the rents at time of purchase are almost always below market.
-Because they are run down the GRM (gross rent received from property for a year) is lower than it would be if units were fixed up.
-My goal over a 2 year period was to fix up the units, get better tenants over that period and raise rents by 50%. Remember they were already below market and fix up raises rents. Because I fixed the units up I will raise the GRM that an investor will pay( IF I were to sell) by 2 points.
-Raising rents by 50% and the GRM by 2 just about DOUBLES the value of the property. Very doable.
-I manage them. I developed this to keep my sanity in the property management part of the business. Way less personal contacts with tenants.
-Years later when it came time to sell, I INSISTED ON CARRYING BACK THE FINANCING. I call this PAJAMA MONEY. Remember I forced up appreciation at the beginning by fix up and have many many years of general market appreciation (if no market appreciation, I still do very well). At the beginning of each month I can go to my mailbox, pick up the checks for the buyers of my properties..........I can do this in my PAJAMAS.
-Buying groups of houses is way safer than just buying one. A vacancy with 1 house is 100% vacancy. If I have vacancy with 5 houses, it is only 20% vacancy. 80% of other rent keeps rolling in each month.
Multi family with positive cash flow based on 100% financing numbers. Located in a B class rental property neighbourhood. Each property assessed on it's own merit. Stringent requirements beyond rent ability and cash flow only narrow your options. Every investment property has a pool of potential tenants.
In the market I am presented with, 5+ units separates the newbies with little capital from the 'players' because the new entrants generally can't get financing without the 1-4 family GSE money. And under $1M total financing keeps the small multifamily players out because they can't go GSE multi-family financing either because of the $1M minimum. That translates to 5-30 or so unit properties with total acquisition price below $1.2M or so.
My goal, then, is for the Net Income after depreciation numbers to work at a hypothetical 100% financing. That is a high bar in this market. Not impossible, but tough.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
I like the following: 1. 1995 or newer 2. B or better areas 3. minor rehab work under 15K 4. ability to get 1% or better per month 5. locations near shopping, schools, etc 6. decent school districts I pay cash for most of my properties or utilize private money so my cash flow is usually good.