What are your buy and hold criteria?

[Account Closed]

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

[Jay DeCima]

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.