Investing Criteria. What do you look for and why?
Hello Fellow BPers,
I just recently graduated college and started to gather a passion for REI. Right now, I'm educating myself on the subject through books, podcasts, this forum and other avenues of learning. I've gotten to the point where I want to start developing a business plan to lead my investing philosophy and approach to REI for the next few years, and one of the items I'd like more expansion on is my deal criteria. So my question to you guys is, what sort of criteria do you investors use to analyze the potential of deals, what numbers do you look for and why do you use these measurements? Furthermore, do you have easily "translatable" criteria for when you enlist a realtor or wholesaler to start searching for potential deals? Or do you only give your "bird-dogs" information such as square footage or bedroom #? And do these criteria tend to be more quantitative or qualitative? Which ones are the most important to you when deciding on if you want to move on a property or not?
Sorry if that was a lot of questions, but I have so many right now, since I'm just starting out! lol
Just as something to work off of, I'm from the DFW area in Texas and I'm looking to specifically invest in small multi-family properties (2-4 units) for the purpose of long-term buy/hold for cash flow. So far, I've established that I want:
Quantitative:
-Minimum 10% CoC Return
-Minimum 6% Cap Rate
-Estimated minimum equity position of 30% (using ARV, not including downpayment)
-Rents must be at least 2% of the purchase price
-$250k purchase price or below.
-Maximum $15k in rehab costs.
-Minimum monthly cash flow of $200/month
-OK with high LTV, as I plan to finance my first property using an FHA loan w/ 3% down
- 1.25x DSCR
Qualitative:
-Minimum 2,000 SF
-Minimum 2 bed / 2 bath
- 2 to 4 units
-Must be in a nice neighborhood, minimum to zero crime rates.
-Must be near an affluent area, with a growing/thriving job market and preferably a growing population (like DFW)
-Wood flooring
-Foundation and structure of the building must be sound, with no major repairs needed.
As a small disclaimer, I have not done a lot of analyzing deals in my local market yet, so I don't know how attainable these criteria are. However, I will be getting started on doing that sometime in the next few weeks and adjust them accordingly to realistic standards as necessary. However, I feel like this is a decent baseline to start and would love y'alls insights and opinions! Thanks for your time helping out a newbie investor!
Sincerely,
Treivor Cashion