Setting Criteria for Rental Property

14 Replies

Hello- I am new to real estate investing. I am hoping to purchase my first multi-family property by the close of 2018. One thing that seems to be uniform through out all my readings and studying is how important it is to set your criteria for what you want in a property and stick to it.

I have tentatively set my criteria, but I struggle with knowing if I have done a good job in doing this. I ideally would like a property built with in the last 30 years but then this limits my search. What do other investors think? I am looking in Massachusetts so we have a lot of older properties, some of which are redone and look very nice and rentable but I worry about dealing with maintenance issues that come with older properties.

Any ideas are welcome!

@Sara Taslitt Older properties can pose a problem if they were not maintained well, but they can also provide the charm that some newer properties won't. 

I would set financial parameters based on what you want your COC return, ROE, and monthly cash flow to be.

There are ways to control for CAPex in older properties, it is just more time-consuming. Find a good inspector that is trusted by professionals in your area and get a good pulse on the effective life of your big ticket items (Roof, HVAC, HW heater, etc.) and calculate out how much each will cost to replace, then do the math backwards for what you need to put aside for CAPex and maintenance. 

Also, for older homes, do not forget the likely extra expenses for electricity/gas due to them being leaky. 

It all comes down to knowing your numbers and what you want in your investment. 

Best of luck!

@Sara Taslitt   I work in Baltimore city and like your area has lots of old properties. To me the age is not important. The condition or effective age is.   30year old property can be beat to crap.  A 40 or 50 year old property has probably been totally redone at some point. Or perhaps is ready to be redone now and is an opportunity to add value. 

A guy I learned from early emphasized how important criteria are.  He is not investing any more, I still am. 

My criteria is simple

  1. Is it a great deal - not just a decent deal for an investor, not a good deal, a Great deal
  2. Can I pull it off?

@Sara Taslitt

It is important to have set criteria! Typically Mult's in Mass are much older than 30 years old. It is always good to have set ideas but also important to know the area you are investing in. 

Also consider your numbers, each area will have different entry prices  

Thanks for your input, I have seen that about 10% (estimate) of the multis on the market are built in the 80s, so that makes me think that I need to not be open to older properties. 

Any tips on evaluating an older property for repairs etc.? 

Hi @Sara Taslitt - As others have said, you'll want to hire a reputable inspector to perform a thorough inspection of the older home.  He/she will prepare a report that details what requires repair.  You can then choose to walk away if the numbers don't work.

Also, you should request/receive thorough disclosures from the seller/ seller's agent that also notes areas that need repair, or items that were recently replaced (i.e. water heater was replaced last month, etc.).  

Good luck with your journey!

Following--I am about to embark on my own property search as soon as I finish refinancing my primary!

@Sara Taslitt This is what we use:

Main criteria:

  • Purchase price should be between $80,000-$180,000
  • Neighborhood should be a solid B-/C+ (Working Class)
  • Built after 1985.
  • I want to spend less than $3,000 on inspections and closing costs
  • I want to spend less than $20,000 in initial repairs and rehab
  • Schools above 6 rating
  • Tenants pay all utilities
  • Ideally: Rent 1% or more of ARV
  • Ideally:10-12%+ CoC ROI
  • Ideally: I want minimum 100+ monthly cash flow or 100/door after ALL expenses
  • When possible, I want to purchase multifamily units (2-4, max 8)

Values we use in our calculations:

  • 5.5% interest rate, 30 years, 25% DP
  • 10% vacancy
  • 6% repairs and maintenance
  • 6% capital expenditures
  • 10% management fees
  • 2% annual income growth
  • 2% annual appreciation growth
  • 2% annual expenses growth
  • 6% sales/exit expenses

@Sara Taslitt This is how you mention/tag someone: You start typing "@" followed by the first letters of their name. You'll get a list with matching names from which you select the person of interest. Note: Is not working perfect always.

You can see school ratings in Zillow, at the bottom of the page with a property details. And there are other sites dedicated to school ratings only.

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