What is your non-negotiable criteria for assessing deals?

Question

I’ve been researching different markets and properties using several different tools, from BiggerPockets calculators to DealCheck.io to homemade spreadsheets, to assess deal quality. I have a question that I thought the BiggerPockets community might be able to create a good conversation around.

One thing I’m coming up against is some paralysis analysis trying to figure out how important the different criteria are. For example, if I use DealCheck.io and turn on every single ratio/investment rules possible, almost every deal violates at least one of the “rules” even if they are set to fairly liberal constraints. No deal is 100% perfect, so I’m trying to make an intelligent assessment about which imperfections are most reasonable and safe to allow.

What do you think are the most important investment criteria for a buy-and-hold rental property, BRRRR, or flip, and what would you rate as being unimportant or flexible depending on the situation? What is non-negotiable for you and where do you allow wiggle room?

Anthony King · Answer

@Mj Schindler the good thing about dealcheck is you can click on the question mark near each metric and explore them all to figure out which ones mean more to your particular situation. I learned a lot at the beginning using these and going down google rabbit holes until I fully understood how to apply all different metrics.

Without numbers we're all guessing and our "must-haves" are specific to what we buy/own. If you're buying for appreciation in an expensive market and I tell you 15% CoC and $300/door are my minimums you'll never buy anything.

For me, in 2021, I have purchased SMF's (2-4 units) ranging between 100-200k purchase price in Ohio for cash flow, buy and hold, in top 3 school districts for the area. No fixer uppers. Bare minimum $100/door, but most are near or over $200/door, 12% CoC using conservative numbers and check it against the 50% rule just in case. All of my properties meet the 1% rule, but that isn't very useful. These are my recent LTR's. I also have 2 STR's in gulf coast markets that have completely different metrics and other SFH's in 4 different states. All of them serve a different purpose and have different metrics that matter to me. This is why you need to provide more info for anyone to give you a useful answer. Like anything in RE, it depends. It depends on your goals, your financial situation, your market, price range, number of doors, passive/active, etc.

Henry Clark · Answer

@Mj Schindler

Congratulations, you have hit the "point", of having researched, ready to go find a deal, but still not enough info.

Your next step is no more podcast, calculators, posts, etc.  It's time to make a deal.

Pick a low hanging fruit deal, low profit, quick turnaround, low exposure.

Deal 1:  I would recommend you buy a SFH and fix/flip it.  No structural or additions.  Some yard work, new carpet, paint job, new windows, new kitchen or bathroom.  Just one or two of these things.  Make it something simple and easy.  Get the experience of buying and selling a house out of the way.  Do a few fix up items.  Sell the house.  Determine how much you can afford to either lose or breakeven on this deal.  Your gain will be hands on education and also making the jump.

Develop a checklist and keep adding to it.  Both for buying and selling.

Deal 2:  Do the same thing as 1 above.  Just a little harder.  New roof shingles, new addition, add patio, etc.  Stay away from anything structural for a while.  No new foundations, Wall knockdowns, new roof structures, etc.

Keep building your checklist based on your experience and all of the posts and podcasts you are looking at.

Start small and Make Your Big Mistakes Early.

Jay Hinrichs · Answer

first off I never use any of those things.. its all very simple math you get lost in the Tulles trying to drill this stuff down to

a 10.3567 % return other wise i dont want it.

for buy hold   look to the median price of your target market at buy at that price that will be better schools and homes generally speaking  USE 50% of rent for on going costs and then subtract mortgage .. HIGH tax state might be 60% if you get a return of 4 to 7% and that works then its a go.. you do better on expenses your return goes up but it wont be the same every year.

fix and flip super simple  cost   rehab  minus holding costs and sales commish whats left over is that enough for me to work on it

Only financial calculator i use is for the note business and to figure out PV of a given note and what to offer.

Khaled El Dorry · Answer

@Mj Schindler this is what I go by

1) rents between $1000 and $1500 per month per door

2) cash flow positive after PITI, 7% R&M, 7%CAPEX, 10% PM and 7% vacancy (returns are irrelevant to me)

3) landlord friendly state (Florida and Ohio for me)

4) turnkey and I do my own inspection.  I have a very demanding W2 so that’s what works for me.

These are kinda the big ones for me but obviously not everything. Hope this helps.

Jacob Sloop · Answer

For a flip, days on market of the comps.

Hold, Location.

Marc Rice · Answer

I like to stick to 1% rules in B class areas.

Jay Hinrichs · Answer

thats to easy and to logical..

Bud Gaffney · Answer

@Mj Schindler Purchase price!

Russell Brazil · Answer

Just look at what successful investors in your market are buying....then copy them.

Allen L. · Answer

Honestly I seen so many houses in the town that I acquire that I don’t do any analysis unless the property has HOA. 80k, rent for 850, 90k, rent for 925, 105k, rent for 1050… the prices all work out fine for rentals. It doesn’t really matter, what matters is whether I can get in for a discount, the rent all works out. Definitely do analysis initially but I think over time you won’t really bother with it once you’re familiar with the area.

What is your non-negotiable criteria for assessing deals?

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