What Makes a Property a Good Investment?

12 Replies

Hi everyone! 

I wanted to know what is important to you when buying investment properties. Is it Cash Flow, Appreciation, Neighborhood, Tax Deduction, Hedge Against Inflation? Also, do you prefer buying SF, Condo's, Multifamily or Commercial? Why? Do you use financing, hard money or pay cash for you deals? 

I look forward to hearing from you, and thank you for contributing to the post! 

Cheers, 

Austin Irwin, Lender in OR (#1608785)

@Austin Irwin - cashflow for sure. Any appreciation is a nice cherry on top!

Are you trying to get an idea with what route you should go for investing?

Originally posted by @Austin Irwin :

Hi everyone! 

I wanted to know what is important to you when buying investment properties. Is it Cash Flow, Appreciation, Neighborhood, Tax Deduction, Hedge Against Inflation? Also, do you prefer buying SF, Condo's, Multifamily or Commercial? Why? Do you use financing, hard money or pay cash for you deals? 

I look forward to hearing from you, and thank you for contributing to the post! 

Cheers, 

Cash flow for sure, but I won't close on anything that I can't be even on, after doing a rehab and pulling all my cash back out. I never want to have to bring any of my own money to the table if I need/want to get out, so I factor that into the equation. Example: I have a house I recently closed on that I will have ~$50 in when I'm done, that will have an ARV of ~$80. Even if the market has a hard drop, I can lose 40% of the value of this house and still walk away clean. I hope for appreciation for the future - my properties are long-term buy & hold for me - but if it doesn't come, I harvested the cash flow all those years and still got my principal back.

@Tim Puffer Thank you for you post! Yes, I am trying to figure out which route I should take for investing. I am looking to buy my second investment property soon. I currently own a SFD which cash flows but was wondering if I should diversify and look for appreciation, or tax write off in my next investment.  

Austin Irwin, Lender in OR (#1608785)

@Austin Irwin - let’s run this down - what are your goals - money wise and cashflow wise? From your current knowledge of real estate what aspects are the ones that draw you in?

Let’s dive into this because you aren’t the only one who has this thought. I think we can help others out by having a good in depth discussion! 

@Tim Puffer My goals are to buy 1 property every year. I would like to cash flow a few hundred dollars a month or at least break even if the property is projected to rise in appreciation since i will be financing all of my properties.  I like real estate because I can drive past it and physically see what I own. Also the idea of someone else paying my mortgage while also cash flowing a few hundred dollars a month until my renters pay my loan off is awesome. 

I was wondering if investors diversify their RE portfolios with properties that cash flow, appreciate, tax write off, etc or if its more beneficial to focus on cash flow. 

Austin Irwin, Lender in OR (#1608785)

Long term investment or short term?
When I am looking for flips in Seattle this heated market doesn’t give me much chance to lowball but there are plenty opportunities to add values-adding bedrooms, finishing up a basement, build an addition, clean up a trashed new build. You solve problems to yield rewards. If you can create value the money will follow

@Austin Irwin - Great reasons to invest! How did you come up with 1 property per year?

Definitely need to cashflow. Would you be able to handle it financially if the cash flow went negative on a property where you were cashflow positive?

Even if a property is projected to appreciate doesn’t mean it will. Trump wasn’t projected to win the presidency and well...You need to make sure the fundamentals are sound. This doesn’t mean don’t pay attention to appreciation  and whatnot as that does factor in to the analysis, but don’t let that be the determining factor especially very early into investing. 

I think every investor has different goals. If you’re wholesaling you’re not necessarily going to have many tax advantages, nor long term cashflow. Whereas if you buy an apartment building or other buy and hold you get cashflow, tax benefits, and generally get appreciation as well. 

@Kevin Su I am looking at having only long term investments. Great advice thank you for contributing to the post! 

Austin Irwin, Lender in OR (#1608785)

The main four reasons for investing in Real Estate are:

  • Rate of Return
  • Price Appreciation
  • Diversification
  • Tax Benefits

What makes a property a good investment?

Depends on the opportunity cost, if you are able to find another investment that provides you with a higher return than the subject property, then go for that investment.

@Austin Irwin If you're looking for profit margin, then the CAP rate should be extremely important. If you're looking for cashflow, and want to make it easier on yourself as far as maintenance and collections go, small multifamily (2-8 units) would be a good idea. If you want the largest cashflow possible, you can go down the syndication road with larger complexes, but that takes time and knowledge. I think that for a young guy, looking to add a property per year, you should try to buy the cheapest SFH's possible, cheap rehab quickly, and rent them out. You'll see a higher level of equity to cash in on and you'll be more diversified and less risky.

Hopefully that makes sense....

Originally posted by @Austin Irwin :

@Tim Puffer My goals are to buy 1 property every year. I would like to cash flow a few hundred dollars a month or at least break even if the property is projected to rise in appreciation since i will be financing all of my properties.  I like real estate because I can drive past it and physically see what I own. Also the idea of someone else paying my mortgage while also cash flowing a few hundred dollars a month until my renters pay my loan off is awesome. 

I was wondering if investors diversify their RE portfolios with properties that cash flow, appreciate, tax write off, etc or if its more beneficial to focus on cash flow. 

Done and done.  Just do what you described above and you are ahead of most people.  There are lots of profitable strategies and yours is a good one.  You can pivot as you go.  They key is to go.

You buy for cash flow first and foremost and the others are just a bonus. People who buy for appreciation typically get caught with their pants down when the market cools off. 

Also, what kind of property do you want to buy per year. Single family, multifamily? Personally, I think investing in Single Family rentals is a waste of money. You're better off buying multi's. Youll have a better cashflow opportunity and if one unit goes vacant it wont hurt your cashflow as much.

Personally, my focus is on acquiring a 100+ unit multifamily through syndication. 

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