Phoenix, AZ · Member since 2016 · 74 posts · 17 votes
I am looking to do my first investment soon and am right now just looking for properties to run analysis on. What is the criteria you use to filter out good deals from bad ones? As far as price goes I find some with a great price, but due to age and upkeep who knows what the true cost would be.
Alexander Alguire If I were in your shoes I'd be running an analysis on everything I could get my hands on that's looks even remotely appealing. Sure it will take time and probably yield nothing for a while but it will give you practice. You can review T12s, build pro-formas, tour properties and see for yourself what your market holds. Do it 20 times and you can see how your market matches up with the 1% rule, 50% rule, etc.
Thank you Andrew Johnson . I have been running a lot of analysis using the BP calculators on really every property I can find just so I get practice with reading reports and fine tuning the steps it takes to make them.
I'm wanting to know what criteria people with experience in the MF realm use to find properties they consider good deals. Beyond price though, per unit cost, age, HOA no HOA, surrounding population, political demographic, etc.
Alexander Alguire Got it. Trouble is it's sometimes personal/situational. I'll take a lower cap rate because I want a newer build, to postpone capex expenses, to get a more modern layout, and generally ensure that I can have full occupancy. Others will think I'm crazy for consciously taking a lower (potential) return because I'm "too lazy" to do a value-add project or find an area that people don't want to live in now but is revitalizing so in 5 years it will be awesome.
Using a back of the napkin analysis, I looked for a cash positive flow and then ask "how much vacancy can I tolerate and still not go negative" - aka break-even point. For me that was 70% occupancy or about two / six units vacant at the same time.
Andrew Johnson that really does make a lot of sense and if you have the capitol to do it then why not. I feel that is a price vs. cost situation. I also know that a lot of what you listed is part of Grant Cardone's method and he does pretty well off his investment properties😂 thank you again!
Jeff B. That is a solid point and something I am dealing with on all of the properties I am analyzing. I also have to account for the house hacking part of it as I have the capitol to house hack through an FHA but not more than that for what I want to do. And that takes one of my units.
Everyone is going to have there own criteria depending on their markets and individual goals. I usually know within 5 seconds of viewing a listing if it is worthwhile to do further due-diligence.
My own qualifiers: - Purchase Price must translate to no more than $40K / Bedroom - Must be 3 or 4 unit apartment building - Monthly Rent Potential must be minimum of 1.25% of Purchase Price - Return on Invested Capital 20% when fully rented/renovated (debt service included) - Must be a minimum of C+ Neighborhood
@Alexander Alguire I would recommend knowing the rents in your market. Certain properties don't seem like a deal but if you know an area is up and coming for various reasons (job growth, population influx, gentrification), then you could land a deal. It may not significantly cash flow right away but you can "force" the appreciation while the area is also increasing in demand which equates to higher rents and ROI.
As others have said, it totally depends on the market. Generally, in my Cleveland market, I am looking for 10%+ cap rate and $200 net cash flow per unit. That is not easy to find, but it's out there.
Thank you for all the responses! I notice that many of the stated criteria come from Brandon Turner's rental property investing book. I need to read it again. @Dave Stokley My criteria thus far has been 8% cap at $200 pdpm and thats basically all my true criteria has been. All the info and advice you have all been giving is super helpful to someone in my position. @Louis A. I really like your break down and totally forgot about the monthly rent equating to a percentage of the total purchase price!
@Jeff B. Yeah, I know that in some parts of the country you can't buy jack with $40k, but the idea of it is nice and the markets i am looking at it definitely works in, and in some markets i know you could even swing 2bedrooms for $40k.
This is a great topic. Just as others have said with cash flow and cash on cash return. I think another quick and basic filter could just be seeing if the property is listed under market value or could be bought at a discount. You'll go in with a built in profit and equity already. Nothing special, but at least it can catch your eye to see if it's good deal from the jump or not.
@Alexander Alguire first thing you need to do in any real estate purchase is to run the comps. If you are priced in line with or below comps your in a good starting position. If you are priced well above comps none of the other numbers or metrics really matter, time to move onto a new property.
My # 1 criteria - must be B or above location..... life is too short to have to go see someone 5 times a month for payment ....no amount of money is worth that headache
@James Wise I have been working on and teaching my self (through the bigger pockets forums and provided info that is) how to effectively run comps and it really has changed what i see as a "good deal"!