How to Create Criteria for Buy and Hold

32 Replies

Hey Team,

I am brand new to Real Estate Investing, and I've come to the conclusion I want to be in this for the long haul. I'm constantly listening to the Bigger Pockets podcast, and one of the things that I see that is often highlighted is making sure you have set purchasing criteria. I have read quite a few real estate books, and have about 21K saved up and am ready to purchase my first rental property using the BRRRR method. The market I'm looking to work in is Atlanta GA and surrounding areas as that's where I live. I'm trying to get some insight on what would be some solid criteria to give my agent to start getting properties sent my way. Does anyone have any insight on this?

We developed our own, in-house model where we enter in basic variables such as ARV, rehab cost, hold time, etc that then calculates our maximum "strike price" on a buy. It might take a few deals to get it down cold, but once you do it is a huge help in determining what to buy and not to buy. Definitely start to build a model and stick to it. The only times we've ever gotten burned is when we stepped outside of those criteria that we have built into the model. Good Luck!

Originally posted by @Brandon Drayton :

@Joe Villeneuve I've set a goal of having 8k/mo from rental properties. I'm looking to start with SFH to learn the process and get some hands on experience with the BRRRR method. Is there a REI Business plan template that you're familiar with?

OK.  Work your way backwards (reverse engineer) from that $8k/month passive income goal, treating each step backwards as a prerequisite for the next step forward from it, until you get to where you are now.  Then turn around, and follow the breadcrumbs.  It's just like setting a goal of a college degree, and each class you take, in order, is a prerequisite for the next class. 

 

@Brandon Drayton  

Since you are looking to generate cash flow, I suggest containing your search to neighborhoods that have higher rent to price ratios. The graphic below shows average rent to price ratios for neighborhoods in Atlanta

Once you have selected a few neighborhoods that meet your criteria, I would let your agent know and have them only send you listings that are located within those neighborhoods. This will help you filter your results and reduce time wasted looking a properties that don't meet you criteria. 

Hope this helps!  

@Brandon Drayton

After you've selected your target areas, and start receiving properties from your agent in those areas, I'd run every one of them through the BiggerPockets rental property calculator using very conservative numbers. When doing this, I would focus in on my DSCR. Making sure this value is above 1.25 will allow you to eventually work with portfolio lenders, but it will also help you align other criteria as well. With a specific marker like this you can ensure that you are preparing for the unexpected, cash flowing positively, and not overpaying for the property.

Everyone's market and situation is different, but understanding this metric gave me a more clear picture of what I needed to continue to grow in real estate. Before learning about DSCR I was adjusting my numbers to get to a desired cash flow value without understanding the bigger picture. Seeing risk from a bank/lender perspective can't hurt.

Good luck to you!

@Brandon Drayton

I am starting out as well. For me, it was important to find a realtor that was also an investor. Even better, I found a realtor that held properties in the area that I was investing in. That was key - to find someone who knows what an investor is looking for. Who knows the good blocks and bad blocks of an area. Most importantly, understands the math that would make rentals cash flow.

@Eric Swint Thanks so much for that feedback, that's awesome, I'm looking into the DSCR info now! @Alan Blitz I've been in touch with a couple of investor agents, still trying to find one that is doing buy and holds, thanks for the insight! @Omar Diaz yes I've been running numbers on properties, but I'm not sure what the ideal property looks like just yet.

@Brandon Drayton , I am in the same boat, trying to think about what my minimum criteria is when looking at a property. But some things to think about would be the following: cashflow, ROI, payback period (how long would it take to repay your mortgage), rehab profit, rehab ROI, minimum or max purchase price, minimum anticipated rent, rehab turnaround time, debt ratios (various debt ratios), school grade (if available from a source), crime grade (if available from a source), etc. Think about the things that are important to you and start putting criteria to it. The list above are items that have floated in my head, but I don't think all are necessary.

Some properties are easy to sell some are hard to sell but can easily appraise for a good price. If you can BRRRR and make some money right out of the refinance it is a potential to keep. Otherwise, reconsider purchasing.

@Brandon Drayton my criteria in selecting mobile home park markets.

1. Recent and future job growth hihh

2. Housing vacancy rate must be lower or about the same as the national average

3. Home price appreciation trend.

4. Walmart around. One of my parks is 8 minutes from a Walmart. Demand has been crazy.

It all boils down to one thing - demand. It's a business rule that applies to all businesses, not just real estate.

Originally posted by @Kristi Olson :

@Art Perkitny where did you find that tool ? (Price to rent areas)

 It appears it came from the website in their signature. I just tried to create an account for a free trial, but appears to be an issue and not letting me log-in after I created the account.