Top 5 things YOU are looking for in an investment property?

14 Replies

Hi all!

I'm doing a bit of research of RE Investing and wanted to get some feedback.

What are the top 5 things you are looking for in your investment property? Please clarify if you top 5 is a rental or a flip. Thank you all in advance!

Rental or flip, 5 things I think are mandatory:

1) Neighbors

2) School system

3) Ratio of your investment to ARV (after repair value)

4) Roof condition (I won't touch a property with a bad roof--I've yet to get a large enough discount to warrant purchasing the home)

5) Condition (if any) for ductwork for central HVAC (same reasoning as roof)

Originally posted by @Kyle Kyzer :

Rental or flip, 5 things I think are mandatory:

1) Neighbors

2) School system

3) Ratio of your investment to ARV (after repair value)

4) Roof condition (I won't touch a property with a bad roof--I've yet to get a large enough discount to warrant purchasing the home)

5) Condition (if any) for ductwork for central HVAC (same reasoning as roof)

Makes me wonder Kyle, why people say school system for an INVESTMENT (not personal residence). Why do you care about school system, if you'll already know the typical rent rates for the area/building, or will research and ask around? Does it really matter to you? You already know your ARV, projected cash flow, etc. etc.

I can see someone citing "up and coming neighborhood" etc. in order to possibly capatalize on future appreciation. 

Also neighbors? I guess so but neighbors come and go in a lot of cases. The rest of your points, definitely crucial. As for condos, "roof condition" is not applicable :)

@Andrey Y.  , you nailed the "schools" question.  It's all about neighborhood desirability/stability.  Those with good school districts tend to attract higher rent premiums, offer better appreciation potential, and lower risk as they are the last to decline during bad economic times.  It's about protecting your investment.

My criteria:

1) Neighborhood (desirability, demographic/renter-type, economic outlook, etc.)

2) Cash Flow

3) Discount (e.g., equity)

4) Repair costs (level of effort)

5) Property Type (SFR vs multifamily)

Welcome to BP. 

I prefer the following. 

1. School District

2. Kind of Property (SFR, Multifamily, etc)

3. Determine buy and hold or Flip

4. Fair Market Value vs current value

5. Cost of Repairs 

Hope it helps.

Originally posted by @Andrey Y. :
Originally posted by @Kyle Kyzer:

Rental or flip, 5 things I think are mandatory:

1) Neighbors

2) School system

3) Ratio of your investment to ARV (after repair value)

4) Roof condition (I won't touch a property with a bad roof--I've yet to get a large enough discount to warrant purchasing the home)

5) Condition (if any) for ductwork for central HVAC (same reasoning as roof)

Makes me wonder Kyle, why people say school system for an INVESTMENT (not personal residence). Why do you care about school system, if you'll already know the typical rent rates for the area/building, or will research and ask around? Does it really matter to you? You already know your ARV, projected cash flow, etc. etc.

I can see someone citing "up and coming neighborhood" etc. in order to possibly capatalize on future appreciation. 

Also neighbors? I guess so but neighbors come and go in a lot of cases. The rest of your points, definitely crucial. As for condos, "roof condition" is not applicable :)

 As Frankie said, it's about protecting your investment.  At this point, I'm primarily working with single family rentals, and good school systems do tend to bring a higher caliber renter to the table, particularly with 3-4 bedroom homes.  Furthermore, renters who have kids in schools will hopefully begin to feel connected to the school their kids are in, so  they won't want to move and pull their kid out of their school and away from their friends.  If it's a bad school system, sure the kids lose friends with the move, and that might be a sacrifice the parents are willing to make.  Neighbors matter to me as well because property values and rental values, at least in my local market, correlate with the rental vs owner occupant ratio.  I'm still pretty new to this, but so far these things have been in my mind as I'm looking at properties and I'm pleased with my results...

I am a buy and hold investor in 2+ unit properties in dense urban environments (public school system)  My top 5 are:

1. Neighborhood I can walk alone at night in

2. Solid foundation / basement (My areas are all 100+ year old houses)

3. Hits my minimum Cap Rate

4. Level of repairs required, the least the better 

5. Current Occupancy / Potential to increase rents

Brie Schmidt, Real Estate Agent in Wisconsin (#57846-90) and Illinois (#471.018287)
Originally posted by @Brie Schmidt :

I am a buy and hold investor in 2+ unit properties in dense urban environments (public school system)  My top 5 are:

1. Neighborhood I can walk alone at night in

2. Solid foundation / basement (My areas are all 100+ year old houses)

3. Hits my minimum Cap Rate

4. Level of repairs required, the least the better 

5. Current Occupancy / Potential to increase rents

 Thanks for your response Brie!  If you don't mind telling, what is your minimum Cap Rate?

My top 5 for rentals:

1. Condition of home including roof, HVAC, etc.

2. General neighborhood -I don't worry about schools as much because all of the schools in my city are really good and all of the schools are currently under renovation or have been renovated recently or are going to be renovated within 2 years. But the general neighborhood is important, as that will drive rental rates.

3. Price

4. Lot size/layout -We have some funky lot layouts, and there are some lots (like my own) that have huge easements. Not a deal breaker, but I want to know what my options are and anything that might hamper those options in the future.

5. City involvement -There are neighborhoods that our city is looking to revitalize. I want to be in those neighborhoods, because my value will rise as the city develops around me. Also, there are possibilities of getting favorable treatment by city officials when investing in these areas.

Originally posted by @Sam McPeek :

My top 5 for rentals:

1. Condition of home including roof, HVAC, etc.

2. General neighborhood -I don't worry about schools as much because all of the schools in my city are really good and all of the schools are currently under renovation or have been renovated recently or are going to be renovated within 2 years. But the general neighborhood is important, as that will drive rental rates.

3. Price

4. Lot size/layout -We have some funky lot layouts, and there are some lots (like my own) that have huge easements. Not a deal breaker, but I want to know what my options are and anything that might hamper those options in the future.

5. City involvement -There are neighborhoods that our city is looking to revitalize. I want to be in those neighborhoods, because my value will rise as the city develops around me. Also, there are possibilities of getting favorable treatment by city officials when investing in these areas.

 Sam,  how do you locate these neighborhoods looking to revitalize?  

For Rentals

1. C grade neighborhoods. Although B or A class neighborhoods may attract good tenants butI feel that the  higher price you have to pay for these properties can better be used to purchase multiple properties in lower end neighborhoods. An exception to this would be purchasing a home 30-40 % below market value.

2.Positive cash flow. 100$ +

3.Purchase price. Unless you're buying multi-family properties I don't feel that you should ever purchase a rental property unless you purchase it for at least 20% below Market value (after repairs).

4. Schools/ neighborhood demographics- I prefer neighborhoods of small families close to decent schools.

5. For rent signs. If there are a ton of for rent signs in the neighborhood that should raise so red flags. 

@Matt Juels I have found out about them in 2 ways. (1) I have a freind who has been in talks to do some commercial development with the city, and because of his proximity he has learned about specific areas; and (2) we have discussed it with Development Planner (not sure if that's a correct title) for our city who is a part of our BP REI Meetup.

I should say that I don't know how much money the city is going to put into the area, but I do know that they are putting effort and time into focusing on this one area. It's the entryway to our city and also one of the ugliest.

The best advice I can give is to be known by your city's planning, building and parks department heads. Or start a meetup and invite them.

Rental Property:

1) Neighborhood & Proximity to Me
2) Size/Number of bedrooms
3) Economic Profile: Price, Value, rental income (below or at market rate), upside potential, cash flow, return on invested capital
4) Condition, particularly, Systems/Mechanicals & Foundation/Roof
5) How to optimize the income and increase value

1. Cash flow.  1% rule, or better.

2. Neighborhood.  I want the C property in the A or B neighborhood.

3. Macro conditions.  Jobs/growth potential/competition.

4. Condition of major components (HVAC and roof mostly)

5. Profile of property. For my market, I'm looking for 3br./2+bath SFH or multifamily....in the wheelhouse of my real estate team (property manager, realtor, lender)

cash flow and no repairs or maintenance (owner finance). No need to worry about upkeep if you owner finance wisely. That's the only way I invest in San Antonio and other markets. 

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