Commercial Real Estate - Developing an Investment Criteria

Greetings from Flagstaff, AZ. With a car full of kids and a plan for a perfect family vacation…. I will be making my way up to the Grand Canyon then off to Sedona, AZ for a week. By the way…the perfect plan flew out the window the first hour of the trip.

During my long drive to the great state of Arizona, I had a lot of time to think. Specifically, time to think about all that is going on with the real estate market. Of all that is happening in our economy, the one thing I know is that the worse things get the more opportunities there will be. But when will the opportunities show up? Well….if you have had your ear to the ground ….compared to that last few years…the opportunities have arrived…or have they? I am a believer that things have not bottomed out and I think things are going to get much worse. So…with that in mind, better opportunities are still coming….right?

But ….I am tempted

You see, I am having an emotional dilemma. What if things have already bottomed out? Will I miss out on the current opportunities if I do not move now? If I make a move, what markets should I look at? All of a sudden, I realize I am asking the same questions I asked myself last year and the year before….and the year before that.

Is there such a thing as “recession proof”?

Now add to my dilemma the theory of a “recession proof” market. The one thing I am hearing over and over…is that there are real estate markets that are recession proof. Is there such a thing? From all my time in business school the one thing I remember is cycles travel. In other words, all markets will get hit…it is just a matter of time (only the severity of the hit is unknown)….like a ripple effect. For example, as we watch California’s real estate market fall into the sea….Oklahoma is still going strong. So strong that the state brags about it. But if cycles travel…is it just a matter of time? In theory….yes.

A close friend of mine who is a “self-proclaimed” economist states that the Dallas/Ft. Worth area is recession proof. I also heard that Oklahoma City is recession proof. So…as nice opportunities come up in these areas….I am tempted.

What to do?

Develop an Investment Criteria

Late last year, I wrote down an investment philosophy for myself on how I was going to invest for the next few years. The overall theme of my philosophy was to be a “vulture investor.” In other words, the plan is to act on opportunities that are “cherry deals.” The cherry deals had to have the following “aggressive” criteria:

Blue collar assets. Investments that tailored to lower income populations. Class C apartments, “Thrifty” retail, mobile home parks, etc.
No land…unless I have money to park long term
Seller Financing or partial seller financing
Purchase at sixty percent of value or less
Positive demographics
Familiarity with the area
Solid property management in the area

Now…there is more to my criteria….and a lot of room for a “case by case” assessment…but every time I am confused or “tempted,” I review my real estate investment philosophy, make adjustments, then make a move.

Needless to say, I have yet to make a move to aquire an asset in the last several months…but not because of the lack of action but because the opportunies have not met my investment criteria.

So….to keep from making emotional mistakes….developing an investment criteria before acquiring an asset can keep you from being a lemming.

Until next time……rob

Photo Credit: DanieVDM

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.