5 Useful Criteria for Investors to Help Build Wealth
When the average home buyer looks for a personal residence they look for specific criteria. These are things such as 3 bed, 2 bath, bungalow, updated kitchen, 2 door garage, man cave, etc. The more items on their wish list that can be checked off; the more comfortable they are with the decision to buy.
Although the criteria for buying investment properties might be different than with personal residences, the concept is essentially the same. As you learn how to invest in real estate you will see that as investors we establish criteria that will help us get to our end goals. With Investment property that goal is cash flow and profit.
Simple Acquisitions employs various selection criteria to assist in their acquisition choices. Let’s review 5 of the key ones here.
- Cash flow positive. A property may not be in the ideal cash flow position at the time of purchase, but it needs to cash flow. The rent from your tenants pays the mortgage so it’s important to have cash flow to cover that expense.
- Ugly Duckling. An ideal property would be one that is the worst property on the nicest street or neighborhood. Real estate is all about location. Buying a property in a not so desirable location will make it challenging to get the right tenant. This is true even if you do an amazing renovation. On the other hand, if a not-so appealing property in a great area is fixed up, then getting good tenants will be less difficult.
- Below market value. Buy properties below market value. By implementing strategic improvements and/or enhancements to the property, we can increase rents. By increasing rents we can increase the net operating income. As a result we can raise the value of the property. Increasing the property’s net worth can be useful for refinancing opportunities. Can you see the incredible benefits of this buying strategy?
- Low vacancy neighborhood. Your positive cash flow is directly linked to occupancy. This criterion links to No. 2 above. You want to buy in a market that has both economic & population growth. Growth means the potential for higher occupancy. Higher occupancy can mean more passive income.
- In the right niche. Simple Acquisitions looks for properties that range between 50 – 150 units. This range is often too big for the individual investor and too small for the large real estate investment companies. It’s a good niche. We also like to look for properties that are large enough to have an on-site Property Manager.
There are many other criteria that are factored into the buying decision. These include things like unit mix, building age and construction type. Not all may be present for every property. Selection criteria are beneficial They help us narrow down properties to those we feel will provide them with the best financial results. An important point to note thought, regardless of the criteria, if a deal doesn’t make sense financially, it’s not going to be a strong investment.
Multi-family real estate is a great way to build wealth. Interesting in learning more about how to invest in real estate with rental properties? Sign up for our Multi-family Investing Video series.
If you want more information about property selection criteria or how to invest in real estate, get in touch with us.