Real estate investing is a tricky business. As the markets across the country begin to heat up, the opportunities that existed for real estate investors over the past few years are dwindling. Are there still good deals out there for investors? Of course. Are they as readily available? No. Is there a lot more competition for the good deals? You bet.
All of these factors make it even more important for the prudent real estate investor to be more resolute in their investment criteria. The big temptation is going to be “settling” for properties that are not what you are looking for, but instead to go after what you can get. I assure you, my friends, that this is a dangerous game to play. The results of playing that game can be terrible. Think about it this way: if you needed heart surgery, would you settle on the second or third or fourth best surgeon you could find? I doubt it. In the long term, being more selective in tight markets will result in the returns you are looking for from your real estate portfolio.
So, let’s take a minute, if you haven’t before, and really sit down and go over your investment criteria. These factors will determine what you buy, what you pay for it, and what you get out of it. Your investment criteria will determine, over time, your success as a real estate investor.
The Big 3
There are three big criteria we look at when coming up with an overall investment plan for our clients: the area, the house, and the money. By having pre-set, well-defined ideals on these three things, you can pick and choose what you will and will not compromise on when it comes to choosing the right property for your portfolio.
The Area
Where do you want to concentrate your efforts? If you live in a certain area and are going to manage your portfolio on your own, we recommend that you don’t buy homes outside of a 20-minute drive from your residence or office. There are, of course, exceptions to this rule, but it is a good starting point. If you are going to hire a property manager, the area can be more diverse, but we still recommend that you be familiar with where you are investing. The more you know about the area, the easier it is to choose the correct properties. Once you have selected a primary and secondary area (the secondary are can just be a slightly larger version of the primary) for your efforts, it is time to move on to the specifics of the house.
The House
There are a lot of variables that come into play here and only you can, knowing the area, make the correct choices for what you are looking at. Things that you want to consider include: year built, square footage, number of stories, number of beds and baths, garage space, certain building materials, and lot size. For example, in the suburban Houston area, for our investors looking to buy and hold, we generally recommend a property that looks something like a 3 bed, 2 bath, 2 car garage, one story that is less than 2000 square feet and was built after 1980. This criteria allows them to look at a wide range of properties and communities in their area that will most likely produce good returns and will not pose a problem when it comes time to sell. Based on the area you already chose, take a look at the average sales and use that to build your criteria. If you do not have access to that information, have your Realtor help you.
The Money
Last, but certainly not least, is the money part of the equation. What equity level do you need to have? What do you need in monthly income (include property management fees if you are going that route)? What about rehab, down payments, financing, etc? These questions are a MUST when you set your criteria. At the end of the day, they determine your success as a real estate investor. Again, if you don’t know the answers, get with your Realtor, contractor, and/or lender to help you before you make a final decision on a property. If you just jump into a property without knowing these items, you are just asking to get surprised by something you couldn’t see beforehand. One of the biggest mistakes we see investors make is not doing the financial due diligence. They just look at a property’s price, guesstimate a generic rehab cost, look at a comp, and buy. That is usually the last investment property that they purchase.
Once you have determined a good set of criteria for making your real estate investment purchases, start looking. Just know that you are not likely to find something that fits 100% of your criteria. Your job is now going to be figuring out where you will and where you will not compromise on your criteria. I would not recommend being very flexible on the money side of things. The other items though, you can be a little flexible. If it’s a four bedroom versus a three bedroom, or maybe it’s a little larger, you can make those decisions based on what you already know you want. The key is this, if you don’t know what you want before you start looking for investment properties, you won’t know what you are getting. If you don’t know what you are getting, you are going to get surprised. Be prepared, be prudent, and be patient. Best of luck to you!
We’ve been buying, selling, and helping real estate investors since 2006. Never, despite great markets, have we seen more people wanting to get into real estate investing than we are seeing right now. There are several reasons which could make up an entire other blog post (and might). For today’s purposes, we’ll skip that and get to the point. We get LOTS of questions and are glad to answer every one of them. The real problem is that most of the questions are the wrong questions for people who are just getting into things. My opinion is that they go to a seminar or read a book and they, naturally, begin to put the cart before the horse, mostly out of excitement.
There are few things that drive me more crazy than national news agencies telling me what the real estate market is based on what is happening in either New York or LA or because of some foolish index says. I think it is irresponsible, unprofessional, and, more importantly, wrong 90+% of the time.
Pets are part of your family. Chances are that when you look back at the home you are selling, your pets are a big part of the memories you have made there. As much as we love our pets, they can pose several problems when you want to sell your home. Planning ahead can save you a lot of time and stress. Here are some of our tips. Feel free to share your own at the bottom of the page.
The National Association of Realtors has research stating that over 90% of home buyers start their home search online. I can certainly attest to that. Fact is, most of the buyers I work with are sending me a list of properties that they have seen online and want to go view. While the internet has proven an invaluable tool for buyers and sellers, it is not always the best when it comes to picking homes to view. It might seem counter-intuitive for me to say so, but I will explain.
Having a solid understanding of the appraisal process can help you get a fair deal when selling or refinancing your home.
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