Bottongos.com

Committed for Better Business

I was recently asked what key things we look for in an investment property and what criteria we use to determine how much to offer for it.

Number one, it has to make us earn money quickly. If there are no immediate gains on the deal, we walk. For example, we don’t buy land – new construction takes too long and we went through the recession of 2008-2010. That market shift happened quickly, as if someone flipped a light switch. Builders were the first to go out of business because by the time their properties were ready to market, it was too late – they had no buyers and most of those properties were taken over by banks.

For practically the same reason, I avoid large restorations. I have no idea what the retail market will be like in 9 months. My goal is to get in and out of a deal quickly. I like that my retail rehab takes 3 months or less from purchase to sale.

Appreciation potential: Don’t count on appreciation. Appreciation works only in a very small segment of the country: big cities like Seattle, Phoenix, LA, Miami. For most of us, appreciation is very slow and I want to make a profit 15-20 years from now, so I focus on cash flow when I plan to hold. By the way, you need to generate good cash flow from day one; I don’t want to wait for a future date to start generating income.

Potential profit: One thing we’ve done all along is demand a profit the day we buy. Since we never speculated about the future, we emerged virtually unscathed from the economic recession of 2008-2010. We want cash flow and equity when we buy. Those give us room to sell for less or for lower rents as needed when market values ​​fall.

How do we determine how much to offer? It depends, which I know is a terrible answer, but it’s true. The location, quality, condition and our exit strategy (wholesale, refurbishment, rental) are part of our offer. There are always additional things that also have an impact, even if we have to pay the funds to buy a property. In that case, we offer less because we have a cost associated with the loan, but if the seller is willing to finance, we can offer more.

Be conservative: Most importantly, buy conservatively. For us, all purchases must have capital and cash flow from the day we close the purchase. The flips must have a great potential for ARV (value after repair) earnings so that we can sell them below the market value, if necessary, to sell them quickly. I want all the rehab to be sold, not to be sold.

The key strategy that has helped us overcome all the ups and downs of our market has been: “Be conservative”. There is enough real estate and enough opportunity every day that there is no reason to go after risk. My comfort level when investing is slow but safe!

Attention: The biggest investor mistake I’ve seen over the years (over and over again) is being impatient and getting distracted. Too many have unrealistic hopes that real estate investing will be a quick or easy means of obtaining wealth. It is none. Choose a strategy, take the time to learn it, and stick with it. The tremendous rewards are worth waiting for.

What are you looking for in an investment property?

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