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What Kind of property we like to buy

March 26, 2011

Finding the right neighborhood is our first objective when considering a property.  We are looking for a good working class neighborhood.  Our tenants might work at Discount Tire, Walmart, Home Depot, night manager at a Pizza joint, etc.  They don’t make quite enough to own a home, but should make a good tenant.

Once we find the right neighborhood, the next choice is picking the right house.  With everything on the market today, it’s like a kid in a candy store.  There are homes everywhere for sale, but I find you can eliminate many of them right away with a basic cash flow analysis.  Don’t even mess with the retail stuff and focus on the investor properties.  I put a list together of what I am looking for as a buy and hold investor and why:

  • Single Family Homes.  I think starting out SFR are better than duplexes, quads, apartments, etc.  Single family homes are more readily available, more marektable for resale/rent, and more affordable.  I also avoid condos, townhomes or anyplace with an HOA.
  • Prefer 3-2.  3 bedrooms and 2 baths are the ideal size home.   These are great starter home sizes that will always be in demand.
  • Prefer bricks over frames.  Brick is timeless, solid, and needs less maintenance.  Bricks are more expensive, but they rent for more and I feel they are the better buy.
  • Close to your primary.  We like to buy our rentals close to our primary home or workplace – I would say no more than 30 minutes drive.
  • Good to fair condition that needs paint and minor cosmetic work preferred.  I started buying homes that only needed minor work and I still prefer to buy them this way.  Remember you only need to get it rent ready, so some problems like a minor foundation issue don’t need to be repaired.
  • Decent curb appeal, not a dog.  I don’t like to buy the ugliest house on the block and then fix it up.  It’s too much work.  I want the house to look good from the street and fit in well with the rest of the neighborhood.
  • 1-2 car garage.  No converted garages, sun room, add-ons, etc.    I have seen a few conversions that are done well, but overall there are just too many potential problems from these build outs.  Most are not done properly or won’t meet city codes, they look ridiculous and now the home has no garage.  Texans love their cars and they like to have a garage.  Even if they just cram it with stuff, at least they have the space.
  • No pool, spa, garden, fish pond, etc.  I don’t like any feature that requires maintenance like this.  I don’t even like lots of landscaping.  Anything that looks like maintenance or could be a liability, I try to avoid.

These are the specifics we are looking for in the property itself. Obviously, it still has to cashflow and I like to earn 10% or more (CAP rate) on my investment. I never assume appreciation in my calculations. We buy as if we will be happy if the house never appreciates a dime. When you purchase with this criteria you will almost certainly have equity in the home at your purchase price. My exact purchase criteria I will have to detail in another post.

From → Buying

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