When I speak with prospective buyers of income property – one thing they always ask is, “Do you know of any good deals?” Depending on the market cycle we’re in – buyer or seller – this can be a tough question to answer, so I say, “What’s your definition of a good deal?”
Back in the boom years most buyers were focused on one goal – appreciation of value. I too had ‘speculation fever’- but we don’t talk about that anymore, especially when my wife is around. Appreciation is just one of the many benefits true real estate investors consider when deciding to purchase income property. Other advantages to owning investment real estate include tax advantages and – most importantly – CASH FLOW.
In his bestselling book, “The Millionaire Real Estate Investor”, Gary Keller – author and founder of Keller Williams –advises that there are always ‘good deals’ to be had in the marketplace – as long as the properties meet the rigid criteria of that particular investor. He further explains that when purchasing investment properties, a savvy investor makes their money when they buy their property – not when they sell. According to Keller, real estate investors should measure every property against a strict set of criteria before they even consider writing an offer. This takes the emotion out of the purchase and ensures against bad buying decisions.
No matter if their purchasing a fourplex or purchasing a large multi-family apartment building – below are the minimum set of criteria every investor must know in order to make their money going in on any real estate investment.
- LOCATION: Where do you want to own investment real estate? This is especially important if you plan to self-manage. When you find a property your interested in, go drive by the property right away, get a feel for the neighborhood. Do you want to own a property there?
- PROPERTY TYPE: Single family, condominium, 2-4 unit income properties, or multi-family apartment buildings. Each asset class ha pros and cons – but in his book, Keller says that units i.e apartment buildings, are the best investment for their economy of scale.
- ECONOMICS: There are many considerations involved in the economics of your transaction.
Price Range: What can you afford?
Capitalization Rate: What are your expected returns?
Cash Flow or Appreciation: What is your goal?
Discount: What is your expectation around buying at a reduced price? - CONDITION: Are you looking for a turn-key investment or a fixer-upper?
- CONSTRUCTION: When was the property built – what types of materials used?
- FEATURES & AMENITIES: What are your requirements?
If you’re just starting out – go out and buy the book “The Millionaire Real Estate Investor” If you take the time to consider Gary Keller’s short list of six things you need to know when buying rental units – you’ll at least to be off to a solid start to becoming a millionaire real estate investor.
Doug Taber of Apartment Realty Group works with people who want to build wealth buying and selling apartment buildings in San Diego. Call Doug at (619) 354-9897 or visit www.YourApartmentBroker.com
