SS198: How to Develop Your Real Estate Investment Criteria

SS198: How to Develop Your Real Estate Investment Criteria

Developing your real estate investment criteria involves clearly understanding your financial goals, risk tolerance, market knowledge, and investment strategy. In this episode, Charles discusses creating an investment strategy for your real estate business.

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Talking Points:

TALKING POINTS

  • When I work with new mentoring students, one of the first things I have them do is create their investment criteria. Establishing your investment criteria is similar to making a business plan, and it should reflect your short-term and long-term goals. By clearly defining your investment criteria, you can narrow your focus to what will actually get you closer to your goals.
  • Developing your investment criteria really starts with a basic self-evaluation. This includes an honest review of your current situation.
    • What is your current real estate experience?
    • What is your current financial status?
    • What is your current employment status?
    • What is your risk tolerance?
    • How much time can you dedicate to investing in real estate every week?
  • Answering these questions now and using them to help mold your criteria and strategy will get you started in the right direction. If you only have a couple of hours a week to dedicate to investing, active investing is not really a possibility; passive investing would be a better fit for you.
  • But suppose you don’t have much money, but you have time, and your end goal is to generate a monthly income through rental properties. In that case, get involved more actively with wholesaling or flipping properties to build the funds you need to eventually buy and hold properties long-term.
  • When I speak to new investors, a common misconception is you can jump right to owning rental properties with no money of your own. Yes, you might be able to find a property owner looking to seller finance their property to you with little or no money down. Still, real estate is a capital-intensive business, and you need the proper cash reserves because what happens if the AC goes out or the roof needs to be repaired? As I have learned in real estate and business over the years, there are no shortcuts.
  • After you have reviewed your individual situation and created your goals, the next step is laying out what type of properties you will target. If you are flipping properties, you might start looking for distressed homes of a certain size in your target area. Since we normally talk about buying rental properties on this show and creating recurring income. Let’s break down what that might look like for an investor.
  • To start off, we need to breakdown the basics:
    • The type of property you are targeting – in this case multifamily
    • The size of the property – how many units
    • The class of property – A, B, or C (since we don’t invest in D class here)
    • The class of the area A, B, or C
    • The market and neighborhoods you will be focusing on
    • The price range that you are targeting
    • And the strategy you will be implementing: value-add or yield play
  • What will help you develop your criteria is by considering a few important things.
    • What can be your initial investment amount?
    • Who will be managing the property?
    • What types of loans are available for these properties, and can you qualify for them?
      • How is your credit?
      • What is your net worth?
    • Do you know any possible investors?
      • Maybe family or friends?
    • How much time do you have?
    • And what resources do you have access to?
      • This does not need to be financial or involve having a co-signer; maybe you are a contractor; this is a valuable resource.
    • Your Investment Criteria Will Change and Evolve as You Do Deals
      • Since 2006, my criteria have changed several times, each time becoming more and more specific, which helps filter out markets and properties.
      • I actually have two investment criteria: the first is for property syndications where we are raising money from investors, and the second is if we are buying a property ourselves. We have much stricter guidelines when we accept investor money than when buying a deal ourselves or with a partner.
      • Another one of the changes with my investment criteria has been very specific around the property features, and this is something I left out earlier because new investors might get hung up on it because they are not really sure what they are looking for until they start looking and speaking to agents, brokers and contractors; but are there any specific key property features that are important to you? Number of bedrooms or bathrooms per unit, age of the property, type of construction materials used?
      • For example, I won’t buy a property with galvanized pipe, aluminum wiring, window AC units, or ceilings under 8 feet tall, to name a few, and you will finetune your own criteria as you start buying properties.
      • It is important to note that your investment criteria are not just for you. Yes, it helps focus your attention, but it also serves a greater purpose. It develops credibility with brokers, creditability with sellers, and credibility with investors since you are now becoming an expert in the market.

Transcript:

Charles:
A focused investor is a successful investor, and it all starts with establishing your investment criteria. Welcome to Strategy Saturday; I’m Charles Carillo, and today we’re going to be discussing how to develop your real estate investment criteria.

Charles:
When I work with new mentoring students, one of the first things I have them do is create their investment criteria. And establishing your investment criteria is similar to making a business plan, and it should reflect your short-term and long-term goals. By clearly defining your investment criteria, you can narrow your focus to what actually will get you closer to your goals. Now, developing your investment criteria really starts with a basic self-evaluation, and this includes an honest review of your current situation. Mm-Hmm, <affirmative>. So what is your current real estate experience? What is your current financial status? What is your current employment status? What is your risk tolerance? How much time can you actually dedicate to investing in real estate every week?

Charles:
And answering these questions now and using them to help mold your criteria and strategy will get you started in the right direction. If you only have a couple hours a week to dedicate to investing, active investing is not really a possibility. Passive investing would be a better fit for you. But suppose you don’t have much money, but you have time and your end goal is to generate monthly income through rental properties. In that case, get involved more actively with wholesaling or flipping properties to build the funds you need to eventually buy and hold properties long term. When I speak to new investors, a common misconception is that you can jump right into owning rental properties with no money of your own. Yes, you might be able to find a property owner looking to sell or financing your property to you with little or no money down.

Charles:
Still, real estate is a capital intensive business and you need to have proper cash reserves because what happens if the AC goes out or the roof needs to be repaired? As I have learned in real estate and business over the years, there are no shortcuts. After you’ve reviewed your individual situation and created your goals, the next step is laying out what type of properties you will target. If you are flipping properties, you might start looking for distressed homes of a certain size in your target area. Since we normally talk about buying rental properties on this show and creating recurring income, let’s break down what that might look like for an investor. To start off, we need to break down the basics. The type of property you are targeting, in this case, multifamily, the size of the property, how many units, the class of the property, A, B, or C.

Charles:
Since we do not invest in D class properties here and the class of the area A, B, or C, the market neighborhoods, you’ll be focusing on the price range that you are targeting and the strategy you’ll be implementing, whether it’s gonna be value add or yield play. Now, value add, just to give you a heads up, that’s really what we focus on here. That’s going into a property. Adding value to the property. So doing renovations, fixing management, getting the value up by raising rents. And a yield play is buying a property that’s already had that done and now we’re just going in and just collecting rents. Much easier, much simpler, much safer, but also lower returns. So moving forward, we wanna talk about how you will develop your criteria is by considering a few important things. What can be your initial investment amount?

Charles:
Who will be managing the property, what types of loans are available for these properties, and can you qualify for them? How is your credit? What is your net worth? These are all things that are gonna be important when you’re going out for mortgages. And do you know any possible investors, maybe family or friends that would invest alongside you? And how much time do you have? What resources do you have access to? And this does not need to be financial or involve having a co-signer. Maybe you are a contractor and this is a valuable resource that’s gonna allow you to go into certain deals that maybe someone without that much construction experience is gonna be able to get involved with. And your investment criteria will change and evolve as you do deals. Since 2006, my criteria has changed several times. Each time becoming more and more specific, which helps filter out markets and properties.

Charles:
I actually have two investment criteria. The first is for property syndications, where we are raising money from investors. And a second is if we are buying properties ourself or with small, you know, jv, joint venture groups like myself and one or two other partners. We have much stricter guidelines when we accept investor money than when we were buying a deal ourselves or with a partner. And another one of these changes with my investment criteria has been very specific around the property features. And this is something I left out earlier because new investors might get hung up on it because they’re not really sure what they’re looking for until they start looking and speaking to agents, brokers, and contractors. But there are specific key property features that are important to you. And is this the number of bedrooms or bathrooms per unit, the age of the property?

Charles:
Maybe some type of construction materials were used. For example, I won’t buy a property with galvanized pipes for water incoming to the property, aluminum wiring window, AC units or ceilings under eight feet tall to name a few. And you’ll fine tune your own criteria as you start buying properties. It’s important to note that your investment criteria are not just for you. Yes, it helps you focus your attention, but it also serves as a greater purpose because it develops credibility with brokers, credibility with sellers and credibility with investors. Since you’re now becoming an expert in the market. And one of the things that that makes it so important is because when you are speaking to someone and they’re kind of all over the place, it’s not the most professional of people to work with. But when you’re speaking to someone, no matter what field it is, and they are specifically laser focused on certain things and they won’t go here and they won’t go here, but right here in the middle where their focus is, that’s where they do it, that’s where you’re gonna become that expert and that’s where people are gonna take you more seriously, and it’s gonna help you build your real estate business easier.

Charles:
So please remember to rate, review, subscribe, submit comments and potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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