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 money fast. If there are no immediate profits on the deal, we walk away. For example, we don’t buy land – new construction takes too long and we went through the recession of 2008-2010. That market flip happened quickly, like someone flipped a switch. Builders were the first to be put out of business because, by the time their properties were ready for the market, it was too late: they had no buyers and most of those properties were seized by the banks.

For much the same reason, I avoid major rehabs. I have no idea what the retail market will be like in 9 months. My goal is to be in and out of a deal quickly. I like my retail rehab to take 3 months or less from purchase to sale.

Potential Appreciation: 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 earnings before 15 or 20 years from now, so I focus on cash flow when planning to hold. By the way, you should generate a good cash flow from day one; I don’t want to wait for a future date to start generating income.

potential benefit: One thing we have done from the beginning is demand profit on the day we buy. Because we never speculate about the future, we survived the 2008-2010 economic downturn basically unscathed. We want cash flow and equity when we buy. Those give us room to sell for less or lower rents as needed when market values ​​drop.

How do we determine how much to offer? It depends, I know it’s a terrible answer, but it’s true. The location, the quality, the condition and our exit strategy (wholesale, rehabilitation, rental) play an important role in 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, shop conservatively. For us, all purchases must have equity and cash flow from the day we close on the purchase. The flips must have high ARV (After Repair Value) earning potential so we can sell it below market value, if necessary, to sell it quickly. I want all rehabs to be sold, not for sale.

The key strategy that has carried us safely through all our ups and downs in the marketplace has been: “be conservative”. There is enough real estate and enough opportunities every day that there is no reason to go after the risk. My investment comfort level is slow but safe!

Focus: The biggest investor mistake I’ve seen over the years (over and over again) is to get impatient and distracted. Too many have unrealistic hopes that real estate investing is a quick or easy way to get rich. It is none. Pick a strategy, take the time to learn it, and stick with it. The tremendous rewards are worth the wait.

What do you look for in an investment property?