Elimination of Owner Carry Mortgages Disastrous

Attention all real estate investors!  HUD is proposing to eliminate ALL seller financing with two lame exceptions:

• Seller lives in the home, or
• Seller becomes a licensed mortgage originator

Passed last year, the federal SAFE mortgage act passed last year preserved the right for sellers to make up to five seller financing transactions per year without needing a mortgage originator license.  But that law was passed subject to HUD’s approval as “compliant” with the intention of the federal law.  This means that, for those states which do not have a ‘compliant law’, the SAFE act allows HUD to implement licensing for those states.  HUD has since issued proposed rules which would no longer allow seller financing for non-owner occupied homes.  This is a disaster for real estate investors trying to capitalize on the high-inventory and poor lending environment we currently face!

Please contribute and do your part to help our industry comment to HUD on this issue.  Efforts to affect this law will not be successful unless thousands of individual investors communicate that we are opposed to this the rules.  Please submit your comments to HUD today, here are the links:

To read the proposed rules, go here – http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480a6b033

To file your comment, go here – http://www.regulations.gov/search/Regs/home.html#submitComment?R=0900006480a6b033
and fill out the form.

Here are some sample message to relay to HUD:

• Mortgage bank loans are not available on many types of properties today
• The current lending climate has made traditional bank financing impossible for some borrowers
• Seller carry financing is a solid way to help the housing industry recover
• These rules would prohibit even partial seller financing – e.g., a “owner carry second”
• Many investors own a property free and clear and would like to get interest on their investment
• Million of Americans own a property other than a primary residence
• Mobile homes are more difficult to sell with bank financing, and there are LOTS of them

Please comment TODAY and help our industry.  It only takes 5 minutes.

FHA Mortgage Broker and Banker Lender Time Frame

This scenario has happened often enough in our office recently that it has become newsworthy and worth sharing with other real estate agents, buyers and investors:  Our buyer clients are getting a competitive advantage in the 1^st time home buyer and investment property markets because of a mortgage strategy, and by working with a specific type of financing company – FHA approved mortgage banker that underwrites and funds locally on a warehouse line.

Too many offers, too long to close

Are you shopping for a house in the Denver real estate market, or an agent representing a buyer, in the $300K and under price point?   Are you experiencing stiff competition for good properties that are priced correctly?  Here’s an explanation:

• Moratoriums on foreclosure properties and REO inventory hold backs
• Inventory is down to historic lows in the lower price ranges
• 1^st Time buyer demand is high for remodeled houses and sweat equity bargains
• Investor demand for flip and rental properties is feverish

The most common challenges we hear from our agents and buyer clients:

• Multiple competing offers for good properties and losing deals
• Challenging lending environment and changing rules
• Very long underwriting timelines for loan approvals
• An over correction on appraisal values that are below market price

How do you compete in this market for the best priced properties?

We have had success lately winning contracts by offering shorter closing times to the seller or listing agent.  All things being equal, shorter escrow periods get attention.   Most sellers are motivated to close quickly, especially investors who have remodeled a house for resale.  Also, with the first-time homebuyer tax credit deadline fast approaching, it is doubly important to have confidence in your lender’s ability to get the loan done quickly.

Use a mortgage company that directly underwrites your loan

There are many articles online about the differences between mortgage brokers, mortgage brokers, and correspondent lenders, so I won’t go into detail in this post.  But the key difference for buyer, seller and agent alike is the time-frame for underwriting and funding.   In order to write offers for fast closes, you will need to work with a finance company that underwrites and approves loans in-house.  The best companies are approved to sell bundled loans directly to FHA.  Ask!

Brian Neufuss is the mortgage lender that we have worked with for the past several years.  And he deserves some accolades for his work recently in building relationships and getting loans approved locally and quickly with far less “red tape” than any other that we’ve worked with.  He has benefitted our clients and real estate investment business, but has also impressed listing agents whom our clients have purchased through.

Please know that this is a freely given endorsement and recommendation of Brian’s expert services with no intent other than to thank him.  He has consistently pushed deals through for us with the lowest possible rates, whether for owner-occupant, first time home buyer, investment property or refinances.  Please feel free to contact him to ask questions about his business and system at the following number or use our Contact Form on our website and I will forward to him (we don’t put email addresses on the website for the spam bots to grab).

Fastest Loan Approvals in the West

Brian Neufuss, Mortgage Banker

Denver, Colorado

303-250-1841 direct line

*Private and Hard Money Loans also available for Investors

Self Directed, IRA Loans, Property Types, Investment Groups

In 2009 we have had a lot more requests and questions from clients about using IRA funds to purchase investment real estate for fix and flip projects and rental properties.  So I thought I would post an FAQ with answers.  Here are the Top 5 Questions from 1^st time investors using their IRA funds to buy income property:

#1 How do I get access to my IRA funds to buy a house?

In order to begin the process, you will need to establish a self-directed IRA account.  It is unlikely that you will be able to obtain this type of IRA account with your current brokerage or bank.  A quick Google search will retrieve many custodians who help investors open IRAs for real estate purchases.  After comprehensive due diligence of many of these companies, we have selected Equity Trust Company for our own accounts and recommend that our clients include this company as part of their selection process for a custodian.  Consider account and transaction fees, allowed structures, types of entities, consulting and customer service when selecting a custodian.

#2 Can I get a Loan in my IRA to purchase investment property?

Yes, you can get a loan for up to 65% of the purchase price of a property in your IRA using what is called a “non-recourse” loan.  This type of loan is not personally guaranteed by you, it is only secured by the property within your IRA account.  One of the leading lenders in Colorado serving IRA customers is First Bank.  They have a specific and streamlined program that we highly recommend.  You can read about all the plan and property qualifications at this link called Loans to Purchase Real Estate in your Retirement Account.

#3 What kinds of property can I buy using my IRA funds?

Within your IRA, you will have many options for real estate investments.  The most common is purchasing property directly and getting fee simple title.  The title will be held in the name of your IRA, not your personal or business name (with or without leverage or loans).  Another option is buying into ownership of LLC’s or Limited Partnerships that own and operate income property.  Your IRA may also be a lender that holds a mortgage on a property that pays interest to your IRA that is secured by real property.  This is called investing in notes (promissory notes).  In the first two examples, your IRA is the owner of a property, and the last example your IRA is a lender to an owner of the property.  Any of these can be good investments for your retirements funds, all of them have risks and should be only be undertaken after careful consideration.  After all, these are your life savings!

#4 How can I get the Money out of my IRA?

Well, here’s the bad news and the good news:  You cannot pay yourself or take profits or cash-flow from real estate investments in your IRA and put them in your pocket today.  Sorry.  But, the good news is that you are doing yourself a favor by growing your net worth and savings and that will increase your borrowing capacity and ability to do deals outside your IRA accounts for current income or short-term capital gains.

What do I do First? Or How Do I Get Started?

Sometimes this is the first question, and sometimes it’s the last!  I always recommend that investors (especially novice investors) begin the process by interviewing and hiring two experienced and competent advisors.  First, an accountant and second an agent or real estate investment advisor.  It is critical to choose real estate professionals that understand the benefits and risks of investing in real estate (whether in your IRA or otherwise).  Be aware that there are many accountants and real estate agents that are very knowledgeable about normal transactions, but there are only a limited number that specialize in investment property, and even fewer who understand IRA rules and regulations.  In other words, don’t just hire your brother-in-law!  Seek out people who have been where you want to go.  Find people who have an existing team that you can use; leverage other professionals who have paved the way for you!

NOW is the time to get started, Happy Investing!

If you or someone you know is interested in these types of IRA real estate investments, please us the Contact Form for additional information.

Bank Loans, Private Hard Money, IRA Funds, Syndication

Following are 10 most common ways to finance investment property for either a fix and flip project or long -term rental.  They are listed in rough order of complexity and experience necessary.

1. Mortgage Bank Loan

2. Local Bank Loan

3. Hard Money Loan

4. IRA or 401K Funds

5. IRA Funds with Non-Recourse Loan

6. Owner Carry Mortgage

7. Private Money Loan

8. Subject-to Existing Financing

9. Joint Venture Agreement

10. Syndication Sponsorship

Public and Private Real Estate Loans Explained

1. Mortgage Bank Loan - Although the days of freewheeling investment property loans are over, the bank mortgage is still the most common method for financing investment property.  Currently lenders require a minimum of 20% of purchase price as a down payment and a debt-to-income ratio of 42% or lower for investment property.  Since the sub-prime lenders all became defunct, very few mortgages have prepayment penalties and are thus suitable for either fix and flip projects or long-term hold rental properties.

• Always work with a mortgage professional who specializes in investment loans
• It is best to work with a mortgage banker who funds loans on a warehouse line

2. Local or Specialty Bank Loan – Local banks provide funding to investors with similar qualifying criteria as mortgage banks, but often with more flexible terms and programs.  Local lenders and smaller banks are more apt to provide short-term loans (albeit at higher rates) for investors and some will lend on a Loan-to-Cost (LTC) basis rather than a Loan-to-Value (LTV) basis.  If you use a bank or mortgage company that lends on LTC basis you may be able to borrow all or a large portion of funds required to make repairs or renovations.  Many smaller banks have specialty loans, including construction loans and construction to permanent loans.

3. Hard Money Loan – Professional hard money lenders will make investment property loans based on the equity in a property and are less concerned than bankers about the quality of the guarantor. Hard money loans are significantly more expensive than bank mortgages and most lenders will require at least 35% equity in the property.   Some hard money lenders will loan 100% of the acquisition price as well as the cost to repair or remodel the property.  Hard money loans are short-term, and therefore only suitable only for quick-turn or fix and refinance projects.  Rates fluctuate based on demand, but borrowers should expect to pay 20% or more annualized interest in the form of points, fees and carry.

4. IRA 401K Funds – Funding real estate investments with IRA funds is also becoming more mainstream.  To use these funds, you must be able to roll-over your retirement funds into a self-directed retirement account.   Self-Directed IRA account custodians will be able to provide you with rules and regulations about what you can, and cannot purchase, with tax deferred retirement funds.  The simplest way to invest these funds is to purchase a property for all cash within your retirement account.  The property is titled in the name of your IRA (not you personally) and the custodian works with you on reporting to remain in compliance.

5. IRA Funds with Non-Recourse Loan – Leveraging your IRA funds by obtaining a mortgage for part of the purchase price is more complicated than paying all cash, but is possible.  There are banks that will lend up to 65% of the purchase price on a “non-recourse” loan to your IRA.  This means that you are not personally signing as a guarantor on the loan.

6. Owner Carry Mortgage (OWC) – Some property owners who have no mortgage debt may be willing to “carry the mortgage” for purchasers.  This is in effect a private money loan.  In the current economic climate this can be mutually beneficial to lender and borrower because it is difficult to obtain mortgage loans, and it is also difficult to find safe places to put capital with good returns.  The amount of down-payment, rate, and term of the loan are all negotiable between parties.

7. Private Money / Private Equity Loan – Private money loans  (sometimes called peer to peer lending) are becoming more popular since bank lending has subsided.  More and more people are looking for a way to get a return on idle capital that has been pulled out of the stock market.  These types of loans are similar to a hard money, but the difference is that private money loans are generally not made by people who are “in the business” of lending money professionally.  They are generally loans from friends, family, contacts or colleagues.  This is an excellent method for experienced real estate investors to fund deals.  Private lenders will either lend on a simple interest basis, take a percentage of the profit for the loan, or a combination of the two – called a “Pref and Profit” arrangement.  The “pref” is a preferred return that is paid before the profit is calculated.

NOTE:  There are many securities laws that govern lending money which you should become familiar with before engaging in these types of loans or investments.   Most real estate professionals will “fly under the radar” if they do a low volume of business with friends and family on single investor first deed of trust notes and do not advertise.  However, if you have any intention of “pooling funds” or advertising for investors we strongly recommended that you discuss your business with a qualified securities attorney.

8. Subject-to Existing Financing – One of the least understood and rarely utilized methods of the real estate investing business is the subject-to existing financing mortgage.   Generally this type of mortgage will be between a distressed property owner and an experienced real estate investor who understands the legalities and risks.  “Subject-to” means that the buyer will “take over payments” of the seller and leave an existing mortgage in place with a new deeded owner.  Although modern day mortgages will all have a “due on sale” clause in the deed of trust, few lenders will actually initiate a notice of default if regular payments are being made by the new owner.  Although there are crooks in our business who abuse this strategy and defraud sellers and lenders, in many cases a subject-to mortgage can be negotiated as a win-win scenario for all parties.  It is recommended to utilize an escrow officer who is experienced in these types of transactions when closing subject-to existing financing.

9. Joint Venture Agreement – This strategy may have some elements from each of the other methods of financing property:  a mortgage bank loan, private equity, OWC and sweat equity or other services rendered.  When two or more people or entities combine skills and resources to finance and operate a property it is done in a joint venture.  In many cases a capital investor will joint venture with an operator who finds and manages the investment.  In other cases partners agree to split equity and/or debt obligations on a pro-rata share.  Many joint ventures are set-up legally as Limited Liability Company (LLC) memberships.

10. Syndication Sponsorship – This is the most complex form of financing properties and usually reserved for larger capital raises on commercial, development and multi-family projects.  Syndication means a sponsor sells investment interests in an entity:  Limited Partnership, LLC, corporation, or tenancy in common titled real property.   At this level of financing state and federal securities laws become applicable and legal representation for both sponsor and investor are recommended.

UPDATE

Keep Updated Personal Financial Statements

The best preparation for meeting with a lender – especially a private or hard money lender – is to have your “docs in a row.” When I work with a new client that does not have a current personal financial statement, our first step is to get their complete financial picture onto an organized spreadsheet.  Some are pleasantly surprised to learn their true Net Worth, some are disappointed (but motivated!).  Everyone thanks for me for this exercise when we are finished.  Creating a PFS is also beneficial for owner occupant buyers.  It is just as fun to impress traditional mortgage bankers by uploading your loan application to his computer from your thumb drive.  You get instant respect.

Don’t Believe “Pre-Qualification Letters”

Many real estate brokers will leave the process of organizing financials to a mortgage broker or banker.  But consider the value to your client, and yourself, of working on this together as a first step.  By assisting your client from initial financing to post closing follow-up, you earn higher respect as a real estate professional.   Also, I prefer to know a clients credentials *before* I spend my valuable time with them shopping for properties.   I have found over time that prospects who are unwilling to share financial information with me are far less likely to actually buy, so this one criteria is an excellent method of “separating the wheat from from the chafe.” This is especially true among people who call themselves real estate investors; there are lots of people who purchase real estate investment courses and attend the “guru seminars,” but never actually purchase any real estate.

Whether you are working with a traditional mortgage broker, local banker, or private equity lender, having financial documents organized and presentable at a moments notice is always impressive.  So impressive, in fact, that with private lenders it even makes up for a certain amount of weaknesses that may be present in the statement itself.

“Do or Do Not.  There is no Try” – Yoda

What’s the moral of the story?  As an investor you should always have your financial statements ready to show mortgage professionals,  bankers, private lenders, and potential partners.  As an buyer agent or broker, you should review (and help prepare if necessary) financial information from your clients.  You are asking for problems if you believe a “pre-qualification letter” means your buyer will close.  I go so far as to carry mine on a thumb drive that is attached to my key chain.   The password protected folder has following documents in .pdf format:

• Color photo scan of driver’s license and SSN card
• Excel worksheet of Personal Financial Statement
• Excel spreadsheet of Real Estate Owned
  (includes insurance policy numbers, loan numbers, rate, payment, etc)
• Current personal and business bank statements
• Current investment and IRA statements
• 3 Years of personal and business tax returns
• Copies of Operating Agreements for all Partnerships
• Completed 1003 Application

Everyone Starts ‘Somewhere’

Even if you do not have an “impressive” financial statement right now, you should create a PFS. It is important to know where you are in order to determine how to grow your assets and reduce your liabilities. There are investing programs for people of any current financial status.  You can indeed get into the real estate business with “no money down and bad credit,” but you must be realistic about the process and the path.  And you should not take advantage of the work of others by presenting yourself otherwise, like many novice investors do with agents and owners of property.  On the other hand, if you have substantial assets, you will want to learn about programs that leverage and protect your assets to their fullest potential.  This usually means finding and working with quality agents, operators and sponsors.

In our next segment on Financing and Capital we will be reviewing ratios of a financial statements, please stay tuned by getting our updates via RSS and/or email.

As the “apartment guy” in our real estate office,  I field a lot of questions about income properties from residential agents.  The most common question is “how do I value this building?”  The agents are all very accomplished at running values using comparable sales for single family houses, and even duplexes.  But when the valuation needs to be determined from income rather than sales comps, they ask for help and advice.   Obviously there are several objective and subjective factors that determine the value of income property – location, condition, stability, unit mix,  potential, etc.  But here’s the 2 minute “quick check method”  I teach them for running rough numbers to determine if a project is worth further research or investigation:

1. Multiply the number of units by the monthly rent (e.g. 4 units at $300/month each) = $1,200
2. Multiply by 12 to determine annual Gross Potential Income (total monthly rents x 12 months) = $14,400
3. Deduct from the GPI an estimated expense structure (I use 30% as an average, so $14,400 x .7) = $10,080 NOI
4. This number is the Net Operating Income (explanation below) Divide the NOI by the capitalization rate to get the building’s value (10,080/.08) = $126,000 is the value of the example building  “at a 8 Cap” rate.

Simple Cap Rate Calculation

That valuation should take you less than two minutes to calculate, but you should strive to learn and know the reasons behind the determination of certain inputs.  How and why I use 30% expense structure and 8 capitalization rate is subjective based on certain assumptions and factors about the building.  These numbers affect the value dramatically, so you must adjust them carefully and accordingly.  Here is further explanation of the concepts of NOI and capitalization rate.

The estimated expense structure of 30% in step 3 includes vacancy, taxes, insurance, management and repairs.  It does NOT include debt service for mortgage payments.   This is an average number, and is probably low for most buildings in any state of mismanagement.  Poorly run buildings with high vacancy rates, deferred maintenance, theft, vandalism, inefficient heating/cooling etc will have higher expense structures.  Conversely, a very well run and well kept building with utility bill backs and efficient management may run leaner than 30%.

The number determined by deducting expenses from gross income (in the example $10,080) is called the Net Operating Income, usually abbreviated as NOI.  Once you have the estimated NOI (or determined in fact with the buildings financial statements), you can determine the building’s value at different capitalization rates.  The concept of capitalization rate  based on NOI is usually the aspect of income valuation that residential agents struggle to understand.    Capitalization rate is a measure of the return of a building that does not factor in leverage (mortgage and debt service).  It would be the “return on investment” to an investor if the property was paid for in cash.  Since most investors use leverage, which affects the return tremendously, cap rate is a measurement by which to compare properties, but is rarely the actual “return on investment” to the client.

Cap rates that a building will trade for move up and down depending  on supply and demand, money markets, and other non-controllable factors.  But it is also subjective to buyer and seller in a transaction and the “quality of the investment” in the eyes of the buyer.  The higher the cap rate, the better the investment the property is for the buyer, but the lower the price is to the seller.  When talking cap rates, you must reverse your normal thinking.   Income investors want to BUY at high cap rates, but SELL at low cap rates (yes, buy high sell low!).  Cap rates on buildings can range from a low about 5 to a high of about 13 in “normal” market conditions, and as you will see the effect on the value or price is dramatic.  A well kept building with stable tenants and good management might sell at a “6 cap,”  and a run down building with dead beat tenants might sell at a 12 capitization rate.  Institutional buyers tend to purchase larger properties at lower cap rates, and independent buyers tend toward smaller properties and buy at higher capitalization rates.

Here is the reason the capitalization rate is so important to income investors.  Watch how much the value changes on our example property from a 6 cap value to a 10 cap valuation:

• $10,080/.06 =  $168,000  at 6 Cap
• $10,080/.07 =  $144,000  at 7 Cap
• $10,080/.08 =  $126,000  at 8 Cap
• $10,080/.09 =  $112,000  at 9 Cap
• $10,080/.10 =  $100,800  at 10 Cap

The opportunity you should be seeing here is twofold.  As an income property investor, if you were to find a seller willing to sell at a 10 cap on existing income and find a buyer willing to pay a 6 cap on existing income, you would have a price spread $67,200!   Now that is a flip, and you didn’t even do any remodeling!  The other method of increasing value of an income property is to improve the NOI.   Suppose you purchased the above building at a 7 cap rate for $144,000.  Over the course of a year, you were able to raise rents on the building by $100 per unit to $400 per month.  You were also able to implement a utility bill back system that lowered the utilities expenses to the owner by $300 per month.  The $100/mo income increase x 4 units is $400 per month, $4800 per year.  And the expense savings of $300 per month, $3600 per year savings translates to a total of $8,400 increase in the Net Operating Income.  If you apply the 7 cap rate to $8,400 per year ($8,400/.07) you have added $120,000 to the value of the building at the same cap rate.  Welcome to income property investing!

Will it Happen Again?

Due to increasing requests about using IRA funds to purchase investment real estate, our team has created new preferred relationships for clients that streamline this process.  We now offer programs for direct IRA purchases of turn-key rental properties without or with leverage up to 65% non-recourse loans.  We can also organize purchases for LLC’s that own investment properties and private lending notes and first deeds of trust for our clients. 

In order to begin the process, you will need to establish a self-directed IRA account.  It is unlikely that you will be able to obtain this type of IRA account with your current brokerage or bank.  A quick google search will retrieve many custodians who help investors open real estate IRAs.  After comprehensive due diligence of many of these companies, we have selected Equity Trust Company for our own accounts and recommend that our clients include this company as part of their selection process for a custodian.  Consider account and transaction fees, allowed structures, types of entities, consulting and customer service when selecting a custodian.

The following types of accounts can be transferred to a self-directed account for full control by the owner:

• 401(k) rollover IRAs
• Roth IRAs
• SEP IRAs
• SIMPLE IRAs
• Solo 401(k) plans
• Traditional IRAs

After you have selected a custodian and opened a self-directed account, you will begin the process of determining what type of investments to buy.  Within your IRA, you will have many option for investments, including purchasing property directly, buying into LLC’s and Limited Partnerships, as well becoming a lender and holding a mortgage on a property that pays interest to your IRA.  If you choose to purchase property directly, it is possible to use a loan for up to 65% of the value of the property, using a 35% down payment from your IRA.  There are many rules and regulations pertaining to these transactions, so it is critical to get professional legal and accounting counsel during the process.

It is also critical to choose a real estate professional that understands the benefits and risks of investing in real estate (whether in your IRA or otherwise).  At PMRE, we pride ourselves and providing good education about real estate investments to both investors and real estate agents.  There are many agents in the industry that are very knowledgeable about normal transactions, but there are only a limited number that specialize in investment property – especially in the residential investment business.

Turn-Key Rental Properties Available in Central Denver
Our core business at PMRE continues to be turn-key investment properties for well-qualified borrowers.  Our turn-key rentals are completely hands-off investments, and ideal for IRA investment customers.  Here are a few of the benefits:

• Purchase price is discounted to current appraised value
• Extensive remodel completed including systems and finishes
• Professionally screened tenants in place on 12 month leases
• Carefully selected Denver metro neighborhoods
• Transferable full-service property management
• Referrals to qualified tax and legal advisers

Private Lending Notes 8% Monthly Income
The combination of changes of financing rules in November of 2008 combined with recent stock market losses have spawned a new industry of private lending in residential real estate, which we are embracing.  We are offering clients private first deed of trust mortgages on remodeled and rented income properties with good credit borrowers.  Please email us for current availability, 8% monthly payments to your IRA begin immediately.

Fix and Flip Opportunity
The stimulus package tax credit, low prices and low interest rates have further improved the first-time home buyer market.  A combination of low inventory of remodeled homes compared with ugly bank owned homes has created a “pent-up” demand from these buyers in some markets.  The 2009 selling season may be a very good time to be in the fix and flip market, but you must have quality product and a competitive price.

PLEASE NOTE:   We are not a “guru” sales pitch business offering “no money down” real estate investments and unrealistic expectations.  Our guideline for potential investors includes liquidity, verified income and good credit to purchase investment houses or units.  Our Private Placement investments require you to be an existing client and complete a form that states you are an accredited investor.

If you or someone you know may be interested in IRA real estate investments, please have them contact us for information.

One of the ways that I evaluate the level of sophistication of fellow real estate investors, and potential clients, is the answer to this question:  “What is your acquisition criteria?”   More often than not, the answer is “I just want a good deal,”  which is usually a sign of a novice investor.  Experienced investors know exactly what they are looking for, and can explain how and why that criteria fits into their overall investment strategy.  If your new client is a novice investor, the best place to start is working together to establish an acquisition criteria.

The following is an example of an investor criteria that I use as a starting point for discussion.   I work with clients to modify it to create and then meet their goals.  This process helps me serve them better and saves lots of time for everyone during the search and acquisition phase. 

Example Single Family Rental Acquisition Criteria:

• 3 bed / 2 bath  minimum (or 2 bed / 1 bath w/ full basement)
• Brick or modern frame
• Ranch or two story structure
• Finished  or open basement
• Minimum 1 car garage, preferably 2 car
• Above average street scene, especially next door neighbors
• $50k – 150k purchase price
• $120k – 250k ARV (after repaired value)
• $10k – 40k rehab costs

Exceptions and Other considerations:

• Will buy 2/1′s but it must have either a basement or a garage.  Without either, no deal.
• All houses should be larger than 800 square feet on main level
• Will buy frame houses must be newer than 1975
• Prefer ranch style, will buy bi-level, two story, story & 1/2 but don’t like tri-level

Deal breakers:

• Nothing directly on / or within a block of / or backing to a major street
• Nothing within 2 blocks of a highway
• Nothing immediately next to / or within direct view of commercial/industrial, grocery store or muffler shop, etc.
• Nothing older than 1920 (see related post titled “Why I will Never Buy Another Victorian”
• Nothing with a functionally obsolete layout (tiny bedrooms, no closets, only bathroom off the kitchen, etc.)

Will pay a premium for properties that:

• Need less than 20k rehab
• Next to park or green space
• Larger lots zoned R2

Proper planning for an overall objective in your real estate investments is a critical step toward realizing goals.  Determining an Acquisition Criteria is just one of those steps.   Without this process, it is too easy to become emotional about deals, properties and opportunities.  “Failing to plan is a planning to fail” is so true in this business.  Happy Investing.