Passive Investing Criteria

Investment criteria is a huge focus for me when it comes to investing. Can you imagine buying an asset and its not cash flowing? I mean think about the 2008 crisis where people were buying for appreciation and break even or even worse, losing a little each month.

In that situation, if the market tanks, you lose and, may not be able to sell. Plus, you continue to pay the monthly expenses out of pocket. Buying based off appreciation is very risky much like the stock market.

When you buy for cash flow you can pay your expenses, enjoy the tax benefits and preserve capital off the collected rental income. Let’s go back to 2008, rent in cash-flowing Class B apartments didn’t go down during those times. Rent continued to go up as people needed a place to live.

Here are a few things to consider when you make an investment in a multifamily property.

1. Property income is more than the expenses. Making sure it is covering the expenses and then some is key from the beginning.
2. You have 25% or more equity in the deal on upon closing.
3. The state is landlord friendly. Making sure the law favors the owner rather than the tenants.
4. The market continues to have companies moving in adding to the market’s economic growth.
5. Jobs need to be diversified and not tied to just one type of industry.
6. You can secure a loan product that won’t have to get out at the wrong time. You don’t want to be forced to sell in a down market. Debt is a tool and interest only help with cash flow.

End of the day, I invest in deals that meet those criteria. I also look for value add opportunities as those opportunities allow me to force appreciate by adding amenities, renovating units and running the asset more efficiently than the previous owners. All this raises the value of the asset. Buying for cash flow now, adding the value-add component and capital appreciation are the big three that I’m looking for when I’m looking at markets and opportunities to invest in.

We can’t control the market. At the very least we can understand the risks and can mitigate them as best as we can, unlike the stock market where we hope that the market doesn’t crash. Investing for hope is not a wise investment strategy. That’s why I believe in passive investing in multifamily apartments. Have you considered these reasons for investing passively in multifamily?