The best types of properties to buy are much like what are the best areas to buy. The best types of properties to buy are ones that give you significant equity right at closing. That means that you are buying it for cheaper than the rest of the local market would value that piece of property for. The best types of properties to buy are the ones that offer the largest discounts with a fixable solution to why they were sold to you for that cheap. That can be any type of property.
That may only really tell half of the story…what if you buy a property with little equity but providing significant positive cashflow?
Yes, it CAN happen!
Not all discounted properties are the best to buy. For example, if you have two identical houses one which is in good condition and is listed at market value for $125,000 and another that is in poor shape but is listed for $90,000. The $90k house is cheaper, but what if the foundation is bad, the roof rotten, the plumbing is iron and the house is infested with termites? By the time you “fix” up the “best buy” you will have lost all equity and will no doubt have a negative return.
In my opinion, the best types of properties to buy are those that will provide the best cash flow and/or return on your total investment. Price is only one consideration.
I believe that you are talking about fixer uppers. I personally believe that the best type of property are usually properties that stay on the market for a few hours. And it doesn’t necessary mean those fixer uppers. That’s why the best way is to be quick.
Quantitative criteria:three bedroom two bath house, roughly 6000 square-foot lot, no serious potential liabilities like a pool on the property, bought at roughly 70% ARV minus repairs.
Qualitative criteria: mid-market home in blue-collar or slightly better area, non-transients tenant base, signs of pride of ownership on the street, not too many other rentals around, personally comfortable for me to walk down the street at night.
A cash flow property is the best property! The returns on investment don’t depend on capital gains. Interest rates are already as low as they can possibly get, in my opinion. As soon as rates start to rise, real estate values will decrease. This doesn’t mean that one can’t still make money flipping homes. But having cash flow ensures that the bills (and you) get paid.
I have to agree here. If you are looking for buy and hold properties, then cash flow is the main consideration. Those that wholesale or fix and flip must consider the upfront purchase price and immediate equity position to make their transaction work.
As to the part about a house that is only listed for a few hours - well… snapping up a newly listed property does not mean that you have gotten a good deal.