Because real estate is very local, for us, national or even state statistics are not much of a help. We work to connect to all sorts of real estate investors to build our network. If you do that consistently you meet people who will lead you into areas where opportunities are greater. We are currently focused on Northeastern Pennsylvania. This is very different from the Philadelphia or Pittsburgh area. Even within Northeastern Pennsylvania there is really significant variation. Some areas have very little appreciation but excellent cash flow, some much less cash flow but better appreciation. We constantly seek opportunity.

There are three parts to the answer to that question: return, type, and condition.

First, the return. The return we seek is significant cash flow on a cash-on-cash basis. That’s how much money you get after all expenses and costs compared to how much of your capital you had to expend. It does not include appreciation, tax advantages, or mortgage paydown. This is important because we have to watch our cash carefully since we aren’t a giant company with deep pockets.

Second, the type. Our selected type is small rental properties, anything from single family rentals to small apartment buildings up to perhaps 20 units. Returns can be excellent with this category. Every category has its challenges but we have experience with this type and it has the advantage that there is sufficient cash flow that we can deal with the inevitable problems.

Third, the condition. The condition is distressed or with some financing advantage, usually either a big value add possibility or seller financing. The term distressed has more meanings than might be expected. Yes, some properties are in poor physical condition but personal or financial reasons can also cause distress. As for the financing component, the value add aspect needs explanation. That term means that after some effort, repair work or better management, the property will be significantly more valuable. Most people are familiar with the idea of a ‘flip’. A value add deal is very much like a flip but we retain the property. This can lead to a financing arrangement where we get back a meaningful amount of the money we put into the deal. Since we are aiming at cash on cash return, this helps a lot.

Seller financing can be part or all of the purchase price. Some sellers are open to this and it can make acquisitions easier. It doesn’t affect the price we can pay.

Availability Is Crucial to Success. Availability is the unmentioned third leg of a tripod. Usually, investments are evaluated on a risk versus reward basis. But an investment has to be available to be valuable. This is a key advantage to the real estate investor.