When you're investing in real estate, it's really hard to get started. There's so many options of things that you can invest in. This is why you want to have a BUY BOX.
A buy box is a set of criteria that you're looking at to help you determine if a property is a fit. If you don't have an established buy box, you'll leave yourself analyzing every possible deal at any price point, with any type of investing strategy. Taking this approach will give you "analysis paralysis", and will probably leave you on the sidelines not investing in anything. You want to move forward with the right properties.
What makes up your real estate investing buy box?
1) Type of property: Is this going to be a single-family home? Multi-family home? Mobile home park? Tiny House? Start thinking about the specific types of properties that you want to invest in. You can set up a search through the MLS via a real estate agent, or there are lots of other websites out there where you can look up properties. The key here is to help narrow your focus from ALL properties to the types of properties that excite you and fit within the other parameters we'll discuss below.
2) What Strategy Will You Use: Do you want something more turnkey that's ready to do? Is this going to be a flip where you'll have to put more money into update it for a future sale? Would you want to do a house hack where you live in part of the property and rent out another part? Would you want to furnish the property and rent it out as either a short-term rental or perhaps a mid-term rental (typically 30+ day stays)? Is this something that you're going to buy and hold for a longer period of time? Identifying the strategy will help you know how much work you'll need to put into the property, what type of finishing you'll need to have to rent out, the budget you'll need for updating, furnishings you'll need to provide, and what you potential exit strategy options are in the future.
3) Price: This one is pretty obvious. How much can I afford? Do I need to find a partner that will come alongside me to afford this property? What lending options are out there that fit my budget for down payment and monthly expenses? Talk with a couple of lenders, residential lenders, commercial lenders, and others to try to get a feel for some different options that are out there. Local banks and credit unions can provide more flexible options that traditional banks may not be willing to explore with you. You're looking for somethings that's a fit for your situation, so shopping around to a few options can be worth your time.
4) Location: Are you interested in an urban environment where potential rents are higher? Or what about a suburban community or maybe a small town? Each area can bring different pluses and minuses in terms of cash flow and appreciation. Typically you're probably not going to find as good of a cash flowing, long term rental in an urban environment as you would in a smaller town, because prices are higher. However, you may find you can get better cash flow in an urban environment if you had a short-term or mid-term strategy. So your strategy will have an impact on your location. You also may want to narrow things down to specific neighborhoods. If you're planning on doing property management yourself, it may be a good idea to find something closer to where you live, so you don't have to drive so far if an issue comes up. If you're looking to outsource property management, that's not as important.
5) Property Management: Property management can cover a few different things. Who is going to market and place tenants? Who is going to do any updating or repairs on the property? Who is going to be the person they call in an emergency? If you're doing a mid-term or short-term rental, who is going to clean the property at tenant turns? You might want to do it all yourself, part of it yourself, or none of it yourself. Either way, you'll want to budget in costs for property management so that you have some flexibility in your budget should you decide to do that in the future. What you don't want to do is purchase a property that has tighter margins, and as you grow your portfolio in the future and need to outsource this, you end up going negative on your cashflow.
6) Exit Strategy: Before you purchase a property, you'll want to think about potential exit strategies. It might not be for 5 or 10 years down the road, but you want to think about when you may want to exit the property. You can't always predict the future of the real estate market, so think about what happens if prices fall. Or what happens if rents tighten up? What if interest rates drop? What happens if this performs way better than you expected? Would you keep the property or scale up to more units? It's helpful to have a couple of ideas identified so that you can remain flexible.
Hopefully this provides a framework to help you narrow in on your buy box. When you get clarity and hone in on these things, it's going to help you make better decisions. It's going to limit your time, and help bring more focus to you to find that right property to move forward. Establish your buy box, so that you know when the right property comes along, you're ready to move. That way you're not making an emotional decision or letting cold feet or doubt creep in when the right property comes along. Prevent "analysis paralysis" and JUMP at the right opportunities!