What do you look for in an investment?

When setting out to build a property investment portfolio - it is essential to have a very clear target criteria from the outset.

With a clear destination in mind - you will be laser focussed when working through investment opportunities and naturally be drawn to the optimal properties to suit your requirements.

Here are 5 key things to keep in mind when establishing your target criteria.

Location

When you start building your portfolio - it is good to be within a short driving distance (approximately 1 hour) - so that you're able to go between properties easily to oversee projects and work with your team members.

You should ideally pick a target area or group of areas, which are easily accessible not only to yourself but to the members of your team that will be helping to develop and manage your portfolio, as it scales.

As well as being convenient - these target areas should also be great options for your prospective tenants, assuming you are planning to rent them for long term passive income, which is a great investment strategy.

The key thing to keep in mind here is to ensure there is very strong rental demand. To ensure this - you should look to acquire properties that are situated as close as possible to major employers and transport links.

In light of the work from home revolution and to help future proof your business - you should also consider whether your tenants will always need to physically attend their place of work. Going forwards - hospitals, factories and airports may well prove to be safer options for ensuring long term rental demand.

Project Type

Are you looking to buy flats or houses? Perhaps you want to focus on finding redundant commercial building and re-purposing these to residential units? Perhaps you're interested in building new homes?

Each project type will have its own unique set of considerations and challenges. You'd be wise to focus your mind and ensure you build up the appropriate specialist knowledge and network of contacts, to support you when these challenges arise.

Cash Flow

If you're planning to buy and hold properties for long term passive income then generating a really healthy cash flow is of critical importance.

Cash Flow is the margin between your monthly rental income and your monthly expenses. Your goal here is to ensure that this margin is as wide as possible, whilst also ensuring your tenants are enjoying a great living experience, so that you reduce churn and void periods.

Initial Return On Investment

This is a key indicator of the quality of your proposed property investment. It signifies the relationship between the amount of cash you need to put into the deal and the annual profit you will generate after having done so.

You should ensure that you're very clear on the Initial Return On Investment that you are aiming for. Once you have this clear in your mind - you will be able to quickly disregard those opportunities that fall below your desired number.

Initial Return On Investment is not the whole story though and you should not get too caught up on it.

Projected Return On Investment

This is the most important number on any property investment opportunity. It signifies the relationship between the amount of cash you will need to leave in the deal (after refinancing) and the annual profit you will generate after having done so.

It may be 6-24 months (depending on the type of project) before you're able to recycle funds in your deal, by way of a further advance or refinance - but after having done so it will be the Projected Return On Investment that you're left with for the remaining time that you own that asset. With that in mind and ignoring capital growth for now ... it is essential that you hit your target criteria and stay focussed on the long term view of your investment.

Stacked can help you work through all these steps and to calculate your Projected Return On Investment, so if you haven't already done so ... get yourself over to https://www.stacked.group and register today.