What Is Investment Criteria?
Investment criteria = your deal filters. Min 6% cash-on-cash-return. Max $400,000 purchase. 2–4 units. Memphis, Indianapolis, Columbus. No condos. Write them down. When a deal hits your inbox, run it against the criteria. Pass = full deal-analysis. Fail = quick no. In Phoenix, an investor had 8 criteria. A deal met 6. He passed—saved 4 hours of analysis. Another met all 8. He ran the numbers, made an offer.
Investment criteria are the rules and thresholds you use to filter and evaluate deals—minimum cash-on-cash-return, maximum price, target markets, property types. They keep you focused and prevent analysis-paralysis.
At a Glance
- What it is: Your deal filters and thresholds
- Why it matters: Focus; faster go-no-go-decision
- Examples: Min CoC, max price, markets, unit count
- Use it for: Screening; deal-flow management
- Caveat: Revisit as you learn—criteria evolve
How It Works
Financial criteria. Minimum cash-on-cash-return—e.g., 6%. Minimum cap-rate—e.g., 5.5%. Maximum dscr for leverage—e.g., 1.25. These are your return and risk floors.
Market criteria. Target cities or zip codes. Primary-market vs. secondary-market. Landlord-friendly-state preference. Proximity to your home base.
Property criteria. Unit count—2–4, or 5+. Property type—single-family, duplex, small multifamily. No condos (HOA risk). No fixer-uppers beyond light rehab. Condition: rent-ready or move-in-ready.
Deal structure. All-cash vs. financed. Owner-occupied-financing for house-hacking. Max leverage—e.g., 75% LTV.
How to use them. First pass: does the deal meet your criteria? No = quick pass. Yes = run full deal-analysis and sensitivity-analysis. Criteria aren't rigid—you can make exceptions. But document why.
Real-World Example
Ava in Memphis. Her criteria: min 6% cash-on-cash-return, max $450,000, 2–4 units, Memphis or suburbs, no condos, rent-ready or light rehab only. A 6-plex in Nashville came in. Wrong city—pass. A duplex in Memphis at $380,000, 4.2% CoC—below min. Pass. A 4-plex in Memphis at $385,000, 5.9% CoC—close. She ran full analysis. At market-rent and 8% vacancy, CoC was 6.1%. She made an offer. Criteria filtered the noise; analysis closed the deal.
Pros & Cons
- Focuses deal-flow
- Faster decisions
- Reduces analysis-paralysis
- Can miss outliers
- Criteria need periodic review
- Too rigid = missed opportunities
Watch Out
- Over-filtering: If nothing passes, your criteria may be too tight. Loosen or expand markets.
- Under-filtering: If everything passes, you're not selective enough. Tighten.
- Evolution: As you learn, adjust. First deal criteria ≠ tenth deal criteria.
Ask an Investor
The Takeaway
Define your investment-criteria. Use them to screen. Pass = full analysis. Fail = quick no. Revisit as you learn. They're a tool, not a straitjacket.