What Is a Buy Box in Real Estate?
If you’re a real estate investor looking for a particular type of property, then you’re bound to hear the term “buy box” as you discuss your set of criteria for homes. An investor’s buy box is a valuable tool to help your real estate agent find the right properties to build your portfolio. Preparing one will make your property search more convenient, making it easier for your realtor to identify potential investments within your price range.
Buy Box Meaning in Real Estate
A buy box is a list of criteria that a property must meet to qualify for purchase. These criteria can include broad basics like location, property size, and local comps, but they can also get very granular and include factors like cash flow. Demographic details like local school districts, proximity to shopping centers, and safety ratings can also factor into your buy box.
Overall, preparing a buy box helps investors increase their chance of success in real estate investing. It’s so important that real estate agents experienced in working with investors strongly advise all their investor clients to make a buy box part of their investment strategy.
What Is the Most Important Part of a Buy Box?
The most important part of a real estate investment search is the comparative market analysis. This is an involved process in which you pull any sales within the last 6 months to a year within a tight radius of your potential investment property.
As a general rule at Marketplace Homes, we try to stay within 1 mile of the home in question. Vice President of Operations and Broker, Chas Nichol, says that the closer you can get, the better your outcome.
“You want to be as specific as possible. For instance, if you cross the street, you can lose value, so it’s important to keep your radius as tight as possible if you can obtain enough comps,” says Nichol.
Once you find a property that has good comps, you’ll want to look at the state of the property itself. If it is in good shape, you will need to spend less to get it ready for residents. If it needs substantial renovations, then it may not be worth the effort unless the seller reduces the purchase price. Having a real estate team run numbers for you can save you a lot of time as an investor— and we do that for all our clients at Marketplace Homes!
How does a buy box work?
A buy box works to help investors avoid investment properties that don’t meet their needs. By setting the standards in terms of price, condition, location, and property type, they can narrow their focus and save time on making offers on properties that work for them. By setting clear boundaries, everyone on the investment team can navigate the real estate market without wasting time.
This tool also makes it easy to help a realtor understand what to look for in a rental property – whether it’s to find foreclosure deals, multifamily properties, or single-family homes in a certain neighborhood. With this information on file, an investor doesn’t have to repeat their needs every time they meet with their agent.
How Buy Boxes Help Investors Avoid Bad Properties
Buy boxes help investors avoid bad properties in the housing market by keeping the standards high. Even if a home is in a desirable area, it can be a lemon. Therefore, by setting standards for a home’s condition helps the buyer avoid properties in poor shape.
For example, something may seem like a “real estate deal” because it’s cheap, but it may have a foundation or mold problem. If you explicitly state you don’t want properties with foundation problems, then you can back out if the home inspector notices this flaw. Having an exit strategy via a home inspection contingency is crucial here.
Why a Home Inspection Helps When You Have a Buy Box
Home inspections can save you time and money. As any new homeowner will tell you, the due diligence process is a crucial part of any real estate transaction because it lets you know exactly what you’re getting into. If it’s allowed, investors should always get an inspection during due diligence before purchasing any property. This step weeds out the lemons from the good investment opportunities.
A home inspection allows you to budget expected renovations into the investment property’s cost. Depending on the age of the home, you may want to budget $8,000 – $12,000 dollars to cover anything that may turn up during the home inspection such as a new HVAC system or roof repairs or replacements. Keep in mind that you can also negotiate these repairs with the seller during the purchase process and in turn save some money.
The head of the rehab at Marketplace Homes, Jon Wilson, is all too familiar with home projects starting out simple and turning south quickly. Many of these situations could simply be avoided with a home inspection too.
“It’s usually always more work than you think it will be. A good rule of thumb is to over budget for your rehab in case you run into any surprises. Even with home inspections before you buy, you can always run into surprises,” says Wilson.
Using a Buy Box in Real Estate
If you have more questions about buy boxes or real estate investments, let us know by giving us a call or clicking the “contact us” button on the top of the page! Not only do we have real estate agents who are experienced with helping investors, but we also have a national property management team that can help you through the full investment cycle!
