Anyone interested in building wealth by investing in real estate needs to determine just what kind of investor they are. Understanding things like your risk tolerance, availability of capital and timeline are essential before you even begin investing in real estate. But perhaps the biggest thing when you are thinking about building a real estate portfolio is to understand your investment criteria.

Knowing your investment criteria means evaluating just what you want to do with real estate. Are you a buy and hold type of investor, or do you want to fix and flip? Both strategies are valid, but knowing what yours is will determine the kind of properties you should be looking at. Are you looking for deep value, or is seller financing more important to you? Great neighborhood, or great property?Single family house, multi-unit, commercial… well, you get the idea.

Knowing your investment criteria long before you ever start looking at properties is the way to stay focused and also to recognize an opportunity and act upon it. Here are some things to consider when determining your own investment criteria.

Value – We all want to get the best value that we can for our investment dollar, but value can mean something different depending on your personal investment criteria. A house might seem to be priced low, but there may be a good reason. Is it a high crime area? Are there a lot of foreclosures nearby? Does it require a lot of repairs? If you can find the reason it is underpriced, your personal investment criteria may make this a property to consider.

Financing – Getting the right terms can mean a property fits your criteria. Is the seller willing to finance? Maybe the owner is nearing foreclosure and is willing to sell “subject to” the existing mortgage. This means you simply assume the loan and begin making the payments. Or maybe you are able to structure a deal for all cash, in which case you don’t need financing at all. This can be a way to get great deals – if it meets your investment criteria.

Cash flow – if you are interested in buying properties for cash flow, then your investment criteria will have you looking only at houses that can be rented quickly and for more money than your monthly payment and expenses. It will also mean checking other rentals in the area for price comparison. Even if cash flow is your primary criteria, remember that resale value should still figure into your decision.

Appreciation – It seems obvious that price appreciation should be a part of everyone’s investment criteria. But if you are looking to turn the property over quickly, adding valuemay be your primary focus. Can you put in a little bit of sweat equity and significantly increase the value? How much a property can appreciate is dependent on many factors, but your choice to purchase based on potential appreciation will mean looking for specific criteria.

Condition – Another no-brainer is the condition of a property. That being said, your personal investment criteria may mean you are looking for the “ugly duckling” property. If you’re interested in rehabbing, then the worse a property looks, the better it is for you – within reason (think of the worst property in the best neighborhood and you’ll have the right idea). Conversely, if you want to fill a rental property quickly, then the condition of the property must be pretty good.

As you can see, there are a lot of considerations when determining your investment criteria. The more you know ahead of time, the closer you’ll be to finding the right real estate investment for you!

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