Determining which city/neighborhood to invest in out of state

[Aaron Coday]

Hi all,

I'm relatively young in the REI biz. I've got two SFRs in my home area (Portland, OR) and doing nicely. Portland's rent to price ratio is becoming less favorable to investing. Yes, their deals still to be had, but they are getting harder to find.

So I've become more interested in investing out of state.  I'm not afraid of it and especially after several blogs here and in the podcast recently it seems quite manageable.  However, I didn't see a lot of guidance on how to choose which city/cities or neighborhoods to focus on.  

I thought I'd try a data centric approach using some of Zillow's data.  I wanted to get some feedback from folks more experienced if I'm headed down the right path or if it's just not accurate enough to guide my selection of cities/neighborhoods.  I know it won't be a guide to absolute success but if I can use it to guide me to let's say a target rich area then it would be a success.

What I did:  I downloaded Zillow's Time series for Price to Rent ratio data by Neighborhood.  Then using it in excel, I calculated the rent to home value ratio.  The price to rent ratio I believe is home value divided by annual rent income.  So to calculate the rent to home value such that I can apply the 1% and 2% investment rules of thumb, I multiply by 12 and then invert.  

now I have the average rent to home value per neighborhood.  Theoretically, a neighborhood that has a ratio of 2% has more investment opportunities.  Then I used a pivot table to sort by state, metro city and then neighborhood.

Theoretically, Using this I can then figured out which metro areas and neighborhoods would be most worth spending time further researching.  As I can't seem to attach a file, i"m adding a link to my public OneDriver folder. You can access it here: https://1drv.ms/x/s!AtyCqhSivSeGkWDy-zbmjprvlhnV

Thanks for your advice/help/suggestions

Aaron