How to find areas to invest in (Feedback please)

[Sebastian Dombrowski]

Hi BP members! 

I’m a newbie to real estate investing. For the past 6 months I’ve tried to educate myself on the topic. I’ve read some books, started listening to the BP podcasts (I’m close to episode 100), and read some articles and posts here and there. Now I would like to find an area for a buy-and-hold investment. My problem is that I’m living in the middle of Los Angeles and as some of you might know, real estate is just insanely expensive here. So I have to find another place for a buy-and-hold. Optimally, I would like to manage my first rentals myself to get the learning experience, so finding something within driving distance would be great. Here is my approach to finding an area:

1. I search by zip code and filter for zip codes where the population grew and the unemployment rate declined in the past 5 years.
2. For the left-over zip codes, I look for low price-to-rent ratios. BP often talks about the 1%/2% rule which can be translated into the price-to-rent ratio (1% (or 2%) of home-price per month = price-to-rent ratio of 8.33 (or 4.167))
3. Check left-over zip codes for low crime rate.

That’s how far I am right now. Next I would try to find a smaller area within the zip code and then start searching for individual properties.

If I can’t find anything in California, I would start looking elsewhere using the same steps.

In your opinion, is that a good approach? Which important factors am I missing? Am I making any wrong assumptions?

Thank you so much for your feedback.