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.

[Account Closed]

Originally posted by @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.

 I have invested and still invest in several states. Real estate is "local". The process I went through included "where would I be willing to live", how do they treat landlords there, how much can I "cash flow" the properties in those cities, are jobs coming into those cities or is the city on the down hill slide. So I took more of an economic approach then I added some personal preferences. 

I ruled out California because there are so many other places where I'm appreciated as an investor and CA taxes are way too high for me. Same with New York, Illinois etc. I ruled out some of the cities and towns where BP investors seem to be flocking to, because it gets cold in Ohio, Indiana, Michigan and that means broken water pipes, accidents, leaks, and especially the neighborhoods these $50k and $60k houses are in. They are way too high "maintenance" people for me. My motto is "if bullets are flyin' I ain't buyin".

Then I narrowed things down to two or three cities in each state and then sectioned the cities into zip codes. I spent a lot of time on City-data.com and Trulia.com and crime heat maps.I used google maps at the ground level to see generally how people took care of their properties and what kind of cars they drive. I looked for middle class neighborhoods that I would be comfortable with me & my wife walking outside at night. Since I sell to Tenant Buyers, I want zip codes where there are jobs that support a family. I avoid high tension power line routes and toxic waste dumps areas and industrial areas and light manufacturing areas and main highways. If I wouldn't live there, it would be hard to rent or sell. I want to be around schools, parks, jobs, grocery stores. It took some time to figure the areas out but it was well worth doing. And then I actually visited each zip code that interested me. I'm not "fix & flip" I have my properties for a long hold. I want to like the neighborhood well enough to have properties there for decades.

It kind of looks like the spreadsheet I put together to run the numbers:

How I buy houses for pennies on the dollar

https://www.biggerpockets.com/forums/311/topics/67...