How do I know a good area to invest?

[Dan D.]

I have been reading books, perusing blogs and joining in on discussions about how to find your first investment property. And, they all say to know your market. That's all well and good, but what if you are new to an area and have no idea what the market is like. I've heard people talk about metrics and that you should know all this data about the areas you want to invest in, but what are the top 10 or so pieces of data you want to focus on? Where would I get this information without having access to the MLS?

[John Warren]

@Dan D. I am glad you are getting started with the initial phases of investing. One of the simplest metrics you might look up is rent to price ratio. Simply take one months gross rent for all units and then divide by the total purchase price. This is a "rule of thumb", but it is a good initial screening tool. If you are above 1% it is at least worth looking at a bit. In my area here in the Brookfield, IL market, most of the properties are just barely meeting the 1% rule. I need to see around 1.4-1.5% to meet the investing criteria I have set. In some cheaper markets, I would need to see a 2% ratio. 

You can also research terms like "cash on cash returns" and "capitalization rates". These are two other metrics I always use when analyzing, but they require a lot more knowledge than you are likely to have early on as you have to make some assumptions about the properties expenses. 

If I were you, I would focus my energy on meeting other investors and also try to find an investor friendly agent in your area. I am an agent here in Illinois, and I meet a lot of clients at local meetups, etc. That is where I would start if I were you.