How do you find a good area to invest in?

30 Replies

I am a new investor looking to find a good area to buy a property.  I live in the Bay Area and can not afford to start here and therefore need to research a good place to start.  

How do you find a good place to invest.

I would love to get a step by step process of how you go about this.

I am looking forward to the responses you get on this one.  I live in the Phoenix area and most of the properties in cities I would want to own rentals in are too expensive.  We started looking at smaller cities in northern Arizona. I am envious of those who can purchase properties in other parts of the country for $30-50k.  

@Josh Violette  and @Theresa Sanford  

Have you defined what your ideal property & market would look like?

For instance, I could say...

I want 3/2/2 SFR at a purchase price of not more than $200k with not more than $10k in rehab required.  The property needs to be in a B neighborhood or better and feed into elementary schools rated 7 or better on www.greatschools.org.  The neighborhood needs to be stable...not transitional & not declining.  The property should meet the 1% rule and have the potential to cash flow at least $300/mo net, with conventional financing.

If you can articulate the profile of your target property, then you can start narrowing down the markets that will meet your criteria.  There are properties in the DFW area that easily meet the criteria I just mentioned.  However, if you wanted to back that purchase price down to $150k, then you're going to start pushing the limits of what you can find in B neighborhoods OR you have to move into some of the outlying suburbs.

What are you looking for in properties?

Hattie is correct.  Ask yourself the following questions (among others):

1. What type of neighborhood do I want to invest in?  A, B, C?  (I would suggest staying away from D areas.)

2. What type of budget/price point are you looking at?

3. Do you want single family homes, duplexes, triplexes, 4-families, or larger properties?

4. How do you want to purchase -- cash, financed?

5. What type of return do you want?

6. Are you willing to do the research and make connections to an area that is not local to where you are?  (Realtor, property manager, etc.)

i think most investors start by owner occupying their own home?

@Theresa Sanford    my area has under $50k.  I have thought about owner occupying then i go look at the trulia crime statistics.  Investor i know his wife would only let him work work on a rental before noon.  Nother guy would wear a shirt said police on back so no one would mess with him.  I actually was siding a house heard someone get shot 3 blocks away.  

the fishing is definitely better on the other side of the lake.  Reading whereone guy said best advice he evergot was only invest in properties he could walk to

Thank you all for posting.

I want a 2 bed/2 bath single family for under 50K.   I have 15K to invest.  If I get a 50K property then I can put down 10K for the down payment and have 5K for getting it ready to rent/travel expenses ext.   I will get a loan from the bank for the remainder.  I am willing to research/travel to another state.   I want to make at least $300 in cash flow.  obviously I want to get into the best neighborhood that I can, but I realize that it will not be that nice at this price point. At the same time, I don't want to be in the ghetto ether.   I have researched this a lot and feel comfortable with the math, 2% rule, 50 rule ext.  I would love to get some recommendations on how you go about finding good city's/neighborhoods.  

@Josh Violette  

I can say confidently, there is little likelihood you will find anything in the DFW area at that price point.  You could probably find some MH's in the outlying areas that cash flow nicely.  Although, I don't know whether you would have interest in MH's.  Otherwise, in DFW you would be looking at either C- and below neighborhoods or properties needing extensive rehab.  You will probably be better served looking in the Midwest, Memphis, maybe even Georgia.

Good luck.

On that note, how do you go about classifying properties as A, B, C, or D?  Is there some sort of criteria or is it just purely objective?

I would start with a banker.  See if they will lend you $35k with $15k down and an investment property out of state.

what are A, B, C, and D neighborhoods? ( I assume they are ratings, but where would I find these ratings i.e.. website ?)

I am not a buy n hold guy yet... But I would look into proximity, population, access, neighborhood, sf, mf... There are plenty on here here that are much more experienced than I but these are starting points for me. Population, location to major cities and transportation  are good starting points.

Good luck

@Jerry Poon  @Christian Marquez  

 Found this older thread that answers our question....I think....

http://www.biggerpockets.com/forums/311/topics/79967-a-b-c-d-property-ranges

There is no definitive answer to A,B,C and D grade neighbourhoods. Everybody seems to have their own rules. Obviously blue chip areas with large private homes are generally A grade. In Memphis that would be $150K plus homes. However an A grade investment property might be an 80K home.

Other people do it based on rents. Generally I would call rents above $1400 a month A grade in Memphis

$995 to 1395 B grade.

775 to 995 HIgh C

etc. etc.

Obviously war zones and "hoods" are D grade

@Josh Violette

1. Research where the US population is moving to. Look at what metro cities are losing population and metro cities where the population is booming. Look at trends for where the creative class is moving to.

2. Just like evaluating stocks like PE ratio, look for under valued, under the radar metro cities that is the midst of an emerging market. Things to look for is a good life style, warmer climate, good jobs moving into the area, affluent households moving into the area. a new up and coming area that is starting to go viral as a desirable place to live.

3. Study the schools in websites like www.schooldigger.com and www.greatschools.org. Start looking at real estate from the lens of school clusters. When I search for investment properties on the MLS, I always search and analyze my data by school clusters.

4. In terms of A,B,C, D properties, one needs to buy what they can afford. An investor just starting out with limited capital will not be able to buy A properties and will need to start out with 2% type C and D assets. There has been extensive threads whether one should invest for appreciation or cash flow. Buying and hold A - Assets for Appreciation is where real estate wealth is built. If I had a choice of owning option 1: 10 - $200k properties, option #2 20 - $100k properties, or option #3 40 - $50k properties. I will selection option 1 any day, any time, any where.

5. Think of your real estate investment as your 401k retirement plan and continue to trade up and upgrade your assets to the best class assets you can afford.  Everything else will take care of itself.     

Originally posted by @Josh Violette:

I am a new investor looking to find a good area to buy a property.  I live in the Bay Area and can not afford to start here and therefore need to research a good place to start.  

How do you find a good place to invest.

I would love to get a step by step process of how you go about this.

Thank you for the information. It really have made a better understanding. 

The classifications of A, B, C, and D are somewhat subjective.  Generally most people agree that "D" class is a "warzone" meaning an area you don't want to walk around at night in.

Josh,

Welcome to BP!

It takes time to learn areas to invest in. I wouldn't go jumping on a plane to travel and see cities at this point----just pretend you're in a 1st class airplane seat as you do your research from the comfort of your home.

You could do a search here for "cash flow properties" or "best cities for cash flow"---something like that---and see what comes up. See what people are talking about. Maybe choose 3 cities and then do a search on those to learn if they might be what you want. Talk to some people here that invest in those cities.

Memphis has lots of properties that you could buy at that price point and cash flow, mostly in C+ - areas. I would strongly advise that you check with investors in any city you consider. For instance in Memphis you may find something that looks like a KILLER deal (especially coming from a Ca viewpoint) but with more detective work find out that it is surrounded by boarded up homes or is one street over from the war zone. I'm not joking or exaggerating. This is where having a strong network you trust will, literally, pay off.

Above all, it is SO important to take your time, study much and make some friends here. Ask lots of questions. You will find the "just right" property if you do these things.

Best of Success to You

@James Park Just to play devil's advocate, won't the (40) $50k properties bring in more passive income? Appreciation is also considered icing on the cake around here, and cashflow is considered the holy grail of wealth (according to Rich Dad, Poor Dad, at least). It is refreshing to see a different point of view from somebody. Can you enlighten me on why you think differently of appreciation and cashflow?

@Josh Violette  

I think you must first find a good Team/PM to invest with before you look into a specific area (Since you are looking out of your area). Due your homework on the team you surround yourself with because you will be working as a team even if you are hiring them to perform the property management for your real estate investment. A very strong/trust worthy team that knows what they are doing and have the experience with the A, B, C, and even D neighborhoods of any city is the key to success if you are investing long distance.

"You miss 100% of the shots you don't take"

By: The GREAT ONE- Wayne Gretzky

@Josh Violette  some solid advice here. This heat map may help: http://www.realtytrac.com/content/news-and-opinion/best-and-worst-markets-for-rental-returns-heat-map-8023

Originally posted by @James Park:

@Josh Violette

1. Research where the US population is moving to. Look at what metro cities are losing population and metro cities where the population is booming. Look at trends for where the creative class is moving to.

2. Just like evaluating stocks like PE ratio, look for under valued, under the radar metro cities that is the midst of an emerging market. Things to look for is a good life style, warmer climate, good jobs moving into the area, affluent households moving into the area. a new up and coming area that is starting to go viral as a desirable place to live.

3. Study the schools in websites like www.schooldigger.com and www.greatschools.org. Start looking at real estate from the lens of school clusters. When I search for investment properties on the MLS, I always search and analyze my data by school clusters.

4. In terms of A,B,C, D properties, one needs to buy what they can afford. An investor just starting out with limited capital will not be able to buy A properties and will need to start out with 2% type C and D assets. There has been extensive threads whether one should invest for appreciation or cash flow. Buying and hold A - Assets for Appreciation is where real estate wealth is built. If I had a choice of owning option 1: 10 - $200k properties, option #2 20 - $100k properties, or option #3 40 - $50k properties. I will selection option 1 any day, any time, any where.

5. Think of your real estate investment as your 401k retirement plan and continue to trade up and upgrade your assets to the best class assets you can afford.  Everything else will take care of itself.     

Originally posted by @Josh Violette:

I am a new investor looking to find a good area to buy a property.  I live in the Bay Area and can not afford to start here and therefore need to research a good place to start.  

How do you find a good place to invest.

I would love to get a step by step process of how you go about this.

 This is great information.    Exactly the type of things I was looking for.   Thank you.

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