1. Investment in the housing market depends on cash flow, and also depends on ROI (return on investment, or capital return). ROI and cash flow are not exactly the same, because ROI includes the value of the property value. I am using the website propertycashflowcalculator.com, which allows me to quickly check cash flow and capital return. Moreover, this site lists before-tax and after-tax cash flow and capital return, which is very convenient. In general, a property with "After-Tax Yearly Capital Return on Income" over 8% is acceptable investment. The higher, the better.
2. Choose the right location. Silicon Valley area is too expensive, basically no positive cash flow. You can only hope the house price is up, but the risk is also relatively large: When the housing market falls, if house rentals cannot support themselves, it may be a disaster situation. Good investment properties should be cities with detached single family houses (good condition ones) in less than $200K. Also, the city needs to have a stable economic growth and population growth.
American cities and population data can be found at the Google Public Data (http://www.google.com/publicdata/directory)
3. Consider the risk, including
a) Economic risk: you should not leverage too high and put all your money into housing market. It is good to have a cash buffer to hedge risks.
b) The risk of legal lawsuits: Your tenant may physically injured, and sue you. If you have a lot of money, you'll become a good target for lawyers. To protect yourself, you can consider umbrella insurance or LLC company.
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