The one thing that can make or break a real estate investment is location. It is why a heatmap analysis is very important for any real estate investor.
Table of Contents
- The Heatmap Analysis Guide for Rental Investments 2022 Edition
- Finding the Right Heatmap for You
- What’s Next?
But what exactly is a heatmap analysis tool? What does it do for real estate investors and professionals? Let’s find out more about this highly interactive and essential tool in this article.
The Heatmap Analysis Guide for Rental Investments 2022 Edition
The right investment property and the right opportunity won’t bear much fruit if it isn’t in the right location. Far too many investors have learned it the hard way. Many thought that owning a piece of property is enough without thinking about how its location can greatly impact its viability in the long run.
You’ve probably already heard of some real estate investing horror stories where a seemingly promising investment had turned into a nightmare. Not exactly the American dream we all want.
The great news is that technology has already made it easy for investors of all experience levels to pinpoint the right location for their preferred investment property. Real estate websites like Mashvisor now allow beginner and experienced investors to find a good spot to invest without the challenges of the traditional way of data gathering.
Mashvisor offers its users a handy real estate investing tool known as the heatmap.
Heatmap Defined
A real estate heatmap or a heatmap analysis tool allows users to simultaneously conduct neighborhood data analysis of several areas in a given real estate market.
It resembles heatmaps used by weather forecasters. It is color-coded to show which areas of a specific housing market are red-hot, ice-cold, and everything in between. The data analysis heatmap uses data from different reliable sources and puts all of that information together in one place for investors to find. Mashvisor and some other real estate websites that offer the same feature make property search faster and more efficient.
What Is Heatmap Analysis?
To the uninitiated in the ways of the real estate industry, a heatmap data analysis basically just refers to the method of analyzing neighborhood data to determine whether investing in it is a wise decision or risky business.
All investors would like their investment to generate a good return, but it takes more than just buying undervalued property and converting it into a rental property. Smart and experienced investors know the value of neighborhood data analysis and how it affects their investment over time. For this reason, investors use several tools, including real estate heatmaps, to see if the markets they are considering align with their goals and allow them to achieve the said goals.
Related: Real Estate Investing for Beginners: A Guide to Neighborhood Analysis
Benefits of Using a Heatmap for Rental Investments
In real estate investing, the more tools you got in your arsenal, the better the chances of finding the right income property. It is especially true in the case of a heatmap. Using one comes with several advantages for investors and real estate professionals.
For one, it saves users a lot of time and money on the research and analysis aspect of investing. A lot of hard work and dedication should be poured into performing due diligence. However, as rewarding a concept as hard work is, there’s also this concept called working smart. Using a real estate heatmap falls under that category.
Learning how to work smarter, or in this case, using a heatmap analysis tool, allows investors to save on long hours and hundreds – or even thousands – of dollars going the old school route. By “old school,” we mean doing things the old-fashioned way. It includes driving around the town for hours looking for real estate comps, talking to countless people about rental data, recording every bit of information gathered in notebooks, and analyzing data on spreadsheets.
We’re not knocking off the traditional way as it has worked for a lot of investors. However, not everyone has enough time and money to manually do all that hard work. Using an online heatmap cuts down the research time to just minutes. All they need to do is just input the location they’re considering and download the results of their search.
Easy. Simple. Fast. Efficient.
Another clear advantage of using heatmaps is it allows you to perform multiple searches simultaneously. Since the map is designed to show larger areas, investors automatically get a glimpse of how neighborhoods are performing in a particular market.
Let’s consider Boise, ID. According to Mashvisor’s latest data, these are the following numbers tied to the City of Trees:
- Number of Listings for Sale: 165
- Median Property Price: $813,475
- Average Price per Square Foot: $415
- Days on Market: 34
- Number of Traditional Listings: 306
- Monthly Traditional Rental Income: $1,412
- Traditional Cash on Cash Return: 0.33%
- Traditional Cap Rate: 0.34%
- Price to Rent Ratio: 48
- Number of Airbnb Listings: 984
- Monthly Airbnb Rental Income: $2,503
- Airbnb Cash on Cash Return: 1.00%
- Airbnb Cap Rate: 1.01%
- Airbnb Daily Rate: $129
- Airbnb Occupancy Rate: 58%
- Walk Score: 36
Related: Idaho Housing Market Forecast 2022
Now, the above numbers are the latest real estate data for the city. However, just because they are connected to the city doesn’t automatically mean that all properties in any neighborhood in and around Boise will pull the same numbers. Realistically, certain neighborhoods will outperform others in different aspects. We will explain some of the data listed in a moment, although a lot of them are already self-explanatory.
Going back to our example, one portion of Boise might be doing really well with long-term rentals but not as much when it comes to short-term rental properties. On the other hand, some areas of the city are more lucrative vacation rental investment spots but can perform quite poorly as traditional rental locations.
Generally, the data shows that Boise is a much better place for vacation rentals (with a 1.00% cash on cash return and 1.01% cap rate) than for traditional rental properties (with a measly 0.33% cash on cash return and 0.34% cap rate). Despite its lower nightly Airbnb rate of $129, its slightly above average occupancy rate of 58% gives Airbnb hosts a decent monthly rental income.
Often, it is a hit-and-miss situation, which is why getting access to an online heatmap is very valuable to an investor and real estate professional.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Finding the Right Heatmap for You
That being said, not all heat maps are created equal. If we can leave you with one very specific tip on how to invest in real estate, it is this: Find the right website that offers the state-of-the-art heatmap analysis tool to help you get the job done.
To get that, you need to ensure that the website can provide you with the following information, at the very least:
- Number of Listings for Sale. This indicates the number of properties publicly listed on the multiple listing services.
- Median Property Price. This is the midpoint price of all listing prices on the MLS. It means that half of the properties listed on the market are more expensive while the other half are cheaper. It is not to be confused with average property prices, which take into account the total amount of listing prices and divides them by the number of houses listed.
- Average Price per Square Foot. This shows how much a square foot of property is worth in a particular market.
- Days on Market. This shows how many days a property stays listed on the MLS. It is a good barometer for investors to see whether a location is a buyer’s market or a seller’s market.
- Number of Traditional Listings. This shows how many properties are listed as traditional rental properties.
- Monthly Traditional Rental Income. This metric shows the average monthly income landlords make on long-term rental properties in a specific town or city.
- Traditional Cash on Cash Return. This metric shows the return on investment based on the cash on cash return rate of a traditional rental property. We can get the CoC return by dividing the property’s net operating income (NOI) by the total amount of cash invested.
- Traditional Cap Rate. The cap rate is another ROI indicator that takes a traditional rental’s NOI and divides it by the property’s market value. It is different from cash on cash return in that a cap rate does not consider the financing method when coming up with a computation whereas the cash on cash return formula does.
- Price to Rent Ratio. This number determines whether it is wiser for people to rent a property or just buy one. It is divided into three categories. A low score of 15 and below tells investors that property prices are low compared to rental rates, so it is more reasonable to buy a property in a low score market instead of renting one. A medium score of 16 to 20 indicates there is a good balance of property prices and rental rates. A high score of 21 and above means that property prices are high, which makes renting a house the most logical choice.
- Number of Airbnb Listings. This shows investors the number of Airbnb rentals in an area.
- Monthly Airbnb Rental Income. This data shows investors how much they can potentially earn in one month if they have the property listed on vacation rental platforms like Airbnb. The thing about it is that the monthly Airbnb rental income will vary depending on the time of year. The seasons play a huge part in an Airbnb rental’s occupancy rate.
- Airbnb Cash on Cash Return. This is the same as the traditional cash on cash return, only applied to an Airbnb rental property.
- Airbnb Cap Rate. This is also the same as a traditional rental cap rate, only it is data taken from short-term rentals in a particular market.
- Airbnb Daily Rate. Airbnb hosts can charge any amount they want for their daily rates. However, knowing the average going nightly rate in an area allows investors to stay competitive with the other vacation rental properties in their neighborhood.
- Airbnb Occupancy Rate. The occupancy rate indicates the amount of time a rental property is occupied versus the time it is listed. A high occupancy rate means a better monthly Airbnb rental income.
- Walk Score. This determines how “walkable” a specific neighborhood is. It pertains to how accessible the property is to certain public amenities without any use of a vehicle. The higher the walk score, the more convenient it is to walk around town to get to coffee shops, groceries, laundromats, drug stores, schools, and other similar amenities.
Fortunately, Mashvisor has access to all of the above information and more.
Mashvisor’s Real Estate Heatmap Analysis Tool
Mashvisor is a real estate website that does more than just provide accurate market data to investors and real estate professionals. It offers several investing tools that make investing a breeze even for novice investors.
One of its advantages over other real estate websites is its real estate heatmap that shows users the best rental markets to invest in. It includes four main filters that make property searches faster and more efficient. The four filters, along with a few heatmap analysis tips, are the following:
Listing Price
One of the very first things an investor looks out for is affordability. An investor is always on the lookout for the best place to buy rental property that isn’t expensive but also comes with a very promising income-generating potential.
Mashvisor’s heatmap allows users to look for properties that fit their criteria, especially their budget. Users only need to select the filter from the dropdown menu, labeled Heat Map Dataset, located at the upper left portion of the map. Once it is selected, the map will show different pricing zones ranging from very affordable (reds) to very expensive (greens).
Use Mashvisor’s heatmap tool to find properties that fit your investment criteria, particularly your budget.
Traditional and Airbnb Rental Income
Another useful filter for investors is the Traditional and Airbnb Rental Income filters. Since an investor’s goal is to make a profit off of their investment, knowing how much potential income a rental property can generate will help them get more accurate projections.
The two options can be found in the same dropdown menu as the Listing Price. The excellent thing about the Traditional and Airbnb Rental Income filters is that it shows which areas are great for traditional or vacation rental property investments. Also, it will make a side-by-side comparison to see which rental strategy is more profitable in the long run.
The green areas represent the higher end of the rental income spectrum, while the reds show which areas have the lowest income rates.
Return on Investment
To get an idea of what the ROI is like, users can use this filter to see what a particular neighborhood offers in terms of cash on cash return. It is the metric of choice to determine ROI, mainly because it takes into account the financing option that will be used to purchase the property.
Investors can check out both traditional and Airbnb cash on cash return rates using the heatmap. Similar to the rental income filter, the green parts highlight areas with the best cash on cash return rates, while the red parts of the map show which areas provide very poor cash on cash returns.
Airbnb Occupancy Rate
Lastly, the website’s heatmap will point users to neighborhoods with high occupancy rates. As we already mentioned earlier, the monthly rental income for Airbnb properties will depend largely on their occupancy/vacancy rate. The green areas show users which neighborhoods have high occupancy/low vacancy rates, while the red ones show the opposite.
On top of the four filters above, Mashvisor also lets users conduct a more thorough neighborhood analysis for almost all markets in the US. Just click on the name of any neighborhood and you should be taken to the Neighborhood Analytics page to gain access to the following information:
- Number of investment properties
- Historical rental income analysis
- Historical Airbnb occupancy rate
- Optimal rental strategy
- Optimal rental property type
- Optimal number of bedrooms
- Real estate comps
- Walk score
Related: Real Estate Heat Map: A Revolutionary Tool for Neighborhood Analysis
What’s Next?
After finishing your research and performing all the data analysis needed using Mashvisor’s heatmap analysis tool, it is now easier for you to make a well-informed investment decision.
Things don’t get any better than Mashvisor offers investors. You get a lot of hard work done in a fraction of the time it usually takes. It makes subscribing to Mashvisor’s services one of the best investments any real estate investor can make.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.