Technology and data analytics have entered every conceivable industry and improved upon the “old ways” of doing things. It is natural, then, for real estate investors to try to take advantage of what real estate analytics has to offer.
Traditionally, successful real estate investors relied on instinct and networking to find the best investment property with the greatest return on investment. It was limiting and made beginner real estate investors feel they were lacking in the skills and contacts needed to succeed in real estate investing. That’s where real estate analytics comes in. Any real estate investor can now enter the game with a higher chance of succeeding because of real estate analytics. Understanding exactly how to use real estate analytics to your advantage as an investor should be a priority. But first, let’s take a look at how investors benefit from real estate analytics.
Benefits of Real Estate Analytics
Why should a real estate investor utilize real estate analytics? Simply because it has numerous benefits that a real estate investor would have difficulty finding anywhere else.
Accessible Information
A lot of the time, we talk about investment property analysis or real estate market analysis and how a real estate investor needs to find out certain facts about an investment property. Well, a lot of this information is now easily accessible to any real estate investor who goes looking for it through real estate analytics.
Better Decision Making
Being able to make an investment decision confidently, without any guesswork, is a comfort many don’t enjoy. Rather than choosing real estate investments and wishing for the best, a real estate investor who uses real estate analytics will have the data and the numbers to back his/her investment decision.
Understanding Real Estate Markets
An in-depth and clear understanding of real estate markets is key to any real estate investing decision. Real estate analytics provide an inside look at any real estate market. A real estate investor can see exactly which markets are doing well and why. Alternatively, real estate analytics will help investors steer clear of failing markets.
Lower the Risk Factor
Typically, a real estate investor wants to find the real estate investments with the lowest risk. Real estate analytics can help investors find these kinds of investments because of all the information about every aspect of the investment property that is available. Looking at an investment property from every possible angle will help determine the risk more accurately.
Types of Real Estate Analytics
There are two types of real estate analytics available to a real estate investor: traditional and predictive analytics. Traditional analytics is data about real estate investing that can help a real estate investor understand what has happened and why. For example, if a certain real estate market was booming, yet investments in a specific neighborhood weren’t succeeding, real estate investors could take a look at why. They can figure out what changes, if any, could be made to lead to success.
The difference between traditional and predictive analytics is that predictive analytics takes data and uses it to take a look at the future, so to speak. This means it can help predict future trends in real estate markets and the future of an investment property. Both traditional and predictive analytics should be used by a real estate investor when choosing an investment property.
How a Real Estate Investor Should Use Real Estate Analytics
Choosing an Investment Property
The first way in which real estate investors should use real estate analytics is when choosing an investment property. The possibilities here are endless, really. As is always emphasized in real estate investing, choosing the best location for an investment property is very important. Real estate investors are often told to find out everything they can about the location before even thinking of investing. Real estate analytics can give you all you need to know about the location: demographics, school districts, crime rate risks, public transportation proximity, etc. All of this information is tied to your investment property in order to let you see how it will affect your return on investment.
Real estate analytics also provides real estate investors with an insight into what investment strategy to choose as well as what type of investment property (single family homes, multifamily home, commercial real estate, etc.) will be the most profitable.
Related: How to Find an Investment Property Using Analytics
Property Valuation
Both investment property analysis and real estate market analysis help a real estate investor find the approximate value of an investment property. If a real estate investor wants a more accurate valuation of the investment property, real estate analytics would be the source. Return on investment metrics like cash on cash return and cap rate are readily available through real estate analytics. A real estate investor can get more accurate calculations through investment property calculators. This saves time for a real estate investor, who no longer has to seek out values for individual investment properties one at a time. Instead, this kind of information is available for a vast amount of real estate listings through real estate analytics.
Related: Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier
Trends of appreciation and depreciation are things real estate investor have to take into consideration when investing in a property. For example, when it comes to fix and flip investments, a real estate investor is told to know the after-repair value: how much the investment property will appreciate due to the repairs. Before even needing to hire a pricey contractor, real estate analytics can help real estate investors figure out the trends on such repairs and how they affect the future return on investment.
Financing
Believe it or not, real estate investors can even use real estate analytics to get better financing. Banks and lenders are definitely using real estate analytics to determine the risk of your investment property. The higher the risk, the lower your chances for even qualifying for a mortgage. If you do qualify, you could be hit with high interest rates and mortgage payments.
Why not use real estate analytics before even getting to the bank? Figure out the level of risk of an investment property and find the properties with a higher return on investment that lenders are more willing to finance.
Exit Strategies
Real estate investors have to have an exit strategy in place in case any unpredicted circumstances require them to let go of an investment property. Choosing investment properties with limited markets and buyers will mean having to hold onto a property longer, which in turn means losing money under certain circumstances, like vacancy.
Which type of properties in which areas are buyers drawn to? What exactly are buyers looking for in an investment property? These trends are available to real estate investors through real estate analytics. With this information, you’ll have an exit strategy in place if all else fails.
Identifying Tenants
Traditional and predictive analytics is of great use when figuring out what kind of tenants investment properties attract. As a real estate investor, you need to know what kind of tenants you’ll be dealing with. Traditional analytics can let you know what past and current tenants look like in certain neighborhoods as well as any trends in occupancy and vacancy rates. Predictive analytics will let you know if you’ll be looking at a different kind of tenant in the future that you should plan for now when it comes to amenities and such.
Making Money in Real Estate
Maybe you’re making money in real estate and have a decent return on investment, but what about how much you could be making? Real estate analytics can let you examine how much an investment property should be bringing in. If your rental income is lower, you can take the time to pinpoint why and increase your return on investment.
Real estate analytics even gives you an idea of what other real estate investors are making with similar or different real estate investments, again, helping you rethink your strategy to make more money or help you decide what your next investment property will be.
Related: How to Make Money in Real Estate: Follow Our Guide
Real estate analytics is truly changing the face of real estate investing. It provides a great advantage in investing that no other tangible source has been able to provide in the past. A great source real estate investors can turn to for predictive analytics is Mashvisor. Mashvisor will show real estate investors property valuation metrics as well as the best strategy to use for an investment property. There is no real reason why you shouldn’t be using real estate analytics to make all of your investment decisions.