Finding the best real estate investments can be a tough task, especially for beginner real estate investors. Neighborhood analysis is an important stage of real estate market analysis. This tool will not only make your job a lot easier by identifying the best location to buy an investment property, but it will also match your investment preferences and criteria.
As a beginner real estate investor, you will sooner or later come across real estate market analysis, which is a complete analysis of the real estate market used to valuate properties based on a method called comparative market analysis (CMA). In turn, real estate neighborhood analysis comes under investment property analysis, another important tool that measures the performance of investment properties.
Neighborhood Analysis: How to Use It in Real Estate Investing
The aim of neighborhood analysis is to find the best location that suits your real estate investment needs by conducting a process of neighborhood elimination. While a comparative market analysis often involves analysis of an entire city, neighborhood analysis is more specific as it focuses on individual neighborhoods. Narrowing down neighborhoods and filtering properties will help you find properties that match your investment criteria.
Neighborhood analysis can help you find the type of real estate property you want to put your money in (single-family homes, condominiums, multi-family homes, etc.) within your price range. Moreover, if you dig more, you can find more useful property metrics such as return on investment, cap rate and cash on cash return. Such metrics will help you understand and compare the performance of different real estate investment opportunities.
Conducting neighborhood analysis can also help you determine which rental strategy you want to follow. Based on individual neighborhood data, you can decide whether to invest in Airbnb rental properties or traditional rental properties. It all comes down to real estate comps in that location.
Moreover, neighborhood analysis might indicate problems that have negative effects on the housing market within a location. For instance, too many listings in the same neighborhood is a red flag for real estate investors as it indicates oversaturation of the property market and low demand for real estate.
Related: How To Perform A Real Estate Market Analysis
Neighborhood Analysis and Comparative Market Analysis
The main purpose of a comparative market analysis is to determine the market value of a real estate property. But there is more to that. CMA can also be used to conduct neighborhood analysis by comparing listing prices vs selling prices in a certain area. A quick look at those figures can be one indication of what to expect as an investor. Learning what other real estate properties list for and sell for can help to evaluate if a certain neighborhood is worth investing in or not.
Neighborhood analysis and data analytics
The most basic form of neighborhood analysis is driving around with your car, looking for potential investment properties for sale and manually creating a list of real estate comps. The good news is that you don’t have to worry about this time-consuming and lengthy task anymore. Data analytics has changed the way we deal with investment property analysis forever, and this is exactly what we offer at Mashvisor! Instead of wasting hours and hours, predictive real estate analytics has made it possible to determine the most suitable neighborhood for your future real estate investment plans.
Mashvisor: Neighborhood Analytics revolution
With Mashvisor’s real estate investment tools, neighborhood analysis is made easy. All you have to do is choose a city to invest in, hover over any neighborhood in that city and enjoy the Mash magic. Mashvisor provides you brief stats for the chosen neighborhood that include:
1- Mashmeter score
The Mashmeter score is the fruit of statistics and Mashvisor’s science. Expressed as a percentage, this score will tell you how good a neighborhood is for real estate investing in terms of income generation and rental demand.
2- Median prices
The median price of a specific neighborhood serves as a primary filter in your neighborhood elimination process. If property prices were to be arranged from lowest to highest, the median price would be the middle number.
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3- Traditional vs Airbnb cash on cash return and cap rate
When opting for a rental strategy, it is important to know the return on investment. Cash on cash return and cape rate are two different return on investment metrics that measure the performance of real estate investments. Mashvisor’s real estate investment calculator will do all that for you.
Related: Cap Rate versus Cash on Cash Return: Which One Is the Ultimate Metric to Measure ROI in Real Estate?
Based on statistics from Airbnb, Mashvisor’s neighborhood analytics will provide you with Airbnb occupancy rate. You should give large weight to this metric if you decide to invest in short term vacation rentals.
5- Optimal rental strategy
A great feature of Mashvisor’s neighborhood analysis tool is that it tells you which rental strategy is better for a given location. The optimal rental strategy is based on the analysis of which gets higher rents and thus more profits for real estate investors.
6- Heatmap analysis
Heatmap analysis is a visual tool that uses a heat filter map to reflect the performances of different real estate investment opportunities in a certain neighborhood.
To learn more about heat map analysis and how to use it, make sure to read this blog.
The Bottom Line
Conducting a neighborhood analysis is a very important step before making any real estate investment decision as it tells you what to expect from buying an investment property in a given location. You can choose to do this on your own, but as a beginner real estate investor, this would be a time-consuming task. Therefore, we encourage you to use real estate investment tools such as Mashvisor’s investment property calculator which will not only make your job easier but will help you make money in real estate in no time.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.