Real estate investing is, without a doubt, one of the best ways to make money and build wealth. However, for one to be successful in this industry, finding income properties with a good return on investment is crucial. The first step to finding a good real estate investment is to find a profitable location. Location is a key factor in real estate investing as it will influence your return on investment. Therefore, every investor should know how you carry out real estate market analysis.
As a beginner real estate investor, it’s often wise to try to find real estate deals in your local real estate market. However, you will always be beaten by experienced local investors if you don’t know how to predict local housing market trends. Although the real estate industry is becoming increasingly competitive, that should not worry you. Technology has made researching real estate markets easier for anyone, regardless of your experience. Lucrative real estate deals are no longer a reserve for experienced and well-connected investors only.
In this article, we discuss how to analyze your local housing market using one of the best real estate investment tools – a real estate heatmap. If you are looking to find real estate deals in 2020, this is one tool you want to add to your arsenal.
Without further ado, let’s see how you can use the real estate heatmap to make better investment decisions.
Understanding the Real Estate Heatmap
Real estate market analysis is normally a time-consuming process that can take several days or even weeks. The traditional way of researching real estate markets by driving through neighborhoods to collect local housing market data and manually calculating key real estate metrics using Excel spreadsheets is usually quite inefficient. Thankfully, all this work is made quicker and more efficient with the help of the real estate heatmap.
Mashvisor’s heatmap analysis tool uses visual cues and colors (green, yellow, orange, and red) to distinguish the performance of different neighborhoods in any selected US real estate market. This analysis is based on property data, predictive analytics, and Mashvisor’s machine learning algorithms.
The main idea behind this real estate investment tool is to help investors easily find and interpret neighborhood data. It’s a simple and efficient way for real estate investors to find the best-performing areas in their local housing market.
Using Mashvisor’s Real Estate Heatmap for Local Housing Market Analysis
Mashvisor’s heatmap analysis tool is a very user-friendly tool. You simply choose the housing market you want to invest in and then proceed to explore different real estate metrics based on your investment criteria.
Once you have selected your market of choice, the tool allows you to filter your search using real estate metrics like listing price, rental income, cash on cash return, or Airbnb occupancy rate. The map will then show the average performance of different neighborhoods using colors ranging from green (high) to red (low). Mid-range neighborhoods will be in yellow and orange.
Here are the real estate metrics you will be able to focus on:
1. Listing Price
When looking for an investment property, the first thing you need to take into consideration is your budget. Therefore, when analyzing your local housing market, you should identify an area where you can afford to buy a property. This will help to ensure that you buy a positive cash flow property and prevent a foreclosure. After all, there’s no point investing in an area that is far beyond your budget even if it is performing well. You don’t want to be financially overstretched.
The first feature of Mashvisor’s heatmap analysis tool enables users to find markets that are within their price range. After selecting the city of your choice, you can activate the listing price filter.
The map will then display the different neighborhoods in the market using different colors according to the average listing price. Neighborhoods with the lowest listing prices will be marked with red while the more expensive neighborhoods will be marked in green. Those in between will be colored in orange and yellow.
2. Rental Income
The main goal of investing in real estate is to make money. Therefore, when conducting local real estate market analysis, you need to find areas with high rental income. High rental income will ensure positive cash flow and a good return on investment.
Mashvisor’s heatmap will help you find neighborhoods with the highest average rental income (for both Airbnb and traditional rental strategies) by highlighting them in green.
3. Cash on Cash Return
Return on investment (ROI) is the most important metric in real estate investing. As a real estate investor, you want to know how much money you will make for the amount you have invested.
The ROI metric that Mashvisor’s heatmap uses for neighborhood analysis is traditional and Airbnb cash on cash return. Unlike the cap rate, cash on cash return takes into account the investment property financing method. This makes cash on cash return a more realistic and comprehensive metric for local housing market analysis. Moreover, very few first-time real estate investors have the capacity to acquire an income property in cash.
As a real estate investor, you want to focus on neighborhoods with the highest cash on cash return. These are the areas displayed in green on the heatmap.
Related: What Is a Good Cash on Cash Return?
4. Airbnb Occupancy Rate
If you are looking to invest in Airbnb rental properties, the occupancy rate is one of the crucial metrics to consider. Airbnb occupancy rate will determine your monthly rental income as well as your return on investment. Unlike long-term rental properties, the demand for vacation rentals often fluctuates.
Therefore, real estate investors looking to become Airbnb hosts should focus on areas with a high Airbnb occupancy rate. Mashvisor’s heatmap will help you to easily find neighborhoods with a high Airbnb occupancy rate in your local housing market.
The Bottom Line
Finding a profitable location for property investment can be challenging if you don’t have access to the right tools. The best way to analyze your local real estate market is to use Mashvisor’s real estate heatmap. This tool will enable you to find a profitable investment market that’s within your price range in a matter of minutes. Apart from eliminating the need for Excel spreadsheets in real estate market analysis, the heatmap analysis tool makes numerical data easier to interpret.
If you are looking to buy a rental property in 2020, be sure to use our heatmap analysis tool to do your local housing market analysis.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.