Every successful real estate investor, making money in this business, knows that in order to find the best real estate investments, you need to perform various types of analyses. Such are, for instance, real estate market analysis, neighborhood analysis, investment property analysis, etc. The reason behind taking the time to perform such an in-depth research is finding the best place to invest in real estate and the best real estate investments. Additionally, such analyses are useful when choosing the optimal rental strategy in case you are buying rental property. Conducting a proper real estate investing research, however, takes a lot of time and effort. Luckily, there is an easier way to help you in choosing the optimal location and the best real estate investments. This easier method is using a heat map. What is heat map analysis and how does it work? Find the answers below.
Related: Be a Smart Real Estate Investor: Finding Income Properties Using a Heatmap
#1 What Is Heat Map Analysis?
Performing heat map analysis is widely popular in various spheres of our lives. For instance, heat map analysis is used to show the best tourist spots at a certain destination or the best restaurants in town as well as the voting percentages during elections. It is, therefore, expected that such analysis also finds application in real estate investing, specifically, real estate market analysis. As previously mentioned, heat map analysis is useful for choosing the best place to invest in real estate when buying rental property. Moreover, it is extremely helpful when deciding on the optimal rental strategy for your property. As you probably already know, all of these factors are extremely important if you want to be making money in real estate.
Related: Heat Map Analysis: Real Estate Investing
#2 How Does Heat Map Analysis Work?
Heat map analysis is a tool which works on the principle of using a heat filter. Using a heat map enables you to perform neighborhood analysis with an ease as it shows you the difference in performance between several areas in the city or the neighborhood. Consequently, using a heat map helps the real estate investor in picking up the best location when buying investment property. The heat map analysis typically shows various numbers, placed on a map, and the higher the number, the better the performance. In the case of neighborhood analysis, for instance, it is advisable to choose the area at the chosen location with higher performance ratings. Due to the visualization, it is easy and fast for the real estate investor to find the best place to invest in real estate. Additionally, using a heat map in real estate market analysis quickly and accurately reveals the potential strengths and weaknesses of the particular location.
#3 Mashvisor’s Heat Map
Mashvisor’s heat map shows a bit more than just numbers. When conducting heat map analysis with Mashvisor’s tool, the map is colored in: green, yellow, and red. Each of these colors symbolizes something. For instance, if an area is colored in green, this means that it is performing above the average. The yellow symbolized moderate performance, while the red being below average performance. Thus, the tool help you in choosing the optimal location for your next investment. Further, Mashvisor’s heat map shows detailed information about a specific location and shows results based on several real estate metrics. These are, namely, the cap rate, cash on cash return, property price, rental income, and Airbnb occupancy rate. Additionally, the tool divides the data based on the rental strategy – Airbnb rentals vs. traditional rentals. This enables the real estate investor to effortlessly pick the optimal rental strategy for each specific location.
Related: How Should You Use Mashvisor’s Heat Map Generator to Your Advantage as a Real Estate Investor?
#4 Heat Map Analysis: The Metrics
As already described, there are various real estate metrics which heat map analysis takes into consideration. Let’s explore some of them in order to get a better view of the analysis and evaluate the benefit of using them for your future real estate investments.
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Property Price
Apart from choosing the optimal location for your real estate investment, it is also important to pay attention to the price when choosing the property. Sure enough, the property price is an important variable in this decision. In order to be making money in real estate, you need to constantly keep track of your budget and follow a financial plan. Mashvisor’s heat map will show you the listing prices divided by the three previously mentioned different colors. The green areas include more expensive properties, while the red ones include more affordable investments. This will help you in navigation for exploring only properties within your budget scheme.
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Cash on Cash Return
Cash on cash return is used as an indication of whether buying an investment property is a good decision for your real estate investing business or not. You can calculate the metric by dividing the net operation income by the cash cost of the investment.Mashvisor’s heat map allows its users to find the optimal rental strategy for a specific property as the tool provides traditional as well as Airbnb cash on cash return. Moreover, unlike the cap rate, cash on cash return takes into consideration the financing method of your rental properties. This is of crucial importance, especially, when using mortgage loan for the purchase of your investment.
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Potential Rental Income
The occupancy rates are an extremely important factor when predicting the potential rental income you will receive form a property. Once again, by conducting heat map analysis, using Mashvisor’s tool, you will be able to get occupancy rates depending on the specific rental strategy. This will allow you to predict your potential rental income more precisely. Additionally, Mashvisor’s heat map will show in no time the areas associated with higher rental income. The latter will help you easily discover the best location for your potential rental property investments.
Are you interested in learning more valuable real estate tips and advice? Head on to Mashvisor’s website to find plentiful useful blogs on various real estate topics!
