Heatmap analysis is a concept applied by Mashvisor which uses its heat map tool in order to help real estate investors find the best investment properties nationwide and analyze them based on different criteria.
In this blog, we will discuss what a heat map is, what heat map analysis is, and how the information that can be acquired through heat map analysis can be used by real estate investors to base their investment decisions on in order to achieve the optimal investment strategy.
Heat Map Analysis: What It Is
What is a heat map? And what is heat map analysis?
A heat map is a top-view map of an area with visual indicators showing a specific set of objects on the map based on certain comp criteria, which then translates into the objects on the map giving different visual cues depending on the difference of scale of the predetermined criteria to give information about the said objects and their locations.
In other words, a heat map is used to give information about a number of similar objects in a certain area, and how these objects differ from one another based on certain comparisons.
The Mashvisor heat map can be used to find investment properties in an area, and to acquire information about these properties such as the listing price, the cash on cash return, the rental income, and the Airbnb occupancy rate.
The real estate properties will be shown on the heat map as glowing dots, with the intensity of the glow, its radius, and its color changing, depending on the information that you’re trying to compare the different properties based on.
Related: Finding Income Properties Using a Heatmap
Heat map analysis is the process of using the information indicated by the heat map in order to analyze different properties and/or different areas or neighborhoods in a city and to make investment decisions based on the information gathered through this heat map analysis.
Heat Map Analysis: Listing Price
One of the first metrics that can be extracted through heat map analysis is the listing price of potential investment properties in the area. This allows any prospective real estate investor to get information about different areas and see how the average listing prices in these areas compare. Based on this information, the real estate investor is able to decide on an area to invest in, depending on the listing prices in the area and the investor’s target listing price.
Related: Finding and Understanding Rental Comps Made Easy
This is usually the first criteria that you will want to base your heat map analysis on as a real estate investor, as the listing price of a property is a major determining factor of whether you can or cannot afford to invest in a property. Without knowing the listing price of an investment property, the investor will not be able to analyze any other information related to the property.
Heat Map Analysis: Cash on Cash Return
Once you’ve used heat map analysis to decide on an area with appropriate listing prices for your real estate investment, it is time to adjust the heat map to show properties based on their CoC (cash on cash return). One of the most important factors to base an investment decision on is CoC return. The cash on cash return gives the real estate investor an idea of the value of the investment based on the amount of own cash invested in the property.
Cash on Cash Return = (Net Operating Income, i.e., Monthly Income – Monthly Expenses x 12) / Investment Costs
Using heat map analysis to analyze the CoC return of properties in an area allows the investor to determine the best properties in the area with regards to their return on investment. In other words, the CoC return heat map analysis gives information to the prospective investor on whether the property will be profitable or not, and how long it will take for the property to start earning a profit on the investment.
Heat Map Analysis: Rental Income
In addition to giving information about the listing prices and the cash on cash return, a heat map analysis allows the real estate investor to look up properties based on their rental income. This method takes into consideration the average rent prices in the area and the average rental income based on property comps (property comparisons) in order to give the investor an idea of the rental rate that he/she should set for his/her rental property as well as the rental income to be expected from the rental property.
While this metric is mostly used to analyze rental properties, not other types of investment, it adds an additional depth to the heat map analysis, and a smart real estate investor will find a use for it even when not investing in a rental property.
Related: How to Buy a Rental Property Using Mashvisor
Rental property investors, on the other hand, find this aspect of the heat map analysis to be one of the best features of the real estate investing tool, as information about rental income in an area gives them a better insight on their investment and on the “salary” that is to be gained through this investment.
Heat Map Analysis: Airbnb Occupancy Rate
Another aspect of the heat map analysis that is extremely useful for rental property investors is the Airbnb occupancy rate factor. This feature allows real estate investors to get information related to the occupancy rate of rental properties in a specific area based on information collected from actual Airbnb rental properties in that area.
Since Airbnb rental properties are short-term rentals, it allows the heat map to gather data on occupancy rates based on shorter segments of time, which helps it give closer approximates than through traditional/long-term rental properties, while still giving data that can be used for analyzing the occupancy rate of long-term rentals as well.
The Airbnb occupancy rate metric is most useful for real estate investors looking to invest in Airbnb rental properties, as the occupancy rate indicated by the heat map analysis is most relevant for Airbnb rental properties, and its data is most accurate in this regard.
Heat Map Analysis: Conclusion
When it comes to finding an investment property, the Mashvisor heat map can be one of the most powerful and valuable tools to use for your investment. Mashvisor heat map analysis allows real estate investors to make their investment decisions based on the data gathered through the heat map, eliminating a large portion of the time and effort which they would otherwise have to spend in order to gather the information and analyze it using a spreadsheet and a calculator, or driving around for hours in a neighborhood just to gather information about the properties in it.