Real estate investing in general – and investing in rental properties in specific – is all about making informed investment decisions using solid, reliable data. The real estate business has become so competitive and technology-driven that you cannot hope to succeed as a property investor the traditional way. You have to adapt to the fast-changing investment reality and learn how to make use of the best real estate investment tools and resources. Luckily for you, these tools and resources tend to be extremely user-friendly, allowing just about anyone to become not simply a real estate investor but a successful real estate investor. Here we will show you the power of predictive analytics – one of these high-tech resources – in making the right decisions when investing in rental properties.
What Is Predictive Analytics?
Maybe you are sitting there now and wondering what exactly predictive analytics is. No worries, predictive analytics is nothing too complicated and nothing that you cannot get the hang of.
Predictive analytics is directly related to traditional real estate analytics, so let’s start out with this one. Traditional analytics is how the world of real estate used to work. Traditional analytics is used to analyze big data and show how we arrived at where we are now. Traditional analytics is great because it explains why and how life is the way it is. For example, if you have an excellent investment property which made you $50,000 in profit over the past 3 years (yes, such things are possible with real estate investing), traditional analytics can show you what exactly led to this great success.
But honestly, who cares about what – in the past – led to your success with this specific rental property? Definitely not a forward-looking real estate investor! A forward-looking real estate investor wants to know how to buy the next profitable rental property, and that’s where predictive analytics comes into the picture.
PREDICTIVE ANALYTICS, as the name suggests, is using past and present big data to make reliable, evidence-based predictions about the future development of things.
How Predictive Analytics Helps You Find the Best Rental Property
1. Choosing the Right Location with Predictive Analytics
“Location is everything in real estate investing”… “Location location location – the three most important factors for success in the real estate investing business”… And so on and so forth.
Anyone who has ever considered the idea of becoming a rental property investor and has thus researched the topic or talked to real estate experts has heard (maybe one too many times) how important location is for buying a rental property which will provide large positive cash flow.
With the power of predictive analytics, you can always choose the best location for your investment properties without being an expert on real estate markets. Some real estate websites, like Mashvisor, provide you with a heatmap analysis of areas within a city of your choice to help you identify the best neighborhood for residential real estate investments. This heatmap analysis constitutes an easy-to-understand, visual way of depicting investment outcomes based on data, trends, and forecasts – i.e., predictive analytics.
Because modern technology has made crunching big data within a second feasible, a heatmap analysis helps real estate investors find the best neighborhood based on a number of different real estate metrics including property price, rental income, cash on cash return, and occupancy rate.
Having the right neighborhood in the right city will bring you one step closer to the ultimate goal of making money in real estate.
2. Finding the Best Investment Property with Predictive Analytics
Regardless of how important location is, it is not ABSOLUTELY everything in real estate investing. The actual rental property you invest in still matters! It matters a lot, indeed.
Once again, you don’t have to be an experienced real estate investor with a portfolio of 50 properties behind your back in order to buy a rental property which will allow you to make some big money in real estate. All you need is – you guessed right – predictive analytics.
Once you’ve located the real estate market where you want to buy a rental property, you have to find the BEST rental property there to serve your investment needs and aspirations. The rental property calculator is a real estate investing tool which relies on predictive analytics to help investors choose this BEST property.
A rental property calculator, also known as an investment property calculator, can show you a number of important features of the most profitable property in the housing market of your choice. Let’s take a look at the example below. In West End, Boston, if you want to make money with rental properties, it is advised to go for an apartment and for 3 bedrooms. Predictive analytics is saying that these are the optimal property type and the optimal number of bedrooms in this particular neighborhood.
Knowing this kind of information through the power of real estate predictive analytics allows you to focus your property search on the optimal property type and the optimal number of bedrooms in the neighborhood of your choice.
However, predictive analytics doesn’t stop here in the way it helps investors find the best investment property. Predictive analytics provides investors with reliable forecast of the return on investment – whether as cash on cash return or cap rate – to be expected from a particular rental property. Comparing a few real estate properties for sale and their forecast return on investment, based on the expected rental income, rental expenses, and occupancy rate, allows you to make the best real estate investment decisions, based on data and knowledge, rather than the “projections” of a crystal ball.
From the snapshot above, you can see that predictive analytics tells you – the rental property investor – that this particular single family property in East Lake, Atlanta will bring you a cash on cash return of 15% (assuming the property is all paid for in cash) and a cap rate of 15%. Moreover, big data tells you that this property is a medium investment opportunity, so you can continue your search for the most profitable investment property.
To learn how Mashvisor will help you find the best real estate investment properties in any market across the US, click here.
3. Determining the Optimal Rental Strategy with Predictive Analytics
Having the best investment property is of no use unless you rent it out in the most optimal way. Having a short-term rental in a location which does not favor this rental strategy is a stupid real estate investment decision. And vice versa. Your rental strategy should be aligned with the location and the specific income property, while your investment property should be selected with the rental strategy appropriate for this place in mind.
Predictive analytics is here to help future real estate investors once again. A rental property calculator using predictive analytics will show you the optimal rental strategy for any property that you might be interested in.
For example, the property above happens to make a much better short-term rental than a long-term one, as illustrated by the forecast return on investment.
The Benefits of Using Predictive Analytics of Real Estate Investing
By now you must have realized that predictive analytics gives real estate investors power which they’ve never had before. Let’s have a look at the most important benefits of using predictive analytics when buying a rental property as opposed to going the old-school way:
1. Predictive Analytics Lets You Find a Property That Matches Your Investment Goals
Regardless of whether you are a first-time investor or an experienced real estate expert, you must have preferences and expectations when it comes to your next rental property. Good news: Predictive analytics will allow you to find the perfect property to match these preferences, expectations, and goals.
2. Predictive Analytics Saves You Time
Finding a rental property to invest in usually takes about 3 MONTHS. With the use of predictive analytics, you can bring down the time for this process to 15 MINUTES. You don’t have to go around looking for properties for sale and gather data on them. You can do your property search all from the comfort of your home, using a computer. Moreover, you don’t have to perform tedious comparative market analysis or investment property analysis. A rental property calculator takes care of all this.
3. Predictive Analytics Reduces the Risk
Although real estate investing is a very low risk investment compared to other options, such as stocks, there is still some risk when you buy a rental property. Well, predictive analytics reduces this risk by giving you reliable return on investment metrics, based on past data and future expected trends.
4. Predictive Analytics Eliminates the Need to Work with a Real Estate Agent
We don’t mean to undermine the importance of agents in the real estate business. Agents are professionals who have lots of experience and thus lots of tips and tricks to offer to new investors, in particular. However, before the introduction of predictive analytics, it was virtually impossible for a new real estate investor to enter this exciting world without an agent. Now, this option has become a possibility. Not using a real estate agent can save you lots of money and actually speed up the process of finding the best investment property for your needs.
5. Predictive Analytics Allows Anyone to Become a Real Estate Investor
All we’ve been saying so far simply means that predictive analytics makes real estate investing much less complicated and thus accessible to just about anyone. You don’t have to have any specific real estate knowledge or financial background. You can use predictive analytics to find a rental property which is guaranteed to bring you a positive cash flow and high return on investment.
Experienced real estate investors, beware! Your business is not an exclusive club anymore. To the contrary, predictive analytics gives regular folks like you and me the power and the tools to become SUCCESSFUL real estate investors in no time!
To start out your 14-day free trial with Mashvisor and try out the power of predictive analytics yourself, click here.