If you’re looking to invest in a property, a proper analysis with accurate real estate data is an absolute must for investment success.
Table of Contents
- Why Is Real Estate Analysis Crucial Before Buying an Investment Property?
- 12 Important Real Estate Data Metrics for Analyzing Local Markets and Investment Properties
- What Is the Best Source of Real Estate Data?
Real estate investing, at the end of the day, is a numbers game. It’s all about obtaining the right real estate data and market information. As an investor, you will need them if you’re to conduct a real estate analysis properly.
The right data will give you the right data analytics needed to make big investment decisions. The good news is that modern-day investing affords you greater access to vital real estate information and data via real estate websites and data providers, such as Mashvisor.
Gathering important market information can be done in just a fraction of the time it takes to do it the conventional way. In this article, we will lay down the importance of real estate data and where you can get them. Our goal is to give you a better understanding of its importance and, hopefully, point you in the right direction.
Regardless of investment strategy, whether you decide to go the fix-and-flip way or get the property listed on Airbnb, you need real estate data to ensure investment success. Let’s get started.
Why Is Real Estate Analysis Crucial Before Buying an Investment Property?
A real estate analysis is also often referred to as a comparative market analysis. It focuses on analyzing the current property market values. Essentially, it allows for a comparison with the property that you, the investor, are trying to sell or buy.
Whether you’re in the market to sell or buy investment property, a real estate analysis is a crucial part of the process. Namely, it helps better understand the current housing market condition, potential real estate prices, the value of similar properties, and so on.
Thanks to the information and real estate data available from a comprehensive real estate analysis, investors can assess whether the asking price fits within their budget and is generally reasonable. Also, it can help the sellers set the ideal listing price for their property.
Understanding Data Analytics
Real estate data analytics is a process that takes raw market data and examines it thoroughly. The goal is to make a conclusion based on the information gathered. It is done with the help of an application programming interface or API. The API takes property listing data from multiple listing services (MLS) and transfers it to a real estate website or app.
Big data is compiled from other data providers and is then utilized to help real estate investors and professionals make more informed decisions.
Aside from being able to get the real estate market data to make the investing process safer and more secure, performing the real estate analysis will also provide insight into the following:
- Choosing the right city to invest in
- Learning potential issues that might make one place less investment-friendly than the others
- Getting familiar with the area demographics that will affect the future evolution of the said area
- Access to investment projects info for specific areas that will let you in on future development and potential boost of property values
When you are aware of the most important real estate data, you can avoid making the mistake of paying more for a certain property and even be able to negotiate for a better price. It will work especially well with markets that offer above-average returns (and greater profitability).
12 Important Real Estate Data Metrics for Analyzing Local Markets and Investment Properties
Regardless of whether you’re an experienced or amateur real estate investor, it’s crucial that you know what real estate data sets are the most important when making a decision. Thankfully, modern technology allows for easy access to essential real estate data metrics.
That said, the following criteria will undoubtedly prove useful to you as an investor:
- Number of listings for sale
- Median property price
- Average price per square foot
- Days on market
- Number of traditional rental/Airbnb rental listings for sale
- Monthly rental income
- Cash on cash return
- Cap rate
- Price to rent ratio
- Short-term rental daily rate
- Short-term rental occupancy rate
- Walk score
1. Number of Listings for Sale
The number of available listings for sale is a rather important and straightforward metric that can point to the value of available properties as well. Basically, when there’s a shortage in a certain real estate housing market, it’s also natural to expect higher real estate appreciation. As far as real estate inventory goes, the law of supply and demand still applies.
The metric keeps track of the active listing count when it comes to the available properties for sale in the US housing market. Investors can use tools like Mashvisor to further narrow their real estate data down to a specific city, zip code, and even a neighborhood within the said city.
In general, the inventory on the number of listings for sale increases during summer, starts to dwindle during the fall, and often marks a noticeable drop during winter.
2. Median Property Price
The median property price is another essential metric in your real estate data analytics. The median property price refers to the price of the middle property in a list of properties that go from the highest to the lowest sale price within a set time period.
In that sense, if a list contains 33 houses that were sold, the price of the 17th house on that list counts as the median property price.
You may be wondering why you should care for the median property price metric more than the average one.
The average property price refers to the price you get when you take all the sale prices, add them up, and then divide that by the number of properties for sale.
In some cases, the median and average property prices will be relatively similar. Also, it’s not uncommon that there are properties with an unusually high or low selling price, which can throw off the accuracy of the average property price metric. Therefore, the median property price is a better indicator of the general house prices in a specific area.
While the average property price is a good metric to give you an idea of how the property is doing, it can be a bit inaccurate and misleading. It is why most investors and real estate professionals prefer to look at the median property price.
3. Average Price per Square Foot
To put it simply, you can calculate the average price per square foot of a home by dividing its current market value by the home’s square footage. Of course, there are several different factors that will affect the said metric, like:
- The property’s condition
- The year it was built
- Any improvements or updates done
- The lot size
- The number of bedrooms and bathrooms
All of the above factors come into play when determining the overall price and, ultimately, the average price per square foot. But among them, the major factor that influences the pricing is the investment property’s location.
A home’s location significantly impacts its price on the market and causes prices per square foot to vary.
It is precisely why real estate data providers like Mashvisor are valuable, as they allow you to get instant access to the average price per square foot within specific cities and neighborhoods.
4. Days on Market
When it comes to the days on market metric in your real estate data, it is used to assess the market conditions and even help you find properties that might be available for price negotiation.
Generally, a market is categorized into a sellers’ market and a buyers’ market. Days on market significantly affects how a particular market is categorized. The number of days a property is listed on the MLS pretty much dictates whether it is a buyers’ or sellers’ market.
Markets containing properties that have been on the market a lot longer are generally considered buyers’ markets. It simply means that the market is much more favorable to buyers and investors looking for investment properties.
In case the property has been available on the market for a longer time period, chances are that the seller is more willing to negotiate the final price to sell their property as soon as possible.
A sellers’ market, on the other hand, comprises properties that sell fast. The number of days on market for properties is lower. It means that demand is higher in such markets, and sellers can dictate the price of their properties.
5. Number of Long-Term Rental/Short-Term Rental Listings for Sale
Investors can gain more insight into the number of available listings for sale based on whether they’re looking to buy long-term or short-term rental properties.
In that respect, getting valuable insight into the two metrics is useful. They will provide more information on the current real estate market and property availability within the investing route you wish to take.
Both metrics also give you an idea of the demand for each type of rental property. If you look deeper into it, you’ll also get an idea if a specific location is suitable for a long-term or short-term rental.
For instance, locations with more short-term rental listings may mean that the tourism and vacation rental industries are thriving. It means that even if there’s more competition in the market, the demand is high enough to accommodate more rental properties. You may not get a monopoly on the industry, but you’ll still get a good enough return on your investment.
6. Monthly Rental Income
Monthly rental income, or just MRI for short, refers to the month-by-month income you get as a property owner when you rent out your property. It is important to know the MRI so that you can estimate your earnings from the investment property you’re interested in.
The MRI also allows you to calculate the monthly rental income tax you need to pay as an owner, thus further making the final earnings estimate more accurate.
7. Cap Rate
When it comes to market data real estate metrics, cap rate refers to the ratio between the income you’d get from an investment property to the property’s current value or the invested capital. Essentially, the cap rate provides you with a percentage of the profitable investment value.
It is often said that the higher cap rate comes with higher investment risks. It is due to the fact that a higher cap rate also indicates higher returns. A lower cap rate means a more secure and safer investment, but it also indicates lower returns.
8. Cash on Cash Return
Another very important metric is cash on cash return (CoC). The CoC metric basically tells you the percentage of the cash you should be making off of the investment property in question, based on the cash you’ve invested. It also includes mortgage and debt services into the equation.
The cash on cash return metric is valuable for a number of different reasons. A big one is that it can help you decide what the best financing option is for your new investment. It can also help you estimate the potential returns during the probable capital expenditure years.
Basically, the cash on cash return is very similar to the cap rate with one glaring difference: it takes into consideration financing. While a cap rate is a good metric to estimate a property’s profitability, it also assumes that the purchase will be through an all-cash transaction.
The thing is, not everyone can afford to enter into a cash transaction. In most cases, the average person will need to take out a loan to buy an investment property.
For this reason, we highly recommend using cash on cash return as your profitability metric if you don’t plan to buy a property in cold hard cash.
9. Price to Rent Ratio
The price to rent ratio is a useful metric that can help you determine whether it’s cheaper to own or rent out a property.
Essentially, it refers to the ratio of house prices to the annual rent in a specific location. The metric is also valuable when checking whether the real estate market is in a bubble or is valued fairly.
When looking at the price to rent ratio, you need to consider the three levels the comprise it. Locations with a price to rent ratio of 14 and below mean that owning a home is more practical than renting since prices are more affordable.
Neighborhoods with a price to rent ratio of 15 to 19 mean there is a balance between housing affordability and rental prices. In such markets, there’s not much difference between owning a house and renting one.
Areas with a price to rent ratio of 20 and above indicate higher property prices that make it harder for average people to own a home. It makes renting the more practical option. Investors in long-term rentals should such a fact into consideration.
10. Short-Term Rental Daily Rate
The short-term rental daily rate is the metric that shows how much money the owner of a rental property makes per day when the property is open for bookings.
If you’re looking to invest in a vacation rental, for example, it’s best to look for a location or property that can generate a higher short-term rental daily rate. What’s more, if the daily rate metric seems to be growing, you can be sure the property’s value is steadily increasing as well.
11. Short-Term Rental Occupancy Rate
Basically, the short-term rental occupancy rate metric refers to the ratio of the number of days a property is occupied to the number of days it’s available for rent. It’s a simple division of booked nights by total available listed nights.
It’s rather challenging to calculate the Airbnb occupancy rate on your own as there are many different factors to consider, such as seasonal trends and fluctuations, location, etc. It is why Mashvisor can come in handy and help investors get immediate estimates.
12. Walk Score
Simply put, the Walk Score metric indicates the walkability of a specific address. When you pick a property you’re interested in, its Walk Score will be the result of analyzing a bunch of different walking routes from that address to all nearby amenities. The walking distance will determine just how many points the Walk Score will get.
For instance, amenities located within a five-minute walking distance from the specific address get maximum points, while amenities requiring more than half an hour’s walk get no points.
What Is the Best Source of Real Estate Data?
As mentioned, performing a thorough real estate market analysis is an absolute must for securing the best investment deal for your portfolio. However, choosing a reliable data provider also matters. Not all data providers offer the same quality of data to investors.
By using Mashvisor, you can gain access to accurate and valuable real estate data with a click of a mouse. More specifically, you can access property data, real estate market data, and real estate investment data.
Thanks to Mashvisor’s Property Finder, investors can instantly gain insight into the real estate database with available investment properties. Mashvisor’s property database is backed by MLS and other available sources that provide the most up-to-date and accurate information. You can use the Property Finder for both traditional and short-term rental listings.
Furthermore, investors may also be able to come upon off market properties in the search results.
Try out Mashvisor’s Property Finder here.
Real Estate Market Data
Mashvisor’s real estate blog is all you need to get information about US cities in terms of real estate markets. That way, you can start narrowing down your list of the ideal locations for your investment strategy.
And once you’re relatively certain about what cities you’re interested in the most, you can make the most out of Mashvisor’s heatmap tool. Namely, the tool will allow you to perform city-based searches with applicable filters, such as your budget. It will let you identify the most profitable zip codes and neighborhoods for your investment.
If you aren’t sure whether to go the traditional or Airbnb route, the tool will also provide valuable insights.
Real Estate Investment Data
When you find a couple of properties that meet your criteria, it’s paramount to analyze them further. To do it, you can use Mashvisor’s investment property calculator. Just by clicking, you can get the most accurate real estate property data concerning the property you’re interested in.
For instance, you’ll receive a report on metrics such as return on investment, cap rate, cash flow, cash on cash return, estimated expenses, potential rental income, and more. Also, you can use the calculator for your Airbnb analysis and get information about a property’s optimal investment strategy.
No investment decision should be made without a comprehensive real estate analysis and careful examination of the available real estate data.
Investors need to be wiser with their choices, as investing in real estate is no joke and involves a lot of money. It is also why you need to consider your data source. While there are a lot of data providers online, not all offer top-quality data that will give you more accurate results with your investment property analysis.
Fortunately, Mashvisor can provide you with all the tools and metrics you can possibly need, thus considerably shortening the time and effort to analyze. You don’t need to wait for agents to provide you with the information or show you the available investment properties.
Most importantly, Mashvisor provides the most accurate metrics and calculations. You won’t need to guesstimate the profitability of different properties manually.
To learn more about everything that Mashvisor can do for you and your investment journey, sign up for a 7-day free trial today.