Buying traditional and Airbnb rental properties for sale is definitely one of the best real estate investment strategies. The most important benefit is that real estate investors get to make money both in the short term (through rental income) and in the long run (through natural and forced real estate appreciation). Nevertheless, investing in positive cash flow income properties with a high rate of return requires diligent rental market analysis. And this is something which beginner investors find challenging and even discouraging. To help you get started in rental property investing, we will show you how to conduct rental property analysis with the help of Mashvisor’s real estate investment app.
Step 1: Evaluate Property Prices
The first step of any profitable rental property investing business is buying investment properties for sale within your budget. That’s why it is crucially important to focus your property search on neighborhoods which offer real estate listings within your budget. Don’t get tempted to invest in areas which are unaffordable so that you don’t default on your mortgage payments and don’t end up in a foreclosure. That’s the last thing that any real estate investor even wants.
How to find affordable neighborhoods for real estate investing?
The obvious answer is: Find out the median property prices in the different areas of your real estate market. However, this is also the lengthy approach which requires to find real estate comps and conduct thorough rental market analysis.
The less obvious but also more efficient way to do that is to use a real estate investment app, like Mashvisor.
The first of the many real estate investment tools available on Mashvisor to help you out in this regard is the real estate heatmap. By clicking the Listing Price filter on the heatmap, you will see a color-coded neighborhood map for any US city or town. The areas with low property prices are marked in red, while those with high home values are colored in green. You can also see how many investment properties for sale are available in each neighborhood and focus on those which represent a buyer’s market. Such a cooler market makes it easier for beginner real estate investors to close a deal.
The next tool is the neighborhood analysis calculator. Once you’ve selected a couple of areas within your budget, you can access each one of them and see the exact median property price and average price per square foot. Moreover, you are provided with a list of real estate comps which constitute recently sold properties in the neighborhood. They come with all necessary details such as address, property type, number of bedrooms and bathrooms, size in square feet, sale date, and of course sale price. This allows you to explore the fair market value of investment properties of different types – for example, single family homes and multi family homes – and with various characteristics.
Step 2: Find Our Rental Rates with a Real Estate Investment App
The next step which you need to take in order to find out if a neighborhood can provide positive cash flow properties is to figure out the prevailing rental rate. This holds true regardless of whether you decide to buy a traditional rental property or an Airbnb for sale property.
The traditional way to do that is to find rental comps. These are rental listings of the same kind, size, and quality as the property that you plan to purchase. Then you have to figure out how much rent their owners charge in order to set up a similar pricing structure for your investment property. The rental income which you expect to make is present in all rental property analysis as it’s a major determinant of the rate of return, regardless of whether you look at the cash on cash return or the cap rate. Consequently, it is a must when conducting rental market analysis.
The tools on Mashvisor’s real estate investment app help once again. The heatmap tool shows real estate investors the neighborhoods with high (in green) traditional and Airbnb rental income and low (in red) traditional and Airbnb income. Similarly, the neighborhood analysis pages of the rental property calculator reveal the average rental income for both long term and short term rental properties in each area.
In brief, the process of getting rental comps has also been automated.
Step 3: Figure Out the Average Occupancy Rates
Another crucially important factor which determines the profitability of rental properties for sale and should thus be included in any rental market analysis is the occupancy rate. This is a metric which measures the ratio of the time when a certain income property is rented/booked and the time when it is listed for renting/booking. This measure is particularly important for vacation home rentals. The Airbnb occupancy rate can vary greatly by month or even by week, depending on the demand from guests. The Airbnb income which an investor can generate is the product of the Airbnb occupancy rate and the Airbnb daily rate. In turn, this number factors in the cash on cash return and cap rate calculations.
On Mashvisor’s real estate heatmap, investors can choose to look for areas with a high Airbnb occupancy rate. The average rate is also presented on each neighborhood real estate investment analysis page.
It is important to highlight that all Airbnb data on our real estate investment app platform comes from the performance of actual listings on Airbnb.com. Similarly, the traditional real estate data is obtained from the MLS and Zillow.
Step 4: Calculate the Average Rate of Return (The Core of the Rental Market Analysis)
The ultimate goal of all real estate investors is to choose rental properties for sale which will provide them with the highest return on their initial investment. There are two major metrics of profitability in residential real estate investing: cash on cash return and cap rate. While the CoC return shows how much your profit is compared to your cash investment, the capitalization rate evaluates the risk as well as the profitability of a traditional or Airbnb income property. Due to their importance, both of these figures are an indispensable part of the rental market analysis.
However, calculating the average rate of return in a US housing market with a real estate investment spreadsheet is very time-consuming. What investors can do to facilitate this process is to use our real estate investment software app, again.
First of all, investors can analyze the investment potential of neighborhoods with the help of the real estate heatmap. All they need to do is to choose the traditional or Airbnb cash on cash return filter, depending on their preferred rental strategy. This will show them with areas with high and low return on investment values.
Second, for each neighborhood, they can access the precise average traditional and Airbnb cash on cash return.
Sign up for Mashvisor now to find out what return to expect in your selected neighborhood.
Step 5: Decide on the Optimal Rental Strategy
The last question which rental property analysis should answer is: What’s the best rental strategy in the area? It is important for investors – especially beginner ones – to know if renting out on a long term or a short term basis will allow them to make more money from real estate properties.
The answer to this question ultimately depends on whether traditional rental properties for sale or Airbnb for sale is able to generate a higher return on investment. This should become clear during the rental market analysis.
Believe it or not, there is an even more straightforward approach. Mashvisor’s real estate investment app tells investors the optimal rental strategy in every neighborhood, in any US housing market. This selection is based on the actual performance of rental listings in the area and the rate of return which they are able to produce. In this way, you can decide right away whether to rent out traditionally or on Airbnb.
With the advancement of technology and the creation of Mashvisor’s real estate investment app, performing rental market analysis has been made easier and faster than ever before. Buying positive cash flow income properties with a high return is just a few clicks away. Sign up for Mashvisor today to start making profitable real estate investing decisions.