Thinking about investing in the US residential real estate market? Then you must have considered Zillow homes for sale.
As the largest real estate marketplace in the US, Zillow is naturally one of the first destinations for both beginner and experienced property investors looking for a new rental to add to their portfolio. However, unless you have dozens of years of experience in real estate investing, it’s hard to evaluate whether a certain Zillow property for sale makes up for a profitable rental or not.
While the Zillow website provides the basic information that a property buyer needs, this simple real estate data does not suffice to make a smart investment. You need additional data analytics and tools to be a confident and successful investor.
In this article we will show you all the property data and real estate investment tools that you need in order to evaluate the profitability potential of Zillow’s houses for sale.
What Are Zillow Homes for Sale?
In recent years both homebuyers and real estate investors have been resorting more and more frequently to online marketplaces in their search for a house for sale. This trend has helped turn Zillow into the largest and most popular real estate website not only in the US but also globally.
Among other services, Zillow offers over 135 million real estate listings in 2021. While not all of these listings are active, many are, thus constituting houses for sale available at the moment.
Zillow.com homes for sale cover the entire US housing market, ranging from the largest US cities to the smallest towns and rural areas.
With regards to listing types, Zillow offers a wide range including:
- Agent listings which also include recent listings, coming soon listings, and new construction
- For sale by owner listings (FSBO)
The availability of off market properties (such as foreclosed homes and FSBOs) provides real estate investors with a major competitive advantage. It is true that the MLS database is the first stop for new investors, but it does not always provide the best opportunities. Indeed, foreclosure houses and FSBOs are an excellent choice for first-time real estate investors who face a limited budget for a mortgage loan and few other financing options. Such houses for sale come at a discounted price while still offering the same potential rental income after some fixes and repairs.
So, if you’re thinking of buying an investment property to rent out traditionally or on Airbnb, Zillow is a great place to get started.
How to Evaluate the Investment Potential of Zillow Houses for Sale?
Finding investment properties for sale is a major step in the process of buying a rental property. However, it is not enough to make a profitable real estate investment decision. What is further needed is investment property analysis to make sure that buying a particular home for sale and renting it out will not only let you break even but actually bring you positive cash flow.
Property Information Available on Zillow
So, it’s worth taking a look at the real estate data and information available on the Zillow website.
This includes basic property information such as:
- Property address
- Property type: houses for sale, townhomes for sale, multi-family homes for sale, condos for sale, apartments for sale, manufactured homes for sale, and others
- Property size: square footage
- Number of bedrooms and number of bathrooms
- Lot availability and size
- Parking availability and size
- Heating and cooling
- Listing price
While most of these data points are intuitive, beginner investors might be wondering about the meaning of the Zillow Zestimate. This is simply Zillow’s best estimate of the current market value of a home based on the property’s location and characteristics. This metric is quite useful for investors who are not familiar with comparative market analysis (CMA). Listing prices are frequently inflated as home sellers try to get as much as possible for their houses for sale. So, the Zestimate is a good indicator whether a particular property might be worth less than what it is listed for.
Financing and Other Costs
Few real estate investors are able to buy Zillow homes for sale in cash. That’s why it is important to consider the expenses associated with buying a rental property with a mortgage. To help out with this, Zillow provides buyers with the expected:
- Monthly mortgage principal and interest payments
- Mortgage insurance
In addition, the properties listed on the website are supplied with information on the:
- Property tax
- Home insurance
- HOA fees
While all this information is crucially important to evaluate the costs side of rental property analysis, it does not provide any insights into the revenue side. Thus, savvy real estate investors need to augment the data and information available on the Zillow website with more analytics in order to ensure a profitable investment.
What Return on Investment Metrics Should You Use?
First, let’s take a look at the main ways to calculate return on investment in real estate.
There are two measures that investors use when calculating the rate of return on a rental property: the capitalization rate (or cap rate, for short) and the cash on cash return (or CoC return).
Cap Rate Meaning and Calculation
The cap rate is the easier and more intuitive way to estimate the expected return on an investment property. This metric shows the profit which a traditional or Airbnb rental property generates as a proportion of its purchase price or current market value. In other words, the cap rate is a measure of the risk associated with investing in a property.
Cap Rate Formula
Cap Rate = Net Operating Income/Sales Price x 100%
Cap Rate = Net Operating Income/Current Market Value x 100%
Calculating the capitalization rate of a single investment property for sale is relatively easy, though you still need to be able to accurately estimate the NOI and the market value of the home. But things get really complicated if you want to be able to analyze the investment potential of multiple Zillow homes for sale. It might take you weeks or even months to gather all necessary data before running the needed calculations using a real estate investment spreadsheet. Long story short, as a beginner investor, all profitable opportunities will be gone before you complete the rental property analysis and are ready to move forward with the purchase.
You are probably thinking that there must be a more efficient way to get accurate and reliable cap rate data on dozens of Zillow homes for sale near me or even out of state? There is, and we will come back to it in a bit.
Meanwhile, if you’re wondering what a good cap rate is and what value you should be aiming for when investing in a rental, keep in mind that 8-12% is a good range. This allows you to make a profit while keeping the risk at bay.
Cash on Cash Return Meaning and Calculation
The second most widely used metric of rate of return on a rental property is the cash on cash return. The CoC return is a more sophisticated measure than the cap rate, which also makes it more complicated and time-consuming to calculate.
In brief, it shows you what return you can expect relative to the total cash investment you’ve put in the rental property. A major difference between the cap rate and the cash on cash return is that the latter takes into consideration the method of financing the purchase of your income property. After all, whether you buy an investment property in cash or with a mortgage has significant implications on your profitability.
Cash on Cash Return Formula
Cash on Cash Return = Pre-Tax Cash Flow/Total Cash Investment x 100%
The CoC return requires more property data estimates than the capitalization rate, so analyzing multiple rental properties for sale becomes particularly challenging. Once again, there is an easy and straightforward way to obtain all the real estate data analytics that you need to evaluate the expected return on Zillow’s homes for sale. We will talk about it in a second.
In terms of a good cash on cash return, you can aim for a higher number than the cap rate.
Where Can You Get the Best Real Estate Data?
In 2021 and beyond access to big data and AI is power in the world of real estate investing. Savvy investors are looking not only for the best houses for sale but also for the most trusted sources of data to analyze them.
If you are on the search for industry-leading real estate data analytics, then you’ve come to the right place.
Mashvisor provides you with all the data and information that you need in order to conduct real estate market analysis as well as investment property analysis on Zillow homes for sale or any other listings.
Mashvisor Real Estate Data Sources
At the core of good real estate data is the sources where it comes from. That’s why our real estate software obtains data from the most trusted online sources nationwide.
In specific, the property data (such as property address, property characteristics, property size, listing price, and others) comes directly from the MLS. Some additional information is obtained from public records and other reliable publicly available sources.
Meanwhile, the traditional rental data is extracted from Rent Jungle and HotPads, two of the leading rental marketplaces in the US housing market.
Last but not least, the short term rental data available on the Mashvisor real estate app comes from Airbnb, a renowned online vacation rental platform.
What this means for real estate investors is that all the analysis of the investment potential of rental income properties for sale is based on the actual performance of similar traditional or Airbnb properties, also known as rental comps.
Property Data and Analytics Available on Mashvisor
Now that you know where the Mashvisor data for evaluating Zillow homes for sale as investment properties comes from, it’s time to take a look at what types of data analytics you can access.
Before we get into the details, it’s important to note that our real estate investment tools can be used equally efficiently for analyzing traditional, long-term rental properties and Airbnb, short-term rental properties.
With Mashvisor, first of all, you gain access to the same basic property information as on Zillow:
- Home address
- Home description
- Home characteristics
- Home size
- Listing price
- Redfin valuation
- Price per square foot
- Property photos
However, as we’ve already mentioned, this information – albeit crucially important – does not provide investors with enough data points to perform investment property analysis.
Thus, Mashvisor offers a whole other set of rental data analytics including:
- Traditional and Airbnb rental income
- Recurring monthly expenses:
- Home insurance
- Utility bills
- Property management
- Property maintenance
- Property tax
- HOA dues
- Rental income tax
- Cleaning fees
- One-time startup costs:
- Home inspection
- Furniture and appliances
- Closing costs
- Cash flow
- Traditional and Airbnb cash on cash return
- Traditional and Airbnb cap rate
- Traditional and Airbnb occupancy rate: as % or days a year
That’s not even all. As experienced investors know, location in real estate investing is just as important as the actual property for the success of a traditional rental or Airbnb business. A great home in a bad neighborhood is not better than a miserable house in a nice area.
To help investors select a good location for buying a rental property, Mashvisor provides a quick summary of the key investment indicators of the neighborhood right on the rental property analysis page. This summary highlights the:
- Average traditional and Airbnb income
- Availability of rental properties in the area
- Occupancy of rentals
- Impact of guest reviews on the Airbnb occupancy rate in the location
Long-term real estate investors who go for buy and hold while renting out would like to know how long it will take for Zillow homes for sale to pay back for themselves. To answer this common question, Mashvisor provides investors with an investment payback balance table.
What Tools Do You Need to Analyze Investment Properties?
New investors don’t always know how to use available real estate data to make profitable decisions, even if they have access to all possible numbers and figures. That’s why they resort to the help of various tools which help in the analysis process.
The Mashvisor real estate investment platform provides investors with a number of different tools that support their decision making when it comes to finding profitable Zillow homes for sale to rent out on a long-term or short-term basis.
Here’s a list of these tools:
Real Estate Heatmap
Sometimes beginner investors don’t know where to start with their rental property search. The US residential market is vast and offers endless opportunities, as long as you know how to locate them.
The first step to a successful rental property business is finding the right location to buy a house, and this requires detailed real estate market analysis.
The real estate heatmap available on the Mashvisor website has been designed with the aim of guiding investors to the most lucrative areas in any US housing market, based on their preferred rental strategy: traditional vs. Airbnb.
This tool constitutes a color-coded map which clearly shows the neighborhoods with the highest and lowest:
- Listing price
- Traditional and Airbnb rental income
- Traditional and Airbnb cash on cash return
- Airbnb occupancy rate
This neighborhood analysis tool allows investors to focus their search for good Zillow houses for sale on the top-performing areas for their expected budget and return.
Neighborhood Analysis Pages
Once investors have chosen a few areas which match their criteria, they can access the neighborhood pages on the Mashvisor real estate app for more detailed analysis of the investment potential of these areas. Through this feature, you can analyze how good the location is for investing in houses for sale near me or across the nation.
Some of the most important neighborhood-level real estate data analytics include:
- Mashmeter: A Mashvisor-unique score of the profitability of rental properties in the neighborhood
- Median listing price
- Average price per square foot
- Cash on cash return for traditional and Airbnb rentals
- Rental income for traditional and Airbnb properties
- Number of listings
- Number of long-term rentals
- Number of short-term rentals
- Average Airbnb occupancy rate
- Optimal strategy: Traditional or Airbnb
- Walk Score
- Transit Score
- Bike Score
- Historical rental income of traditional and Airbnb properties
- Average rental income by property type and number of bedrooms
- Historical Airbnb occupancy rate
- Real estate comps
- Optimal property type
- Optimal number of bedrooms
After having a look at all this data, investors can proceed to searching for Zillow homes for sale in the best neighborhoods with confidence.
Property Search Engine
You should note that many of the houses for sale available on the Zillow website are also available on the Mashvisor platform. Even if a Zillow property is not currently listed on Mashvisor, you can easily add it and analyze it by entering its address. This holds true for all residential properties in the US market.
Nonetheless, as an investor, you can use the Mashvisor property search engine to look for available opportunities directly. All that’s needed is to enter your criteria such as:
- Market: City, neighborhood, street address, or zip code
- Financing method: Cash or mortgage
- Expected cash on cash return
- Expected cap rate
- Minimum number of bedrooms
- Minimum number of bathrooms
- Year built
- Square footage
- Traditional or Airbnb rental income
- Property type: Single family home, townhouse, multi family home, condo, or other
- Property status: For sale or foreclosure
Once you’ve entered your investment criteria, you will be provided with a list of all available properties for sale that match your expectations. You can easily rearrange this list based on price, square footage, number of bedrooms or bathrooms, rental income, cash on cash return, or cap rate.
An alternative way to search for the best investment properties for sale is with the help of the Mashvisor Property Finder. This tool allows you to look for houses for sale in up to 5 markets simultaneously based on:
- Rental strategy
- Type of property
- Number of bedrooms
- Number of bathrooms
Some investors are specifically interested in off market properties, rather than MLS listings. Whereas these homes for sale might be harder to look for (because they are not listed by real estate agents), they make for very profitable real estate opportunities. Such houses face less competition in terms of buyers, which means that even beginner investors can find a great deal at an affordable price.
The Mashvisor Property Marketplace helps investors find off market properties in an easy and efficient manner. Once again, you have to enter your requirements as an investor to be provided with a list of relevant homes.
Investment Property Calculator
As soon as you have decided on a few Zillow homes for sale, you can evaluate their investment potential with the help of the Mashvisor rental property calculator. This tool utilizes all the real estate data and analytics described above to provide detailed investment property analysis of any home in the US residential market.
The analysis is available for both traditional and Airbnb rental properties. When buying an investment property, it is wise to choose one which brings a good return on investment for both rental strategies. Many ambitious investors start an Airbnb business only to realize that this is not the right fit for them due to the constant turnaround. Meanwhile, others love being Airbnb hosts, but local legislation changes, so they suddenly find themselves in a situation where they cannot operate a legal short-term rental business in the area anymore.
As we mentioned above, very few real estate investors are able to purchase properties fully in cash, and this trend is likely to further exacerbate with the increasing home values. Thus, the Mashvisor investment property calculator pairs up like a mortgage calculator which helps investors ensure that they can take a loan to buy a house and still end up with positive cash flow.
Our mortgage calculator provides you with:
- Down payment
- Loan amount
- Mortgage type
- Loan term
- Interest rate
Savvy real estate investors already know to check out the Zillow homes for sale when looking for a new rental property. However, some are not sure how to evaluate the investment potential of these opportunities. That’s where the tools available on the Mashvisor platform come in handy to facilitate and optimize your investment property search and analysis. Sign up for a 7-day free trial now to buy a top-performing traditional or Airbnb rental property before the beginning of 2022.