Data – The Secret Weapon
Use Data to Make Better, Faster Property Investments
By Dave Obert
The housing market has become a melee of activity. As prices continue to surge, so does competition. The demand for homes continues to outpace supply, with the average home selling above its list price for the 39th consecutive week. As the market gains velocity, investors must be tuned-in at all times, and many are increasingly relying on data to make better informed decisions.
Francis Bacon said, “Knowledge is power.” This common phrase holds true for investors. It has been shown that data-driven insights provide the vital metrics necessary to pinpoint the right properties and to maximize returns. But be honest: Is data driving your investment decisions?
The landscape of investing has changed. Data and the development of powerful PropTech tools have transformed the way investors approach new opportunities. Investors who do not keep pace with the market evolution leave themselves open to miscalculating risk and the associated reduction in returns.
Time is of the Essence
Data can help identify and reveal unseen risks that exist in your market. Helpful data could range from local infrastructure, such as fire hydrant proximity, to a history of destructive weather that may have negatively affected the property. While a seasoned property investor may know what they are looking for, it is only through robust, comprehensive data and analytics that a more precise, unseen value of a property can truly be uncovered, especially at scale.
Given the speed of information and competition, buyers and sellers do not have the luxury to spend days or weeks making decisions. “Sleeping on it” is no longer an option, and responses to offers, contingencies, and emergent issues must happen quickly to remain competitive. Unfortunately, acting quickly can lead to mistakes.
In just a few short decades, the digital revolution transformed the way consumers and investors purchase, finance, and sell homes. While the last decade saw the impact of the internet come into full bloom, the next decade will be shaped by those who embrace the transformative power of accurate and actionable data. A massive opportunity still exists for those that recognize the strategic value of incorporating unique data points into their vital business processes. The challenge is not just accessing the data, but also knowing how to apply it.
A Case Study
Recently an investor shared a story that is far too common. She had made an initial offer on a property in a prime location within a major city. It was her first purchase in the downtown area. It needed some renovation work, but she felt that a return was guaranteed.
She submitted an offer and quickly received a counter. Before she could respond, a flood of buyers came out of the woodwork running up the price by nearly 20%. As she watched the price surge, her investment outlook started to dim. In the hopes of not letting the home slip between her fingers, she responded with a much higher counter than she had budgeted for. She emerged victorious. This, however, is not the end of the story.
As is often the case, the investor relied on her experience as opposed to data-based information. As this was her first property downtown and she knew the home needed renovations, she relied on her prior experiences with suburban housing—hoping it would help her estimate the cost and impact on the value once relisted. Also, she felt that she had a broad understanding of the area, its desirability, and what the market would bear, but lacked the concrete specificity she needed to accurately assess her investment.
Predictably, this story does not have a happy ending. New to the area, she struggled to find qualified contractors within her budget and labor and material costs were higher than expected. Construction costs and expenses resulting from poor maintenance averaged 30% more than she anticipated. Her renovation budget dwindled. Before she knew it, she was over leveraged and forced to sell. Defeated and hoping to recoup what she could, she let it go in a fire sale to another investor.
This story is all too common. In many locations across the US, purchasing a property requires quick reflexes, but it is vital that the decisions made are grounded in data and analytics.
In the case of our investor, she failed to see what data would have told her were red flags when acquiring this property. She did not get the full perspective that would have helped her mitigate the risk and the regional challenges of an unfamiliar area. Ultimately, she learned what more and more real estate investors have discovered—success comes from data and the proper PropTech tools.
Rewriting History
So, let’s take a moment and rewrite our investor’s story. While still out of her comfort zone, Verisk armed our investor with information—the most important tool in an investor’s belt. By leveraging accurate, up to date local pricing data, she had a clearer understanding of the property and the surrounding market. She understood the unique market conditions of the area and how construction costs could impact her return at point of sale.
Utilizing the provided information, she now had insight into specific renovation costs and was able to prioritize their importance and impact on the return on investment. Equipped with better knowledge of the area, she knew the restraints of shipping material into the city and the increased costs of labor and material. When the rush of offers commenced, she knew better than to get caught up in the whirlwind of activity and submitted an offer that she was comfortable with—ensuring she would not be overleveraged and that she would be more likely to achieve the return she expected.
Did she win the property? Maybe, maybe not. However, she made the correct decisions for her investment based on a foundation of facts, data, and analytics. If she did win, she won without getting into perilous waters and was better equipped to get a maximize return on investment.
The bottom line is that investors need tools and services that provide a full view of the property and to uncover potential challenges, often within seconds. Verisk helps provide those solutions by leveraging best-in-class data assets to help investors make better decisions.
