Thinking of Investing in SFR?
Here Are Three Ways That Data Can Help
By Kevin Ortner
Technology and access to data can help real estate investors make sound acquisition decisions. These days, almost every preliminary step of the investment process can be done online, including scouting out potential properties and estimating projected returns. Let’s look at some metrics that you will want to calculate when assessing potential investment opportunities and see which ones you will want to pay close attention to!
In today’s booming housing market, most investors have one priority: finding a good deal. But how can you ensure that you secure the best deal possible? One that not only produces cash flow, but also generates the type of returns that you are looking for.
Assumptions and gut feelings can help you scout out a potential market, or even find a prospective deal, but they will only get you so far. At the end of the day, successful investing is no accident – it all comes down to cold, hard facts; looking at local housing data, running the numbers, and assessing how profitable a potential property is likely to be.
While today’s housing market is booming and there is a great deal of investor activity, in many ways, there has never been a better time to invest. Thanks to the wealth of tools and information that are available today, investors have access to extremely valuable data that they can use to assess the viability of individual investments and the health of the local housing market.
Today, there is no need for guesswork and no excuse for not doing your homework upfront.
What Do We Mean by Data?
Simply put, data is the information that you need to make sound investing decisions. It means looking at the numbers, statistics, trends that are influencing the market and the price of a property. All these factors impact the property’s performance as a rental.
For investors, successful investing hinges in large part on the ability to read the market. Supply and demand impact housing prices so it is important to have your finger on the pulse of microeconomic trends that may be impacting local housing prices. This will help you to determine whether it is a good time to buy, and if so, how much you should be willing to spend to get the returns that you are after.
Let’s look at three significant ways that data and tech can help when it comes to securing an SFR investment.
1 » Calculating Long-Term Appreciation
For most investors, housing appreciation is a big part of their investment strategy. Sure, you could invest for cash flow alone and some investors do, but many like to invest in areas where the price of the property is expected to increase significantly over time. While none of us can predict with absolute certainty what the housing market is going to do, housing is one investment that has produced excellent long-term returns over time. Nationally, housing prices have increased an average of $127.52K between 2000 and 2020, according to the Case Shiller/S&P National Home Price Index, and in the last year alone, they have gone up 18.4%. Zillow has them on track to increase another 11.8% by April 2022.
When it comes to investing in SFR, appreciation varies considerably from market to market. It is important to investigate historical appreciation rates not only on a national level but in the area that you are thinking of investing in. You can look at this data on websites like Zillow. Analyzing what housing prices have done over the last ten or twenty years will give you an idea of how much housing is likely to increase in the future. You could also check out the Market Research Center at Renters Warehouse to see housing appreciation and other local economic factors as well.
2 » Calculating Your Projected Returns
Once you have a potential property identified, you will want to calculate your projected returns to make sure they are in line with your investing goals.
Companies like Trulia, Zillow, and Realtor.com offer a range of tools that can help you see what neighborhood trends are like, the average cost of homeownership in an area, the history of a property, and more. Home Union’s Neighborhood Investment Rating is another great tool that you can use to assess the health of a local market. Their neighborhood tool rates different markets between A+ and D, allowing you to see how well the area checks out for a potential investment.
Here are four additional key analytics you will want to consider if you have a potential investment and housing market in mind.
» Number of property sales in the area
Find this on Zillow.
» Days on the market
See Zillow’s days to pending data to find out.
» Available inventory
To find available inventory, take the number of houses for sale in your area and divide by the number of sales in the past 30 days. You can find this info on Zillow.
» Rental return rates
See how much your prospective property can rent for using Redfin’s Rental Estimate Tool. Then assess your projected returns.
3 » When You are Looking to Find an Investment Property Fast
When it comes to scouting out potential investment properties, tech can help you find a property faster. Today, approximately 90% of home shoppers start their searches online, and for investment properties, it is safe to assume that the numbers are most likely similar. Investors can head over to websites that integrate with the MLS, meaning that properties can be viewed as soon as they hit the market. The Renters Warehouse Marketplace is one platform where investors can find properties that are for sale, including properties from the MLS. Another option is Entera, where you can find SFR investments across 24 markets.
While they have been around for a while, it’s also worth mentioning automated valuation models (AVMs). AVMs are tools that quickly and efficiently calculate the estimated value of homes in a given area. Zillow’s tool, Zestimate, is an AVM which has made the process of listing and finding real estate much easier.
Advances in tech and access to data have made life easier for real estate investors. Just remember that the data is there to help. Do not get so bogged down in running numbers that you neglect to assess the most important aspects of the investment – the price point and financing, your projected returns, and the health of the housing market.
At the end of the day, everything else is just extra.
