Do you know how to leverage data analytics when you’re managing your investment properties?
If not, this is something you should explore, and we’re here for it.
You see, technology has made a huge difference in the way we manage rental homes. It’s helped us with marketing and leasing. It’s automated a lot of systems such as tenant screening and inspections. It’s allowed us to save time on logistical tasks so we can invest resources in relationships and better rental experiences.
Technology has helped with more than the basic leasing, management, and maintenance of your rental properties, though.
It’s also helped us to gather better data. More data. Specific data that points us in the right direction whether we’re deciding how much to increase rent at renewal time or where to focus improvements and upgrades during a turnover.
We’re using data analytics all the time, and you should leverage that access by working with us or gathering your own insights.
Whether you are thinking about investing for the first time or you’re thinking about growing an existing real estate portfolio, you’ll be wise to make investment decisions strategically. Gut decisions and instincts can play a part in this, but the more analytical you’re willing to be, the better your chances for success.
The right data analytics will help you buy, sell, improve, and exchange.
Your rental properties in King County and Snohomish County are extremely valuable assets. You’re essentially running a business, even if you’re only renting out a single home.
Business owners make decisions based on performance and data. They access and understand financial metrics so they can help their business be more successful.
Investment Goals and Analytics
You need to know how to gather data, and you need to know how to use that data to measure success.
You’ll also want to measure areas where improvement is not only possible – but necessary.
At Real Estate Gladiators, we work with a diverse set of investors. Some of them are hoping to simply earn a little bit of income every month. Others are saving for retirement. Many of our investors are trying to build a portfolio that can establish financial security and wealth.
In our professional investment management experience, we have seen a lot of investors fail because they don’t have a strong set of goals and they don’t understand what success looks like or how to pursue it. But, we’ve also seen a number of smart investors succeed. Those rental property owners are successful because they’re willing to invest in data and solid financial metrics.
ANALYZE THE RENTAL AND REAL ESTATE MARKETS WITH THE RIGHT DATA
We surely don’t have to tell you what market research is. You conduct this type of research every time you prepare to invest in a particular market. You mitigate your risk this way, you protect yourself against any surprises.
Due diligence is another term for it.
While this takes time and requires an investment of your resources, it’s worth it to investigate the place where you’re planning to buy a property. You want to make sure there’s a market for the type of rental you’ll offer.
Are you stopping people on the street randomly to ask about what they’re paying, what they love, what they hate about the local market?
No. You’re analyzing the available data on the market. This is one of the most reliable ways to gather information on the rental market you’re pursuing. You can drill down into specific neighborhoods so you know exactly what you need to know before you buy. You can compare locations. You can see the pros and cons to different communities and neighborhoods.
Our point? You’re already using data analytics. You might not have thought of it that way. With publicly available data on various platforms, it is now possible to evaluate market conditions accurately. It will also improve your chances of success if you can access data that only local experts have. Property managers, for example, are known to have some pretty specific insights and analytics.
This is How We Do It
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Profiling Your Perfect Resident Who is the perfect tenant? We’re not asking you to paint us a picture, we’re asking you to think about the qualities that go into the ideal resident. There is a large pool of tenants to choose from in our market, thanks to a growing demand for rental housing. With a clear understanding of your perfect tenant profile, you can drive how you price, market, and show your property. You’ll study the local tenant demographics so you’ll know whether you’re likely to be renting to remote workers, families with children, retirees, or some combination of those groups. The data we provide can help us understand their income, age, and what they consider essential when they’re looking for a rental home. With this information, you can be faster with leasing and more accurate with pricing. |
Transactional and Demographic Data Transactional and demographic data will have a large impact on the market’s economic performance, and thus on your rental property’s performance. It also shows you what kind of demand there is for rental properties. You’ll need to know if tenants are looking for single-family homes or multi-family units. Do they want yards? Smart home tech? In-unit laundry? By examining the current demand, investors can get a more holistic view of the rental market. For example, transaction data can help you discover which neighborhoods are especially strong and where the rents are highest. You’ll see where homes are overpriced and whether there’s enough inventory to meet the demand. |
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Analyze Rental Rates and Occupancy You want to know whether you’ll be dealing with turnovers every year. You need to know how much tenants are paying to live in a home like yours. Analyzing the rental rates and occupancy for a specific location can reveal vital information for real estate investors. By comparing rental rates, you can know the market rate for each neighborhood and what to anticipate for a property. If that’s the area you’re hoping to buy in, you need to know whether rental values are higher than average or a bit lower. If rates are relatively high, it indicates a high demand area, which is favorable for investors. It’s crucial to keep a close eye on occupancy levels to understand the area’s overall health. |
You Have to Know Your Competition Accessing impressive insights will also help you understand your competition and help you make decisions that might give you an advantage on the market. When you see who else is buying in the market, you know if you’re competing against individual property owners, accidental landlords, or institutional investors. This can help you position yourself better within the market. Before you price or market your property, you need to know if it is unique or if there are dozens just like it. Use data to take an in-depth look at what your competitors have to offer. Use it to analyze pricing trends and the amenities provided, and see how you can compete for tenants. |
Make This a Practice
The data will refresh itself constantly.
You don’t want to look at things once and then expect that everything will stay the same. For successful real estate investors, keeping an eye on market trends and developments is an ongoing task, and you don’t want to find yourself behind the curve when conditions shift. While data analysis provides insightful information, it is essential to couple it with market forecasts and insights into consumer behavior. It assists in recognizing how the rental market may shift in the future.
Using data to analyze the rental market can be the deciding factor between investing in an area that’s likely to see high growth and avoiding an area that’s in decline. With more accurate projections into demand, risks, and future prospects, investors can make more informed decisions.
Now It’s Personal
Let’s Talk about Your Specific Property and how Data Analytics Can Help
Now that we’ve covered the essentials of why this type of information is so critical to the market as a whole, let’s talk about what it means for you, specifically. Data and financial metrics are instrumental in helping you locate a good investment.
But, what can these tools do for you when you already have a stable investment portfolio or a property that you’re trying to decide whether to hold or sell?
Let’s take a look at some of the most important metrics in any investor’s toolbox.
CASH FLOW
The Data is Pretty Evident
Cash flow is perhaps the most logical starting place. It also represents the easiest data to gather. Cash is cash – there it is.
Is the property occupied? Are your tenants paying the rent? There’s your cash flow. Almost certainly on an income and expense report somewhere.
Cash flow helps you understand what your rental property can earn for you. If you’re thinking about a potential acquisition, you’ll want to estimate how it’s able to cash flow. If you’re already renting out a property, its success likely depends on how much rent you’re earning every month and how that stacks up against your expenses.
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Defining Cash Flow Cash flow is the profit you earn on a rental property after your expenses have been paid in a given month. Add up all the rent you collect and subtract the expenses, which might be a mortgage payment, taxes, insurance premiums, etc. Whatever is left from that equation is your cash flow. |
Wondering how much cash flow is enough?
That’s going to depend on your property, your market, and your investment goals.
Everyone endeavors to earn positive cash flow. That means the rental income you collect more than covers your expenses. Negative cash flow can happen, though, and it doesn’t mean your investment property isn’t profitable. It’s pretty typical to spend a few years in negative cash flow territory, especially in a market as pricey as ours.
TOTAL RETURN
Appreciation Counts Too
Calculating and understanding total return is a little different because it includes your cash flow, but it also considers appreciation, depreciation, and amortization. This metric is a bit more involved and requires a little more data.
Make sure you can access that data.
There are three specific parts to this metric, and you’ll need to understand how they work independently and together.
Appreciation is the growth in value that you can count on for your rental property. It will be worth more when you sell it than when you bought it.
Depreciation is the tax benefit you receive from the IRS. For every year that you own your rental property, you get to depreciate it for up to 27.5 years.
Amortization is the reduction of your debt. The tenants you’re renting to are essentially paying off your mortgage. This increases your equity.
We like total return when we’re analyzing data more than simple cash flow because it allows for negative cash flow and allows you to see the full picture of your investment’s value and profitability.
RETURN ON INVESTMENT (ROI)
Real Earnings Exposed
Return on Investment, or ROI, is a term that you probably hear a lot in real estate circles. What does it mean?
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Defining ROI ROI is a financial metric that shows you what you’re earning on the money you’ve invested. If you put $200,000 into a property and you know that you’ve earned $20,000 on it, your ROI is 10 percent. Understanding your likely ROI is especially useful when you’re deciding which property to invest in. |
Make sure you’re using data analytics to study all of these metrics and give yourself an idea of what kind of success you’re having with your property.
Integrating Data Analytics Tools
As we see what kind of benefits are provided by data analytics, how do you know where to find the right tools? How do you know you’re even accessing the best and most up-to-date data?
There are specialized data analytics tools that we can recommend which are tailored for the property management industry. This type of technology can handle large volumes of data, provide intuitive dashboards, and generate actionable reports.
Popular Tools Include:
- Property Management Software: Applications like AppFolio and Buildium offer analytic modules for financial and operational data. These are often used by property management companies (like us!), but there are platforms that have also been designed to make all of the data more usable for independent investors.
- Business Intelligence Platforms: Tools such as Tableau or Power BI can process complex data sets and visualize trends for strategic planning. Usually you can ask for a free trial run of these systems.
- Custom Analytics Solutions: Developing custom analytics solutions with the help of IT professionals can cater specifically to your business model and data needs.
Not sure where to turn? Talk to us. We’ll make some suggestions.
Do These Analytics Tell You What You’re Earning?
Yes.
The way you calculate your earnings will depend on a number of things, including the size of your portfolio, the age of the homes in that portfolio, and the investment goals that you’re personally working towards. There are always commonalities, however, and what we tend to see when we’re talking about measuring financial metrics is a tendency to focus on one or more of the following:
- Net Operating Income
Here’s a simple formula to access what you need to know about NOI: You’ll subtract your expenses from your revenue. It’s simple math and a good starting point. It doesn’t take into consideration your mortgage debt or any improvements you’ll have to make to the property before renting it out.
- Cap Rate
The Capitalization Rate or Cap Rate allows you to divide your Net Operating Income (NOI) by the total price you’re paying for the home. This can be used on all different property types, and smart investors have a specific number in mind before they buy. The only thing to watch for here is that usually you have to rely on the seller’s numbers.
- Gross Rent Multiplier
The Gross Rent Multiplier requires you to take the property price and divide it by the gross annual rent you anticipate earning. This can be useful when you’re measuring one potential investment against another. You’ll know which is most likely to earn you more.
- Cash on Cash
Finally, the Cash on Cash metric asks you to divide your cash flow by the cash you paid in the real estate deal. It’s an important part of identifying how much return you’re earning on your investment. Most investors want to earn more cash with real estate than they do with their other investments.
These are the best and most basic financial metrics we can share with you right now, without understanding your unique position, the properties you own, and the investment goals you’re trying hard to reach. If you’re looking for something more customized, we’d be happy to provide it.
Data analytics have to be used when you’re managing your investment properties. It’s the only way to make smart decisions and see where you’re most successful.
Let’s talk about it. Contact us at Real Estate Gladiators.
