“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.” — Warren Buffett
Imagine you’re a broker in California wanting to take advantage of the roller coaster that is the current real estate market. Following Buffett’s advice, you start inquiring about distressed properties. You plan to purchase these homes in neighborhoods near big city centers and typically, they are not in the best of the condition.
Being a licensed broker in California, you do not have to worry about paying agent commissions while buying or selling. That saves you a lot of money, but also increases the pressure to make a well-thought out decision while purchasing a distressed property. You strictly follow Buffet’s words and identify properties that are selling below the market value by comparing the list price of the houses in question against the Zillow Home Value Index (ZHVI) of similar properties in the market. You inspect these homes, assesses what repairs need to be done, what the materials cost and cost of labor will be. You then calculate the total cost of getting the house “show ready” including the staging costs. And you make sure there is a good demand for housing in that particular market.
You plan to invest in yet another distressed property. You do not want to make any errors of judgment like last year. So, this time, you use data from Zillow, a leading real estate database, and analyze and visualize it using Arcadia Instant, a free downloadable visual analytics software. You want to visualize your data to zero in on areas in California where:
- The list price is low as compared to the ZHVI estimate, so you can save a good amount on the purchase price.
- The number of foreclosed homes is high, so you can easily find a distressed property. However, this is not a primary deciding factor.
- Livability is high, so you can rent out the house easily and quickly. For livability to be high, you consider two factors:
- Low crime rate and
- Good public transportation
To analyze the crime rate and public transportation quality, you import data from the FBI UCR Reports and the NTD Program respectively. Also, to see the difference between the list price of property and the ZHVI in different cities, you create a calculated field in the Zillow dataset using the expression:
ZHVI – List Price
You then build two dashboards and add them to a dashboard group in Arcadia Instant. App groups are a great way to group multiple dashboards related to the same dataset. This allows you to neatly manage multiple visuals without stuffing all of the information in a single dashboard. You open the first dashboard – California Properties:
The Bar Chart on the top shows the difference between the ZHVI and the list price of properties in various cities.
The Packed Bubble Chart shows the number of foreclosed properties in these cities.
The Combined Bar Line Chart shows property crimes and violent crimes per thousand in the cities.
The Scatter Chart shows the number of trips per resident and average trip price in each of the cities.
First of all, you want to shortlist cities where you can buy property at a price lower than the actual value of the property. You take a look at the Bar Chart and see that the first 13 cities have a ZHVI higher than the property list prices. You believe in numbers but not in superstitions attached to them. So, you shortlist these 13 cities using the City filter at the top and call them ‘the Select 13’.
Out of the Select 13, Oakland and Torrance especially catch your attention because the higher the bar, the bigger the margin.
However, you don’t want to jump to a decision on these two cities right away. You check the foreclosure rate in the select cities, especially in the top two.
The Packed Bubble Chart shows that Oakland has the highest foreclosure rate. Torrance is comparatively on the lower side. Where in Oakland, there are approximately four foreclosed houses per 10,000, in Torrance, there is only one. That means you can find a distressed property comparatively more easily in Oakland. This fact again favors Oakland as the preferred choice.
However, you know that you can make a profit only if you can sell or rent out the property as easily and quickly. So, you check how livable each city is. One primary indicator of that is the crime rate in these cities. The lower the crime, the higher the livability, the higher the chances of a property getting sold or rented out. You scroll down to see the Combined Bar Line chart that analyzes crime rate.
The chart has secondary axes to show two measures – the bars represent crimes against property per thousand on the left axis and the line depicts violent crimes per thousand on the right axis. In the first chart, the high bar of Oakland brought a smile to your face, in this chart, the same towering bar representing Oakland breaks your heart. The crime rate is obviously the highest in Oakland. Luckily for you, Torrance doesn’t stand next to Oakland this time; it has moved to the extreme right, which means it has the lowest crime in the Select 13 cities after Benicia. This makes you switch your preferred property of choice from Oakland to Torrance.
You also want to analyze the other important aspect of livability, which is public transport. To check the health of public transportation in a city, you consider two factors – trips per resident and average trip price. The Public Transit Scatter Chart shows these two measures: the height of the bubble shows the number of trips per resident – the higher the better; the size of the bubble shows the average trip price – the smaller the better.
Oakland again stands out, at least for the number of trips per residents; the average trip price is also high. Average trip price is comparatively lower in Torrance, though the number of trips per person is also low. Considering the area of the city, which is one-fourth of Oakland, the number of trips doesn’t sound too low. So, public transit in Torrance is average – neither too good, nor too bad. Montebello has good public transport – more trips per person at a lower average trip price. But then, Montebello is not a preferred choice considering its ZHVI—list price difference and crime rate. Therefore, taking all relevant factors into consideration, you zero in on Torrance as the right mix of all the data points.
Now, you want to analyze additional data to a further level of granularity and figure out which neighborhood you should choose. You have a budget of approximately $700,000 for the property.
You move to the next dashboard in the dashboard group – Neighborhoods dashboard.
The second dashboard is a standalone Cross Tabulation Chart that shows neighborhoods in rows, house types in columns, and each cell represents a house type in a particular neighborhood. It represents the relatively higher price of property by a more saturated color; in other words, the lighter the color, the lower the price.
The dashboard has global filters on top to select the type of house as well as the neighborhoods. You decide are only interested in buying a house that can be rented out to a family so you select four-bedroom house, single family residence, and three-bedroom house using the filter.
The dashboard refreshes the data to show the following visual:
You discover that Northeast Torrance, Northwest Torrance, and Olde Torrance are the areas to focus your search. The average price of a four-bedroom house in these three neighborhoods is between $600,000 and $675,000, which is within your budget. Once again, data to the rescue.
As you can see, using visualizations makes decision making easier. Download Arcadia Instant to use your own data to see what you can learn from it, or explore data already available.