Real estate investments can take a great deal of effort and considerable resources. Finding the right property to produce a reasonable return can be challenging for the inexperienced investor. The key questions a successful real estate investor needs to focus on depends on his/her goals, whether they want steady rental income or a quick turnaround by flipping an undervalued property.
For investors that pursue the first option, the most important aspects for you to consider are the property location and market rental rates. Many successful rentals are located in close proximity to universities and colleges where there will likely be a steady stream of students to rent year after year. Similarly, properties located in cities with established tech and manufacturing industries tend to attract folks relocating in search of better prospects and they are more likely to rent initially before they decide to purchase a home.
There are several other factors you need to be aware of before you start along the path of property investment. You need to know
- the median market rate for rentals
- the best neighborhoods for great return on investment
- the trends and seasonal factors which affect property prices
With the above questions in mind, you can start your journey to property investment. Let’s say you purchased your first home at the young age of 21 and you rented out one of the two bedrooms of your condo in Colorado to pay for part of your mortgage and property taxes. With property prices being at an all-time low at the time of purchase, the market value of your condo has now nearly doubled and with a large equity in the condo, you plan to draw on a home equity line of credit to purchase an additional unit to rent out.
Still being relatively young, you are smart enough to know you would benefit from professional help. You reach out to Mike, a real estate agent. Since you are not new to home ownership, Mike starts by asking you a series of questions and gets the following information:
- You live in Boulder and own your condo
- You want to generate a secondary income from a rental property
- Your decision on the property is based primarily on financial data rather than emotional appeal
- You want to purchase a rental property in a city with cheaper housing prices compared to Boulder and should still be relatively nearby
- You intend to keep the property for a few years and then sell it off for a profit
Now, Mike has a good idea of your requirements. To help him make an informed recommendation, Mike, being a tech-savvy realtor, uses housing data from Zillow, an online real estate database, and then analyzes and visualizes that data using Arcadia Instant, a free downloadable visual analytics tool. Mike uses Arcadia Instant to create the app shown below:
The app is comprised of five visuals: a packed bubble chart depicting the Zillow House Value Index (ZHVI) for Boulder and three nearby cities, a horizontal bar chart showing the ZHVI of different neighborhoods in all four cities, two vertical bar charts representing the Price-to-Rent ratio and a comparison of the ZHVI across different neighborhoods respectively, as well as a line chart which shows the average change in the ZHVI of Colorado over a period of one year.
In addition to this, the app has one Multi-select filter and two parameters with variable measures on the top — Neighborhood, Metric, and Comparison — to facilitate further insights by filtering for ZHVI or ZRI (Zillow Rental Index), neighborhoods, and to show a comparison of different metrics.
The very first thing that you want to know is which cities nearby offer property at a cheaper price than Boulder. For this Mike has shortlisted three cities apart from Boulder — Aurora, Colorado Springs, and Denver. Mike hovers over each of these cities one by one in the packed bubble chart named Cities to Choose From and a tooltip shows the ZHVI for each city.
You can see that property prices are the cheapest in Aurora, followed by Colorado Springs. But the difference in the property price between the two cities is roughly $2000. So then Mike suggests looking at the ZRI (Zillow Rental Index) for the two cities to help you learn where you can earn the maximum rent. From the multi-select filterChoose for Metric, Mike selects ZRI and the charts quickly refresh to show data in relation to the rental prices.
You can now see that despite property prices being cheaper in Aurora, the rent in the city is about $250 higher than Colorado Springs. Based on the data and the visuals, you decide to look more in depth at Aurora.
Now Mike selects Aurora on the Packed Bubble Chart and all the charts refresh to show data for the selected city.
You want to see which neighborhoods within Aurora would be the best suited for your investment.
For this, Mike draws your attention toward the horizontal bar chart called Neighborhoods and hovers over the three neighborhoods with the cheapest property price — City Center, Centretech, and City Center North to show the ZHVI for each — $96,900, $106,300, and $153,600 respectively.
You want to dig deeper in order to finalize a neighborhood so you ask Mike to show you the Vertical Bar Chart called Price to Rent Ratio. Showing this chart, Mike explains that Centretech has the lowest price-to-rent ratio out of the three and would be ideal for earning the maximum rent without making a comparatively bigger investment.
In addition to drawing the maximum rent, you want to sell this property off for a profit in the next few years. So you’re naturally concerned with the likely appreciation of your property in the coming years.
Mike selects the three shortlisted neighborhoods in the Multi-Select Filter Neighborhoods and from the “Choose Comparison” filter selects ‘ZHVI YoY’ to show a comparison between the prices of the three neighborhoods on a year-on-year (YOY) basis.
The YoY comparison shows that Centretech has promise in terms of property price appreciation with 31% appreciation YoY. This insight makes it clear to you that Centretech would make the best investment.
The only question remaining is when you should purchase your new property in Centretech.
Being a sound investor, you want to make the most of your investment and ask Mike if he can show you the fluctuation in real estate prices based on seasonality and if there is a particular month in which prices drop?
Mike unchecks the other two neighborhoods and selects ‘Centretech’ from the Neighborhood filter and changes the Choose Comparison filter to ‘ZHVI YoY’. You can see the refreshed timeline chart which now depicts the average change in property prices in Centretech over the span of a year. Mike explains that you should ignore the outlier in the month of July/August as property prices tend to appreciate in the summer and then begin to fall through autumn, and are the lowest in the month of December/January. Mike also informs you that Centretech is located close to the Community College of Aurora and Buckley Air Force Base, so finding tenants should be easy.
With the help of Arcadia Instant and Mike, you are able to not only look at but also interact with the visualizations and come to a solid conclusion about the neighborhood you should make a purchase in. The app enabled you to look at real estate investment in a whole new light, one that helped you shortlist a city and then look at the best neighborhoods to invest in.