A strong financial strategy includes building a robust portfolio that earns passive income while helping you leverage your assets for future investments. For real estate investors, the economic benefits of multi-family investing are obvious: maximize profit by reducing vacancy.
However, not all multi-family residential developments are created equal. Depending on your location and your business model, you can make a huge profit or barely break even. Today, we’re using a predictive investing model to help you forecast how much you can make from multi-family residential construction.
What Is Predictive Analytics?
Predictive analysis is related to real estate analytics and, as the name suggests, makes predictions using analysis. Let’s break it down further.
Traditional real estate investment used analytics to analyze large data sets in order to qualify and quantify patterns which explain why things are the way they are.
That’s an oversimplification, but here’s an example. If you have a strong investment property that has a $40,000 net profit over three years, traditional analytics can show how this success happened.
However, examining past success doesn’t always help with future investment potential – and that’s where predictive analysis comes in. Forward-looking real estate investors want to know where and when to invest in multi-family residential development and which multi-family construction will be their next profitable investment.
How can Predictive Analysis help me find the right Multi-family Investment Property?
While every market shares similarities, you still need to research in your own investment markets to realize maximum profitability. Predictive analysis can simplify that research.
Predictive Analysis For the Right Location
“Location, location, location” is a real estate investment cliché, and for good reason. When you’re buying a multi-family property for the first time, instead of a rental house, you’ll quickly realize that there’s a good location for each, and they aren’t always the same.
Predictive analysis takes the location guesswork out of the equation, pointing you to the best location for investment properties. It eliminates the need for investors to also be market experts. Tools like a heat map, an easy-to-read visual depiction of investment outcomes, use population data, trends, and forecasting to highlight the best areas for real estate investment and development. Read more about heat maps and America’s urban real estate market.
Heat maps are especially useful in that they use several different metrics to reach conclusions:
- Property price
- Rental income
- Cash-on-cash return
- Occupancy rate
Using Predictive Analysis To Find the Best Investment Property
Location may feel like everything, but it isn’t the only thing. The attributes of the property you purchase matter. A derelict property in a prime location still won’t turn a good profit. Finding the perfect property in the perfect location is a balancing act- a game of give and take.
There may be several investment properties within your desired property location. Finding the best one involves another round of predictive analysis, this time using a rental property calculator to analyze the numbers behind each property to determine which is the best financial investment. This rental property calculator provides a financial breakdown for your intended property, which can be used to compare competing properties.
Predictive analysis doesn’t just help you find properties with the most potential in a given area. It also provides investors with a fairly accurate ROI forecast, both cap rate and cash-on-cash. When comparing different multifamily rental properties for sale, focus on the return-on-investment, including occupancy rate, expected rental income (both as a whole and per unit), and the rental expenses.
A good predictive analysis tool will provide a score for the general area, plus a ROI percentage. It can also rate the opportunity, from poor to great, depending on the area.
Predictive Analysis Determines Optimal Rental Strategy
You won’t realize the potential of your investment, no matter how great the location and predicted ROI, if you don’t have a rental strategy that works with the area. For example, utilizing a long-term rental strategy in an area that doesn’t favor one, such as near a college campus, is a poor real estate decision. Likewise, favoring short-term rental strategies in locations where most tenants prefer long-term leases can also reduce your profitability.
Predictive analysis is a great tool in this situation, as it gives investors insight into the renting habits of other tenants in the area. Your rental property calculator provides an optimal rental strategy for your shortlist of properties.
What Are the Benefits Of Predictive Analysis In Real Estate Investing?
We’ve covered several specific benefits of using predictive analysis for multi-family real estate investments. These benefits center around using predictive analysis and property rental calculators to quantify the investment potential of each property, ranking different areas of a city for investment potential and then evaluating specific properties within the best locations for profitability.
Let’s dive a little deeper into how predictive analytics can improve investing compared to “old school” techniques.
Find a Multi-Family Property Matching Your Investment Goals
Even if it’s your first income property, you still have investment goals, expectations, and preferences for your rental property. Predictive analysis allows you to match your preferences and goals better.
Save Valuable Time
Historically, finding the right multifamily investment property took most investors about three months. Using predictive analysis, you can shave that time down exponentially. There’s no need to do the legwork of manually combing through advertisements looking for properties for sale and no need to read through different data reports on each one. Plus, you don’t have to complete the investment property analysis or comparative market analysis yourself – the rental property calculator takes care of it for you.
Reduce Your Investment Risk
While real estate investing is lower risk compared to other types of investments, it’s not entirely risk-free. Predictive analysis takes out a lot of the investment risk factors, providing reliable metrics based on future trends and past data.
Eliminate the Need For a Real Estate Agent
One of the chief benefits of having a buyer’s agent is their deep knowledge of the market, its past, and trends. Another is a real estate agent’s access to comparative market analysis and the past occupancy of buildings listed for sale. Agents work with the buyer to find a lucrative investment for the best price and guide new investors away from a poor property choice.
Using predictive analysis, you can skip the middleman, and research and purchase the property yourself. This speeds up the process and saves you money.
Anyone Can Become an Investor With Predictive Analysis
Predictive analysis makes real estate investment less confusing and complicated to novice investors. Before, the industry jargon and confusing array of figures could make real estate investment intimidating, and newer investors were often reliant on experts to guide them.
Now, however, predictive analysis can give fast insight into different markets and help new investors choose from different properties in each target investment zone. Rental calculators can help you find properties most likely to provide a positive cash flow.
Not only will predictive analysis help you find the right existing multifamily investment, but it can also help you locate potential areas for new multi-family construction. Multi-family residential development is a growing business, from dedicated senior living apartments to larger spaces for families. Applying the same predictive analysis tools to new development can help you find the right way to get in on the ground floor with new multi-family construction.