Predictive Residential Investment Property Analytics

by The Real Estate Buyers

in ,

The Technology Transforming the Residential Real Estate Investment Industry

Predictive analytics is about to transform the residential real estate investment property industry  Predictive analytics can help investors understand the proverbial question, ” How good is the area?”  and in turn better manage risk.

Over the past few years as Wall Street hedge funds have aggressively moved in to single family homes as an alternate asset class many of these investment funds have been creating their own models for determining the risk associated with a particular property.

Today, predictive analytics is beginning to be applied to residential real estate industry by private lenders, banks, insurance companies, property managers, individual investors and hedge funds. Investors and companies that exploit this technology early stand to gain insights for innovation, and establish a competitive edge. is one example of a private network of investors that utilize a detailed algorithm to measure the relative location risk of a property address as it  correlates to factors which historically influence investment performance. Properties with a high risk intuitively would trade at a high cap rate or cash on cash return and properties with a lower relative risk ( i.e better neighborhoods) trade at a lower cap or cash on cash return.

By properly tapping into a massive amount of data Data Sampling looking at characteristics like Population Density, Housing Characteristics ( i.e Age, Occupancy Rations, Type Diversity & Appreciation ), Resident Characteristics ( i.e Migratory Behavior, Per Capita Income & Unemployment Rates )  Social Characteristics, Crime ( both Property & Violent ), School Data and dozens of other data points  you can get answers to questions like:

  • Is this property on a good block or a bad block ?
  • Will this property be easy or hard to rent or sell based on neighborhood desirability?
  • Am I properly considering & managing the relative risk of the property outside of the pro forma ?

Finding answers to the right questions can have a significant effect on your bottom line.

Local investors, residents, police and city council Members usually know the area in their city or town that are problem areas the proverbial other side of the tracks. Now with predictive analytics outsiders will have the knowledge of such a phenomenon and a objective quantifiable system to measure its impact.