For decades, property investment has been driven by speculation, educated guesses, and simple intuition. As a result, many investors kept making mistakes that were continuously repeated. While the element of risk cannot be completely eliminated, using data analytics allows investors to make well informed decisions, significantly reducing the risks. More and more property investors are turning to data-driven analysis methods when looking to improve their competitive advantage and make profitable investments. Here is how data analysis can help increase profitability in property investments.
What is Data Analysis?
Data Analysis is the process studying raw data to gain information. Often done with specialized systems and software, big data can be compiled from census figures, public or government databases, business consumer reports or obtaining information online. These analytics help property investors enhance their operational efficiency, respond faster to emerging market trends, increase revenues, improve customer service and optimize marketing campaigns. Data analytics can also help investors learn what other investors are seeking and if their investments are proving profitable.
Types of Data Analytics
Descriptive – Descriptive analytics describes the trends over a specific duration. These analytics looks at data from a wide range of sources to derive useful insights into the past. Vacancy rates and increase in rental incomes are examples of descriptive analytics.
Diagnostic– Diagnostic analytics is a collection of historical information that is examined to explain why something has happened. An example would be using diagnostic analytics to reveal why rental properties have such a high turnover rate.
Predictive– Predictive data analytics forecast what might happen in the future. It uses information from diagnostic and descriptive analytics to identify clusters, exceptions, and tendencies. For example, an investor can use predictive analytics to forecast how much rent is likely to increase in the next two years.
Prescriptive– Prescriptive analytics prescribe what needs to be done in order to take advantage of an opportunity or avoid a problem in the future. However, this kind of analysis uses modern technologies and investment tools like algorithms, business rules, and machine learning which can make it difficult to implement and manage.
5 Ways You Can Use Data Analytics
Determine Profitable Locations
Using data analytics, an investor can determine how profitable a location will be in terms of occupancy rates, average rental income, school ratings, life quality, crime rates and even the ROI of the area. Being able to identify the best locations quickly, allows investors to stay one step ahead of the competition in seeking out investment properties. It also saves the trouble of carrying out lengthy searches using traditional research methods.
Understanding The Price Point
Whether an investor is looking to buy or sell, price optimization is crucial when it comes to profitability. Property investors need to understand the market they are operating within in order to make the best pricing decisions. Keep in mind, however, that pricing data analytics is not just restricted to buying and selling prices. It can also be applied to other facets such as pricing of rates, taxes, rental data, statistics, pricing of services and building prices.
Getting an appraisal is crucial before buying or selling an investment property. Data analytics help provide this information when it comes to sales for comparable properties within the same area. Having analysis reports on investment properties allows for valuators to offer more accurate price estimations effectively and efficiently.
Investors can use data analytics for profits, sales figures, and consumer reviews to not only evaluate their own performance but see how other investors are performing as well. Whether it’s to gain insight to what competitor is selling the most, what their ratings are or which strategies they’re using; data analytics will give you an idea of where the competition rests.
Using predictive data analytics, investors can determine who their tenants will be in the coming years, if there is a consistent demand for rental units in the area, if the property will have tenants within the next couple of years and how the composition of tenants will change within the next 5 years.This information supplies the investor with an idea of what target group the management should focus on whether it be single professionals, young families, college students, etc. making it easier for investors to advertise effectively.
Without data, all your time and effort trying to devise a strategy concerning your property investment can prove inefficient and take away from potential profit. Data analysis helps to speed up the process so you can make an informed and wise investment choice. With these tools, investors can objectively evaluate where and when to invest as well as determine accurate property values. In a market that is always changing, accessing data analytics to determine property investment