​Using Predictive Analytics to Make Smarter Investments

Every day, investors, real estate agents, brokers, and others in the industry rely on predictive analytics to drive their decision making. In fact, everyone uses them in some way or another, whether they’re looking at weather forecasts to plan their day or shopping for a new vacuum on Amazon.

So what does predictive analytics even mean? Basically, it’s just a fancy way of saying “I’m going to look at historical data and trends to make a decision about the future.” Analysis of this past data provides insight into what may happen in the coming days, weeks, months and even years. This analytical process guides the decision making of virtually everyone and, for investors, it’s absolutely imperative they use it when evaluating new and existing properties.

Here are some of the ways you should be using predictive analytics to target new investments and manage your existing properties.

Market/Location

You’ve heard the saying “location, location, location” right? The specific location of a potential investment property, as well as the larger market, factor heavily in the success of the investment. Because your success (i.e., profits) is so closely tied to the location, it’s critical that you investigate the local market using predictive analytics. Look back over the last several years to get an idea of how the market has performed, and see if you can correlate trends with specific events. For instance, has recent industry growth in the area caused a spike in home values? Or maybe the opposite has happened. Whatever the case, it’s important to analyze the local market, and even the specific neighborhood, to learn what’s been going on there for the last decade or so, and investigate whether any planned new development will impact your investment.

Property Scouting & Matching

Predictive analytics can also be used to help you determine which property types and features/amenities perform best in your area, so you can focus your efforts on those that are likely to be more profitable. You can then use this data to aid in property matching, which is where you isolate certain criteria to find a property that’s suitable for your needs. You can narrow your search of the local inventory to exactly what you need, from property type and location to number of bedrooms and bathrooms. This can save tons of time, allowing you to focus only on properties that are real contenders.

Comps & Rental Rates

Short for comparable sales, comps tell you what other, similar properties in your area are selling for. Analyzing comps is a crucial part of the pre-investment process because it gives you a real-time look at property values in your area, so you know the approximate value of your own property. You can also track past sales to see how home prices have trended over a selected period of time. This is helpful in determining whether your specific location is steadily (or rapidly) growing in value or not.

Predictive analytics can also help you zero in on a fair but profitable rental rate for your investment property. Simply analyze the rents of similar properties in your area, going back several years to gauge how the rates have changed over time. Remember to account for different factors that may make a property more appealing to renters, and thus more successful for you as the investor.

These are just a few of the ways you can use predictive analytics to improve your investment game. Once you know which market you plan on investing in, you can start investigating specific locations and neighborhoods, looking at historical and recent data for trends that will help you decide which investment options will be most financially rewarding.