When it comes to the fast-paced world of real estate investing, one of the most important things to understand is that decisions cannot be made on a whim. You can’t base your financial future on “gut instinct” or “intuition,” regardless of how strong you may feel they are. Instead, you need to leverage the data-driven insights that are all around you to make the most informed decisions possible, given the circumstances.
But with data volumes exploding thanks to the Internet and how connected we all are to one another, sometimes “obtaining data” and “extracting value from data” are two entirely different concepts. Thankfully, the situation isn’t quite as difficult as it may appear. There are a number of core things to keep in mind to utilize data effectively and make real estate investment decisions that will drive your success.
The Power of Comprehensive Data Analysis
When it comes to making sense of the massive volumes of data that are being created on a daily basis, the importance of comprehensive data analysis simply cannot be overstated. Without a way to cut through the “noise,” essential trends and patterns will remain undiscovered.
During your data analysis, you’ll want to look at factors such as market trends, for example. This is especially important for practices like wholesale real estate. Here, your entire goal is to locate a seller and make an offer to find a buyer willing to pay more, thus allowing you to profit from the difference. If you don’t understand the finer points of the market at any given moment, this is, at best, needlessly difficult and at worst impossible.
The same is true of property valuations. Is there a particular area where valuations are on-the-rise that other investors may not be aware of? Data can tell you this. Looking at factors like rental yields will also provide a deeper understanding of the market landscape as it evolves around you.
Why Predictive Analytics Matter
While it’s certainly true that nobody can predict the future, predictive analytics may be the next best thing.
Even though the real estate industry moves quickly, trends still develop (relatively) slowly over time. Rarely does any major shift happen overnight, for example. Therefore, by taking a closer look at actionable data for a period like last year, you can watch these trends develop as they are still in their nascent stages.
If you know where the market started and where it currently is, you’re suddenly in a position to make a more informed decision as to where it all might be headed. This is how predictive analytics enable investors to forecast future property trends while identifying potential risks. Not only is it easier to spot a positive trend that is still on the rise, but you’re also more likely to see one that has also peaked – thus avoiding potential issues down the road.
Key Performance Indicators: The Light That Shines the Way
Finally, one key concept in the world of real estate investing is that if you want to be successful, you need first to know what “success” looks like.
That’s where key performance indicators (or KPIs for short) come into play. You need to go deeper than simple concepts like “did I sell a property for more money than I initially invested in it?” Instead, you need to dive deep into things like cash flow, which will indicate how quickly you’re making a profit based on your current strategy. If you’re investing in rental properties, you’ll also want to look at vacancy rates. Naturally, you want these to be as low as possible to maximize your return. If your vacancy rates are ticking upward, you must ask yourself why and what you can do about it.
In an overarching sense, you should also monitor return on investment. Making a profit is always a victory, but what can you do to get it even higher? What are some opportunities you have to diversify your portfolio and invest in unique types of properties? Which parts of your strategy work effectively as-is, and which can be improved?
By continuously keeping an eye on these valuable metrics, you’re in the best possible position to assess your investment performance on an ongoing basis. This in and of itself is the key to making the most informed choices that you can.
Data-Driven Insights Drive Sound Investment Decisions
Overall, understand that to make the data-driven real estate investment decisions you need to accomplish your goals, you’ll need a combination of all the above tips that you can use to your advantage. This isn’t a situation where you simply pick one and run with it. Data volumes are constantly growing, and comprehensive data analysis can always uncover the true story hidden underneath, regardless of how quickly it may change.
Predictive analytics can take actionable information about how far the market has come and give you deep insight into where it is likely headed so that you can get there before anyone else. Even KPIs are crucial because they give you something objective to measure success. By embracing these tips, you can leverage a more informed, thoughtful approach to your real estate investment strategy. One that mitigates as much risk as possible while simultaneously maximizing your return on investment.
Disclaimer: This content does not necessarily represent the views of IWB.