Location, location, location.
Understanding the surrounding location of an investment property from the most critical perspective is an important step ensure that you are making an educated investment. In the wake of globalization, analytics, and rapidly changing markets, the informed buyer must be cognizant of not just the actual building, but it’s surroundings as well. New properties enter the market, assets change hands, and new developments are built, which makes understanding your investment potential imperative. But with availability of data and instant access, it is possible to make educated decisions efficiently. The savvy investor uses location analytics to ensure that her one-time buy is an educated and safe one.
Current: Neighborhood Environment
Understanding the location of your investment begins with getting texture on what the neighborhood around your investment is currently like. Traditionally, you would need to visit the neighborhood and observe. Look at the options for food. Are the local stores Starbucks and Whole Foods or McDonalds and KFC? Keep an eye out for the people walking around on the street. This outdated method is referred to as gathering unstructured data, because it is not quantified or methodical. However, this data is extremely important to property value.
An example of unstructured data that can be quantified through location analytics is the distance from any location to a Whole Foods. There are two valuable insights with regards to the value of your property when considering Whole Foods. First, as you would assume, tenants appreciate the proximity of a grocery store, particularly a luxury one, even if they choose not to shop there. Food deserts are a serious concern for residents of some neighborhoods, so understanding proximity to quality groceries is valuable. Second, Whole Foods has an impact on neighborhood property value. Due to the nature of the size and target market of their corporation, Whole Foods spends millions annually on placing stores in high income or growing neighborhoods. Therefore, they have developed a reputation of increasing property values in neighborhoods just by entering the market.
Before purchasing a property, it makes sense to understand which income bracket your tenants will be in. This can impact the management and investment of your property from unit pricing to marketing. For example, in Manhattan, one might want to determine the average income of households earning over $200k USD and the distance of your prospective investment from public housing. Both data points can have significant impacts on property value.
Today, gentrification is considered a crass word, devoid of empathy; however, it is a worthwhile phenomenon to investigate when investing in a piece of real estate. Gentrification, from a data perspective, is merely the net movement of wealthy people into a neighborhood. In terms of real estate, this means increasing property values over time. One might consider the importance of knowing whether the neighborhood of your investment will be increasing or decreasing in wealth and population due to the implications on property value.
Future: Planned Developments
Imagine that you buy a residential investment property for a fair price in an up and coming neighborhood. You list apartments at market rate and the building fills with tenants within a year. After three years of collecting steady rent, you are surprised to see that the property next to yours gets knocked down and redeveloped. If that lot is developed into a new modern art museum, your rental prices increase dramatically, but if that property is developed into public housing, your rents plummet. Furthermore, property developments are not the only types of development one must be cognizant of, for government projects can have glaring impacts on value as well. Consider a rail line extended to the neighborhood, facilitating public transport into the city, or a public park that softens the concrete empire surrounding your building. By aggregating and carefully curating city planning data, maps can be created with projections of developments, along with detailed reports on each project.
Real estate used to be an industry where decision-making was based on intuition and seat-of-your-pants thinking, but as The Economist puts it, “The world’s most valuable resource is no longer oil, but data.” An educated investor will want to buy property in an area where the data says that it is increasing in wealth and surrounded by planned developments that are of high quality. Location analytics is a form of insurance to give buyers peace of mind and, in the next 5 to 10 years, it will become an industry-wide standard.
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