Real estate investors by nature are cautious with their portfolio choices.
In the past, deciding to buy or sell an asset depended on the numbers hidden inside excel spreadsheets. Hours of number crunching followed. The modern marketplace requires investors to make informed decisions quickly. And, not always within the confines of an office. With big data, assisted by artificial intelligence, we can derive actionable intelligence in seconds. Those powerful insights are changing how investors operate.
What is Big Data?
“Big data” simply means taking large volumes of data, both structured and unstructured, and applying computer analysis to identify patterns and trends. On balance, no industry is without big data. The Internet of Things (IoT), e-commerce, and mobile tracking allows brands, investors, and officials to monitor everything from traffic flow on a highway to what web page customers linger the longest. Hence, the quantities and complexities of information are beyond an Excel spreadsheet’s capability to mine for associations.
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How Does Real Estate Use Big Data?
Real estate professionals apply big data in numerous industries. Retailers use big data to track traffic patterns and improve store layout, and building managers identify trends in property maintenance. Brokers and agents rely on data to identify prospects. Additionally, mortgage lenders justify a borrower’s risk and decide to approve or deny funding requests. The list continues, but in summary, big data helps the real estate world make better decisions, find behavioral cues, and understand the needs of customers.
How Big Data Informs Investment Decisions
Investors might benefit the most from applying big data analysis. Real estate investing has always been accompanied by risk. In short, managing investments meant managing the potential risk. Applying big data and cloud computing changes how investors measure perceived risk. Now it is easier to digest critical portfolio information in a timely manner.
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For example, say you want to acquire a new retail building for your portfolio. Now, big data can pinpoint demographic areas prime for growth and identify the tenants most likely to benefit from leasing in the building. Know the financial burden of a potential investment using predictive modeling on projected property appreciation, development costs, capital outlay, and marketing expenses. Essentially, with the click of a button, investors know what the projected expenses will be versus projected income for the investment’s duration.
Likewise, those same numbers indicate when investors need to dispose of an asset. Compare a building’s performance against others in your portfolio to optimize the returns. If the capital outlay and net operating income no longer make sense for your investment goals, it could be time to sell.
Real estate investors apply predictive analytics to almost anything they want to know: comparing similar rental properties, finding leasing rates, identifying future tenant trends, the total cost of the investment factoring startup costs, or interest rate changes. Learn in real-time how every aspect of the portfolio is performing in relation to the marketplace as a whole. Finally, the patterns reveal if an asset is performing as projected, above average or below average for the market. Furthermore, when the data is converted into an easy-to-use dashboard, investors are better informed about their potential and current assets better than before.
Big data helps investors act more strategically and minimize risk in their decision-making. For instance, say the data shows a particular neighborhood is ripe for redevelopment. Investors can get in early and purchase prime properties to remodel. Similarly, data helps narrow down tenants that would be best suited for the redeveloped property. Target the property’s marketing, sign a lease agreement, and start making income faster all thanks to big data. So, you can see how leveraging big data maximizes the investment gains.
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What About You?
Let the numbers do the talking. In summary, applying predictive analytics and big data to your real estate investments will empower your decision-making and increase your bottom line. In any event, where would you like to see big data leveraged to help you?
Last but not least, if you liked this blog, please share it with a friend. And, if you want to receive regular articles to help with your asset management, subscribe here.
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Also published on Medium.