Real Estate investments can be a tricky ballgame. A typical investor needs to conduct thorough due diligence before making an investment decision in this space. While Alternative data is a big aid to analysis in most industries, Real estate and investment industries are no exception to this. One innovative form of alternative data for the real estate industry is the location data. Investors in the real estate industry are leveraging Location Intelligence for due diligence on existing investments and for evaluating new real estate investment opportunities.
Location Intelligence is a sophisticated data handling and manipulation technique that deals with location and geographic data. This method can help you transform your location data into business outcomes and in turn, actionable insights.
This data can be extracted in any form: from addresses and latitude/longitude coordinates to existing points, lines, and polygons on a map. You can also tailor readily available spatial data according to your requirements. You can use names of places and administrative units such as countries and states along with territory marks or priorities/ rankings based on various parameters suiting your portfolio and investment needs.
You can club Location Intelligence with other analytical tools like Machine Learning and Data Visualization to make this data more usable and sustainable. For example, if you have built a simple forecasting model to identify the highest growing territories (in terms of value) in the next 1 year and then forecast the prices of houses in that particular area, you can basically make more informed real estate investment decisions. It helps that this decision will be backed by data! Now imagine creating an easy-to-use descriptive and beautiful dashboard that lets you monitor the prices of real estate across geographies.
Now since we have covered what Location Intelligence is and how you can use it, let us talk about why you should use it.
You can answer a lot of basic questions about real estate investments using Location data. Some of them are as follows:
A lot of industries use location-based data. However, the real estate vertical relies heavily on it, more than most other industries. This might be partially due to the reason that the subjects of the real estate industry- pieces of land and property can be identified on a map! Moreover, this data helps you monitor circumstances and trends in the environment around a property that can inform its value. You can use location intelligence to provide granular insights on sites along with foot traffic trends surrounding these sites and even the behaviours and demographics of visitors. A lot of this data can be extracted from the web or other sources using scraping.
It is no news that real estate value is largely associated with broader social and economic conditions. Thus, if you have a very detailed understanding of a location and the trends around it, you will learn greater insights about its potential. You might find it tough to collect such actionable insights from other data sources. This is because those sources don’t really derive information from accurate foot traffic analysis or real-world actions.
You can enhance your understanding of commercial, demographic, and transport data. By doing this, you can identify a real estate investment opportunity very early and ensure that your investment decisions provide you with the most value. Let us look at several applications of Location Intelligence.
Demographic data is one of the most important data elements that help you understand and analyze the long term potential of an investment opportunity. You can use it to visualize trends in the population income, education, and cost of living and even their behavioural traits, professional preferences, etc.
This will give you better information about not only the people who live in a location but also how that neighbourhood will evolve years after you decide to put your money in it. This can also help you ensure that you are aligning your investment choices with your long term wants and needs.
If you use customer demographics along with data on property prices and some forecasts, you might be able to use Location Intelligence for selecting lucrative sights. Let us look at an example. Below is a map of Manhattan. Let us analyze the possibilities of a good investment for a mid-sized investor who wants to grow his portfolio in the long term (say next 10 years).
If we look at the areas ‘Upper East Side’, ‘Carnegie Hall’, ‘Tribeca’ and ‘West Village’ among a few others, they show higher wealth concentrations as compared to others. They also have a lower density of public buildings and housing which also implies the scope of growth and development with even small scale projects.
What this means is, if you are a mid-sized investor with capital enough to buy plots of land and build small scale housing projects, you might be looking at tremendous growth in the next few years. Let us also look at a heat map of the property values in these areas.
Among the 4 areas identified above, we see ‘Tribeca’ and ‘West Village’ show a medium to high growth of property value. Using these multiple data sources can not only help you narrow down the areas of interest but also help you make more confident data-backed decisions.
You could also incorporate foot traffic analysis into the overall real estate investment strategy. This would help you gain a better understanding of where your target consumers visit most frequently. You could then analyze these trends and movement patterns around specific areas of interest. Let us say an investor shows interest in a particular shopping plaza, he or she could use and analyze the relevant historical location data to learn the number of visitors, length of each visit, time and frequency of their visit and other demographic information.
Thus, you can use location intelligence and go beyond general population data to find areas with an adequate number of potential consumers with ideal purchasing trends and income patterns. If you invest in an area that already has frequent and regular visitors and shoppers, this would ensure the right kind of foot traffic, thus making it a success for everyone involved in the investment.
Open source datasets like taxi drop-offs and fares in localities can be used to understand how the public transport connectivity is, in a particular community. This information can then be clubbed with data from social networking sites like Twitter and Foursquare to understand what the most happening hang-out spots are. You can also use it to understand what sites are the best for building specific facilities. like bookstores, shopping marts or even hospitals.
Location Intelligence is a powerful tool as it enables real estate companies to identify and study neighbourhood trends. They use it to forecast or predict if an area is worth investing or not, before anyone else. You can use analytical tools for the same. For example, location intelligence can help you detect if a community is growing and developing.
You would also be able to observe if the area trends are inconsistent with the investment thesis or if the foot traffic patterns imply lower consumer visit rates. In this case, if you are an investor, you might be able to sell out of their investment while the market still has a viable value. Most other data sources that provide this information generally, have a long lag time. In that case, it is often too late by the time the report comes in. BY this time, either your competitors have also learned about the data or the market value has changed. Location data is a real-time source of actionable information and thus, enables firms to act early and swiftly.
You can access Location Intelligence to conduct a thorough study of real estate competitor analysis. You can do so by geofencing and keeping an eye on your competitors’ locations to get a relative sense of their foot traffic patterns and loyalty levels. In this pursuit, you may discover a popular competitor’s location and invest in property in its vicinity to capitalize on some of that foot traffic and reroute some of that capital to your own business.
This article is originally published in
https://blog.datahut.co/using-location-intelligence-to-make-smarter-real-estate-investments/
