Using A.I. to Evaluate the Strength of Your Location

Location can bring great upside, and it can bring great risk. We all know the adage. The three most important factors for real estate investment are location, location, location. A great location offers a safety net even if the property or rehab isn't perfect. A weak location can be difficult to overcome even with an amazing property and/or rehab. These factors can have a huge impact on profitability, exit price, and sale times, which in turn have a definite impact on your total portfolio performance!

So let’s look at location. I mean, let’s really look at location. How do we do that? How do YOU do that?

[pause … silence … leave your comments below! ??]

Savvy, strategic investors often identify "up and coming" neighborhoods so they can snatch up lower-priced properties which will yield great upside via renovation and investment. See, in their view, the market itself is telling us what we need to know. And seeing as we’ve been those investors for a decade, we agree!  Traditionally, though, this level of localized, market knowledge has been very time-consuming to obtain, and near impossible to scale. Not anymore.

So where can you look? It’s all about demand. High demand indicates great location strength, and low demand should be a harbinger of potential risk. And now with our market demand AI, we’re able to analyze this within milliseconds, versus what can take hours, days or years for investors to accumulate this level of understanding about a specific location. 

Here are some factors we believe are worthwhile.  

• Density
• Inventory
• Velocity
• Renovation
• Crime

First off, it’s important to note that each metric needs to be “hyper-focused” on the location, so using metrics at the zip code, city or MSA level are already weaker metrics because they lose the focus on the exact location of a subject property. Let’s take a brief look at each of the five metrics. 

Density: Density is a great metric which provides a quantitative statistic to measure how rural versus how urban a location is. It’s certainly true that urban is not always better, and rural is not always worse. However, density can be a great indicator of how large the buyer pool is. Rural typically means a smaller buy pool, which limits demand.

Inventory: This is a classic, “tried and true” metric, which of course is constantly fluctuating. This metric is a comparison between the number of active listings versus the number of sold properties within the last twelve months. Lower inventory levels mean a stronger area, with a higher demand / lower supply environment. It's certainly not a guarantee that this dynamic will continue to hold true through market changes and cycles, yet it’s a great measurement of the current demand / supply dynamic.

Velocity: Put simply, velocity is a measure of how fast homes are selling. Similar to inventory, this metric is constantly changing, and holds no guarantee to how the metric will hold up over the coming quarter, year or beyond. Nevertheless, it’s another great indicator of the demand / supply dynamics at in a subject neighborhood at the current time.

Renovation: We love this one! (And it’s definitely the HARDEST to quantify without AI). The level of renovation occurring within a neighborhood is an excellent indication of the true, underlying demand for a location, and this demand generally contributes to higher stability for this location and neighborhood over the longer-term. This is a great metric! Measuring this requires a deep look at all the activity within a neighborhood, to understand the qualitative and quantitative pictures of what’s happening on the ground.

Crime: Crime is another great metric although has a caveat, especially in urban areas, in that it can sometimes change dramatically over time. However, a current picture of crime gives a great indication of which way the tides are moving. Low crime is a great indicator that your investment is moving with the tide, whereas investing in a higher crime area can sometimes mean that your investment is swimming against the tide, which can either indirectly cause lower buyer interest / rental demand / etc., or it can cause direct impacts such as theft, property damage, or other issues.

So tell me, how do YOU evaluate location? Leave a comment! 

However you do it, we recommend that you use a consistent approach to objectively assess the strength of each location, in a way that can be applied across neighborhoods, markets, and states. Make sure that you have SOMETHING in place, because there’s never an excuse for doing nothing! 

And if you jump on RicherValues, you’ll see that we make it easy! On every asset you evaluate, we provide a Market Demand Score within seconds, which dynamically factors in these and other factors into a consistent, objective rating for each location. 

Love it? Our clients do!

#realestate #location #location3x #investment #artificialintelligance #fixandflip #rentals #buyandhold

About Us: RicherValues software uses AI to deliver the fastest, most advanced way to analyze residential property nationwide. Our clients include lenders, investors, hedge funds, asset managers, and note buyers. The software provides immediate, accurate asset-level intelligence, valuations, and renovation cost estimates to help you mitigate risk, make the right financial decisions, and maximize your profits. 

To our knowledge, we’re the only valuation software company built upon experience of actually purchasing, renovating and selling thousands of residential homes and mortgages. Ask us for our accuracy studies! Contact us to test the analysis on your own deals!  Send an email to [email protected].