If you want to invest in rental real estate, you will have to purchase properties that meet criteria such as high cash on cash return, proximity to amenities, high market demand, etc. However, many times, rental real estate investors rely on their intuition to purchase houses and don't get the expected returns. But if you don't want to make the same mistake and want to get maximum returns from your real estate investments, you will have to rely on the data. Here, rental data comes into play. You can get access to rental data on platforms like Mashvisor, Zillow, or Datarade,
After getting access to the rental data, you will have to interpret them to understand the real-world significance. For example, what does the price to rent ratio means, what is cap rate, etc. The better you interpret these terms, the more you will understand which properties to buy for your rental investments.
How to Analyze Rental Data
Cash on Cash Return
Cash on cash is the total pre-tax cash flow (annually) divided by the total investment amount. Many experts suggest that a good cash on cash return is about 8% to 12%.
Cap Rate
After the cash on cash return, you will have to analyze the cap rate. There is a slight difference between the cap rate and the cash on cash return. Instead of dividing the NOI with the total investment amount, it is divided by the property's market value.
Price to Rent Ratio
Usually, the price to rent ratio is used to determine whether you should rent a house or purchase it. However, you can use this ratio to understand the demand for rental properties.
If the price to rent ratio is above 21, it indicates that the cost of a house is very high, and people will most likely prefer to rent a house rather than purchase it. Again, if this ratio is less than 15, it indicates that the cost of a house is very cheap, and people will prefer purchasing a house rather than renting it. And if the price to rent ratio is between 16 and 20, it indicates a balance between the two.
If you want to purchase a rental property, you will have to ensure that the neighborhood has a high price to rent ratio. Because as stated above, the higher the ratio, the more demand it will have. And if you invest in such areas, the probability of rental properties going vacant for months will be close to zero. However; the cashflow may be lower than properties in other neighborhoods.
Conclusion
Here are a few pieces of rental data you will need to analyze before investing in rental real estate. If you want to purchase Airbnb properties, you will have to look for other rental data like the daily rate, occupancy rate, Airbnb rental income, etc.
