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How to Use Data to Make Investing Decisions


When it comes to real estate investing, there are few things that can help you to succeed as much as data. Data helps you to detach from your emotions so that you can see all the numbers clearly.


The numbers tell a story for every property. Unfortunately, these stories are not always pleasant. But, understanding the complete story behind a property can help you to drill down and understand – is this the right property? Is this the right market? Is this the right opportunity?


In order for a real estate investment to be ideal, all three of these things, the property, the market, and the opportunity must all be right.


How Does Blue Lake Capital Use Data to Make Investment Decisions?


Blue Lake Capital owns over 2,300 units across the U.S. in several different markets. We normally like deals that are 300+ units, between $60 million and $150 million. However, even though we have many units and are prepared to spend $100 million+ to acquire properties, we do not even consider properties unless the numbers make sense at least in the initial underwriting.


When it comes to using the data in the initial underwriting, there are some assumptions that you have to make before you buy anything. For example, you have to assume things about the rent increases, concessions, and vacancy.


Rent increases refers to how much you can push rents up year over year assuming you don’t make any renovations. In some markets, you will be able to push rents up 5 percent per year, and in others you will only be able to push them up 2 percent per year.


Vacancy refers to the percentage of units that are empty. This number could be 5 %, it could be 9%, etc. Finally, concessions refers to things that you might have to give up in order to attract and retain tenants. For example, a concession might be offering one month of rent for free for new tenants.


Being able to accurately understand and predict the projected yearly rent increases, vacancy, and concessions for a given property are extremely helpful when analyzing a property. Here at Blue Lake Capital, we use AI technology to give us extremely accurate numbers for these data points.


How Does the AI Technology Work?


The AI technology looks at historical data for similar properties in the area. It then analyzes this data in order to produce highly accurate numbers for the projected rent increases, vacancy, and concessions, based off the data. Historically, these assumptions were often based off industry standards, or worse, someone’s “gut” feeling.


The software predicts how the particular property in question will perform in the next three to five years. So, by applying the AI technology to properties that we are considering buying, we can get a much greater understanding of what we could expect from the property in terms of rent increases, vacancy, concessions, and more.


Once we have the figures from the AI technology, it gives us a much greater understanding of whether or not the property will be a good investment for us. In addition to using the AI technology, we also compare it to data from our current properties under management to get even more accurate projections.


What We Do Once We Have the Data


After we collect all of the data from our own properties and combine it with the data from the AI technology, we then plug the numbers into the property that we are considering. Oftentimes, we actually will make the numbers a little more conservative than the numbers that are generated in our research because that provides extra security.


So, for example, if we see from the data that we could expect rent increases of 4% per year, we might plug in 3% just to be conservative. That way, if the numbers work at 3%, it makes the investment even safer for us.


When we find a property where all of the initial numbers are good for us based on our research combined with the AI figures, then we move the property to the next stage of our analysis. We only invest in properties if and when all of the numbers meet our criteria.


Separating Emotion from Numbers


One of the biggest mistakes that many real estate investors make is that they are unable to separate their emotions from the numbers. Many investors get emotionally attached to certain properties due to things like location, architecture, amenities, etc. But, getting emotionally attached to the properties and making decisions based on these attachments is a major mistake.


That is why we always carefully consider the data for every potential investment and only invest when the numbers make sense. I, personally, invest in each and every deal we have and only feel comfortable bringing it to other investors when I know that all the numbers are solid.


Using Data to Analyze Prospective Renters


When we are assessing a real estate investment, we not only look at the data for the property, but we also look at data in order to assess the income types and levels for prospective renters in the area. In particular, we want to make sure that an area has enough income diversification so that a major problem in any one industry would not significantly harm the local real estate market.


This has become especially important as we saw during the pandemic, when industries such as the hospitality and service industries, were hit particularly hard. So, we use data to make sure that we only invest in properties that have a tenant base with incomes that have diverse enough sources.


Using Data to Analyze Trends


One final way that we use data is to analyze trends. In particular we look for longer-term trends. This is because many real estate investors make the mistake of only looking at short-term trends such as trends in the last three months.


Only looking at short-term trends can be a major problem. For example, if you discover that there is a trend of increasing water use over the last few months, and if you only look at this, then you might have missed the sharp increase at 4 months’ time before that, indicating there is likely a water leak on the property that needs to be addressed.


So, we use data to analyze trends that are occurring in the market and at the property level that have been occurring for a period of time that is typically at least one year. We also look at longer-term trends such as trends that have been occurring for the last 1-5 years.


Summary


In order to be the best real estate investor that you can be, you should strongly consider incorporating data into your investment strategy. We use data for every single one of our real estate investments. In particular, we look at data for rent increases, vacancy levels, concessions, income types and levels, and trends.


At the very least, we would also recommend that you use similar data for your real estate investments. Do not make the mistake of investing based on emotional attachment to properties or fear of missing out.


Real estate investments need to be made according to the numbers. Find properties where the numbers work out. This will give you the best chances of success long term.


Want to Invest with Ellie Perlman and Blue Lake Capital?


If you are interested in learning more about passively investing in multifamily properties, click here to schedule a call with the Blue Lake Capital Team.


About the Author


Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.


A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.


Ellie is the host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.


She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.


Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.


You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.

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