INVESTOR’S GUIDE: HOW TO USE ZILLOW.COM AND PROPERLY ASSESS A REAL ESTATE INVESTMENT IN THE USA.
For international investors it can be both interesting and useful to be able to access data on US real estate market in an easy and transparent way. Nonetheless, the assistance of a professionals is vital for a correct assessment.
Anyone who has ever considered a real estate investment in the USA has almost certainly heard of Zillow.com, the major online portal dedicated to US residential real estate market.
First and foremost, it should be considered that values reported on Zillow.com are indicative, derived from the data to which the portal can access.
Indicative does not mean pointless, since they allow for a general overview, but it is crucial to understand how to interpret and contextualize them. To do so, one needs to dispose of information that Zillow.com does not report nor have, or which is not capable of properly process: hence, the need for being advised by a specialized company when performing a real estate investment in the USA.
But let us begin with things in order: Zillow.com has been founded in 2006, and it reports countless transparent and verifiable information about over 110 million properties, thus being highly valuable when assessing a real estate investment in the USA. That is the case especially given that US land register is fully online, another proof of the transparence and efficiency of the American system. We will now go further into detail on how Zillow.com works, and which are the data it gives to the public.
By accessing the website, it is possible to select between properties for sale and properties for rental, and to type into a search bar a specific address, a neighborhood, a city or a state.
ZILLOW.COM DATA ON A US REAL ESTATE INVESTMENT FOR SALE
If you type the address of a given property - number, street, ZIP code - you will then access a dedicated page complete with any kind of information about it: surface, number of bedrooms, number of bathrooms and so on.
In the same page, it will be possible to visualize an estimate made by Zillow.com (called “Zestimate”, Zillow + estimate) by taking into account 2 values:
- Variations in the property purchase price;
- Variations in the amount of property taxes for such property.
From the elaboration of such factors, Zillow.com derives indicative estimates of:
- Property current market value;
- Estimate of monthly rental fee for that property;
- Forecast of local market value evolution.
There is also a Cartesian graph with property value expressed in $ on the Y axis, and time on X axis, containing three curves which describe respectively:
- The first curve, a continuous blue line, refers to the evolution of purchase value of that specific property over time;
- The second curve, a dotted light blue line, indicates the trends over time of the local market located within the neighborhood of that property;
- The third curve, a dotted grey line, indicates the trend of the city’s local real estate market;
It is possible to view the historical data of purchases and resales as well. In other terms, one can know precisely through which and how many transactions a property has been, for how much it has been resold and rebought, how its value changed over time. Together with that, it is possible to find out the values of its property taxes, year by year.
There is also a map of the neighborhood with highlights on nearby schools. That represents an important element for determining the attractiveness of a real estate investment in the USA, as proximity to schools contributes enhancing the demand by tenants and thus helps keeping rental yields steady.
Zillow.com seems great, and to many respects it is, but it suffers from some limitations which in many cases severely hinders its assessment on a real estate or even a whole area.
For instance, by taking into account purchase prices only, it does not consider the incidence of any renovation works, which can amount to tens of thousands dollars. Such works have undoubtedly the merit of increasing the value of a real estate, of enabling to demand higher rental fees to its tenants, of attracting tenants with better financial scores.
Let us have a quick example: if a property is purchased for $ 50,000, and it receives renovation works worth $ 35,000, according to Zillow.com its value remains stuck at $ 50,000, while de facto it has almost doubled.
Similarly, when taking into consideration urban areas subjects to requalification plans, the values reported by Zillow.com should be often considered as flawed, as pure sale does not consider the costs due to large renovations, nor the incidence of fines or missing payments of the property taxes (to avoid surprises it is important to make sure that your real estate investment has a due diligence, a certification on its property deed that Zillow.com does not show, and which has its own cost), and so on.
None of the above results from Zillow.com, but it is evident how such information has – and must have –a high degree of relevance when assessing a real estate investment in the USA.
Likewise, it is true that the portal indicates the expected estimates for a local real estate market or a specific property, but it does so relying on partial data. It does not succeed, in other terms, in taking into account a wide array of elements such as public and private financing devoted to the requalification of an urban zone, or the virtuous cycle initiated by such interventions. An area under requalification will see the nature of its tenants change, and consequently the amount of rental fees, property taxes, value per square foot, quality of services, and so forth. These elements will all have an exponential impact on real estate values.
To recap: Zillow.com is a useful tool for a first general assessment of a real estate investment in the USA, and thanks to an intuitive interface it allows for a quick and easy use. Nonetheless, it is important to bear in mind that it is, after all, an online platform that generates indicative values derived from partial data, and as such the information provided should be taken with a grain of salt. That is the reconfirm of the importance of relying on a specialized company and qualified professionals when considering investing in the United States.