Real Estate

The data-driven buyer

Left to right: Nitin Shingate; Vikram Raghavan photos:courtesy rental roost

Home buyers have many approaches to picking their homes and neighborhoods. They consult friends and family who know the area. The search Zillow. They talk to real estate agents. They Google the neighborhood. They check online crime statistics. They even drive through the neighborhood wistfully looking for open-house signs. Rental Roost Inc., a one-year-old Bay Area company, is aiming to help people make decisions based on data — data about the neighborhood and data about the buyer.

There are a lot of factors that could change which neighborhood you select. Are you single? Will you have a roommate? Are you looking for a home for a family of four? One bedroom, one bath, or maybe three bedrooms, two baths? How old are your children, and what schools might they be attending? Will your dog be welcome? How available is good shopping and dining?

“We always assume people say ‘I want to live in San Francisco; I want a 3 bed, 3 bath,'” says Vikram Raghavan, one of Rental Roost’s three co-founders. But that’s not how people really do it; he says they want something that fits their lifestyle. For example, they want to live in San Francisco and commute to their job in Oakland. So his approach is to see how the various components of a neighborhood would work for them.

“Pick Glen Park,” he says. “It is right on a BART line, so if you work elsewhere but want to live in San Francisco, that’s a good compromise.”

Rental Roost pulls the information from databases about school zones, safety, public transit, restaurant locations, and other searchable characteristics, and matches it with information from the home-hunter’s own social media data. For example, the user logs in with their Facebook credentials, and Rental Roost can make more-targeted recommendations. It can tell that if you have a 13-year-old child, for example, you are likely to be interested in a place with a good high school within walking distance; it can find a place that is near those Thai restaurants you like so much. Cow Hollow, for example, doesn’t rate as high as the Financial District or SOMA when it comes to shopping, though it has stronger than average schools.

“Let’s say you were looking to either rent a one bedroom, one bath, or buy that,” says Raghavan, who, along with co-founder Nitin Shingate (attorney Harini Venkatesan is the third), showed the Marina Times how people use this data to find homes. “If you rent, you would pay around $3,100. If you were looking to buy, the home would cost you roughly $510,000.”

He digs into his data, assembling a basis for making a rent-versus-buy decision. “Assume you put in a 5-percent down payment, then assume a mortgage rate of 4.85 percent,” he says. “It really depends on how much you think your home is going to appreciate relative to how much you think your [rent] will increase,” looking over the next 30 years. If the house is just appreciating at the rate of inflation (that’s not as radical as it sounds in these days of price spikes; smooth out the ups and downs over three decades and it becomes less eye-popping), and rent is going up a similar amount, “we found that for your first four years, you’re better off renting. From the fourth year onward, you make more money buying.”

As for a three-bedroom, three-bathroom unit, he says “You’re almost 100 percent of the time better off renting. Once you get to three bed, three bath, the average listing in those neighborhoods [on the City’s north side) is $2.9 million. This assumes your house appreciates at the same pace. But let’s assume house goes up 10 percent — then buying is better.”

“Rental markets tend to be more linear,” Raghavan adds. “The constraint is how much cash there is in the market. If you actually apply real-time home performance, even paying $2.9 million to get 3-bed, 3-bath house is still better.”

Now, what if you’re not the renter but the investor — the owner of rental property? Are you better off owning rental units in an expensive neighborhood such as the Marina or in a less expensive neighborhood like the Tenderloin? “That’s a great question,” says Raghavan. He returns to his database. “Let’s assume the people renting can afford to buy — that’s a bad assumption in itself, but we’re going to pretend you could. Because of the appreciation, it almost always makes sense [to own the rental property in a high-value neighborhood]. If you believe that your house is going to appreciate at least 10 percent, you’re better off owning investment property there and renting it out, because most of the money you’re making is coming from appreciation.” If you believe it’s only going to appreciate at the rate of inflation, you might be better off selling it and buying investment property elsewhere.

What makes the Tenderloin interesting, he adds, is that people who can afford to buy are not looking to buy in the Tenderloin, so most of those who do own property there are investors.

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John Zipperer is the former senior editor of Apartment Finance Today and Affordable Housing Finance. E-mail: [email protected]