How would a real estate investor, build a system that replaces the system that Growth Maps has developed? There are two steps. Step one involves building new real estate technology and new real estate maps. Step two involves building your own real estate forecasts models.
The total cost of building a system to find the top local markets in all of the Unites States include: Buying and compiling all local Census Block Group and Census Track datasets. Total cost varies between $30,000 and $300,000 PER YEAR, depending how often the data is updated, data quality, and data types. Buying GIS software, so you can make sense, once you have compiled over a years’ worth of the above datasets. Developing the customized query system so that you can query your database to display these datasets in real time. Cost estimate of $5,000 – $250,000.
Developing the customized query system to filter the datasets and create multiple spatial sub-tables. Cost estimate of $5,000 – $250,000. The table below illustrates these points in more detail.
Step 2: Build your own Real Estate Forecasts Models
Hiring smart PhDs and developing an accurate 24-Month Block Group forecasting system. Cost of development will vary, general rule of thumb is 3 times the costs of building a quality national AVM.
Of the 3 main AVM s that are used today, their cost to build was roughly $1,000,000 and took over 6 months to build.
So do the math.
Then you need to get all the real estate listing and property data fed into your model. The cost for this can vary from $50/county/mo. or (50 * 3,000* 12) roughly $1,800,000 per year. Note, there are less expensive ways to get this data, like scrapping, so the final total cost will vary. Thus the total cost to replace ranges from: $3,026,000 to $4,900,000 You can consider saving the $3,000,000, and one might think, let’s just use the Case-Shiller model which covers 400 of the 3,000 counties and 4,000 of the 41,000 zip codes for cost vary from $250 to $6,000 per year, but this begs the question, what about the other 2,600 counties and 36,000 Zip Codes?
The missing data and Case-Shillers real estate forecasts (also re-branded as Moody’s and Core Logic) real accuracy at the Block Group level……
The easiest way to evaluate metro market forecasts is to assume they are 100% accurate, and compare this accuracy with a local block group forecasts. So let’s say a 24-month national and metro market forecast were 100% accurate, how accurate, or what would the typical variance be at the local level.
Let’s look at the math.
For a national level, comparing 1 forecast to 209,000 Block Group Forecast: Nation 100% accurate, Block Group forecast range from (-50% to + 100%).
What does this mean? This means that even if the nation 24-month forecast was 100% accurate and flat, that some of the 209,000 Block Groups will decline in value by 50%, and some will double in value in the same time period. For metro markets forecasts, the math is similar, and typically off by over 20% or more. For more info you can read some old press releases about this at: Emailwire – Silicon Valley. Emailwire – SFSU MBA
Why this is, and why city or metro markets or market forecasts are flawed is not super intuitive, so let me explain and the see the facts as the facts. Do you think that your income, or age, or about anything about you or where you live is exactly the same as the median to your city? So what if the average income in city X is Y, what matters is local, not macro. Another way to look at this, is look at a deck of cards.
There are 52 cards in a deck, and the average number is what? With aces as 11, the average number is 7.214. Keeping it simple and say 7. How many times when you turn the 52 cards will you the median be accurate and show up? Of the 52 times, how many times with the number 7 show up??? When you look at the math, it is actually more illogical to assume the median of a large set is accurate. Since we know this, and the math proves it, this is one core reason why we have always focused on the LOCAL.
Only those with no skin in the game or just advertising stuff, or get revenues from mainly advertising, talk about the macro or city data.
For more information, watch our free demo video on our homepage, and download your FREE eBook titled: “What’s Next for Commercial Real Estate Technology: Leveraging Technology and Local Analytics to Grow Your Commercial Real Estate Business” at http://growth-maps.com/free-ebook/
Your comments are most welcome, and I appreciate your feedback.