New machine learning framework captures neighborhood-specific risks and benefits for investors
Oakland, Calif. – July 13, 2017 – Roofstock, the leading online marketplace for single-family rental home investment, today announced the industry’s first-ever single-family rental ratings index for U.S. neighborhoods, powered by a proprietary algorithm that assesses neighborhood-specific risk.
Understanding the characteristics of a neighborhood is crucial to determining investment appeal. Investors have been grading rental property for years, but the industry has lacked a single consistent scale for side-by-side home comparisons. The new Roofstock Neighborhood Rating solves this by normalizing neighborhood data across markets, enabling buyers to easily compare rental properties on an even footing and make informed decisions.
Additionally, investors need to know what’s happening in their corner of the city. Whereas indexes at MSA, county, or even ZIP code-level don’t provide enough information to make an informed decision, the Roofstock Neighborhood Rating is computed at the census tract level, providing investors with an added layer of localized insight when measuring the risk vs. reward trade-off.
“Roofstock’s innovative approach provides a new level of transparency and data, breaking down the traditional barriers that once existed in the property investment sector,” said Gary Beasley, Chief Executive Officer and Co-Founder, Roofstock. “By compiling information at the U.S. census tract level, including income, crime, schools, property values and the nature of housing stock, our new Neighborhood Ratings index offers all investors access to the most vital information needed to make informed investment decisions.”
Valid inter and intra-market comparisons are central to building a universal SFR neighborhood rating. While the Consumer Price Index (CPI) is commonly used as the basis of comparison for incomes or homes values between areas, CPIs are not true cost-of-living indexes and should not be used for place-to-place comparisons. Two distinct weaknesses of the CPI are the omission of public goods (education, schools, services, low crime rates, etc.) and lack of geographical coverage. The Roofstock Neighborhood Rating uses a novel hierarchical machine learning framework, essentially developing a constant quality standard of living normalization that addresses both of these issues.
By analyzing data across 72,000 U.S. census tracts—each composed of approximately 1,500 homes—the Roofstock Neighborhood Rating algorithm provides a uniform view of neighborhoods nationwide based on dozens of factors, including:
- Home values
- Income levels
- Employment rates
- Educational attainment
- Percent of owner-occupied homes
- Elementary, middle, and high school district ratings
What the ratings mean:
- 5-Star: Very high employment rates. Above average income levels and school district ratings. Newer properties above the average home value and mostly owner-occupied.
- 4-Star: High employment rates. Average income levels and school district ratings. Average home values. Slightly older properties than in 5-Star neighborhoods, but generally high quality and mostly owner-occupied.
- 3-Star: Good employment rates. Slightly below average income, with decent school districts. Home values slightly below average. Properties are a mix of new/old, with slightly more owned than rented.
- 2-Star: Below average employment, income levels, school district ratings and property values. Homes are an equal mix of rented and owned.
- 1-Star: Lowest employment rate compared to higher-rated neighborhoods. Low income levels, school district ratings and home values. Properties are older, with more rented homes than owner-occupied.
Headquartered in Oakland, California, Roofstock is the leading online marketplace for investing in single-family rental homes, with listings in 14 markets across the U.S. The company’s exclusive online marketplace makes purchasing rental property efficient and transparent by offering detailed home and tenant information, local vetted property management options, as well as analytics and general market insights to help investors evaluate and purchase certified properties. The company stands behind its marketplace with a bold 30-day, Money-Back Guarantee. To learn more about the Roofstock Neighborhood Rating index, visit www.roofstock.com/learn/neighborhood-rating.