How Rental Property Investors Can Use Zillow for Investment Success

Source: Zillow listing as of August 2022

Rental property investors can use Zillow to help them find and assess potential investment properties. Investors can make well-informed decisions about where to invest their money by looking at various property data points.

In addition, Zillow offers several tools and features that can be helpful for real estate investors—mortgage calculator, rent estimates, neighborhood insights, and more.

So, whether you’re a young real estate investor or a mogul looking to review Zillow’s abilities, let's take a look at the top three things you can do on the platform to leverage its tools.

How Investors Can Use Zillow for Investment Success

Many real estate investment groups look to the popular rental listing service, as it allows you to do three key things: find comparable sales data, estimate potential rental income, and get an accurate mortgage payment estimate.

Here’s how to get the most out of Zillow:

1. Use Zillow to find comparable real estate market data.

Comparable sales data tells you the sales price of similar properties in the past, giving you a good idea of how much you can offer on a home and avoiding overpaying for one. Zillow simplifies finding comparable sales data by providing a "Recently Sold" filter. Still, you can filter by ZIP code, square footage, and other home features to get as close as possible to the home you want to compare.

Here’s how you can do it:

And here are some tips on finding real estate comps. Limit your search to homes that are:

• - Location: Less than half a mile away
• - Time: Sold in the past three to six months
• - Property Size: Within 300 square feet of your home’s size
• - Property Price: Has the same price per square foot
• - Property Age: Built around the same year as your home
• - Home Size: With the same number of rooms and bathrooms
• - Home Condition: Has the same renovations and updates

The more you stick to these criteria, the more accurate your comps will be.

2. Use Zillow to estimate potential rental income.

Zillow's "Rent Zestimate" tool can help you estimate what your property could rent for. Just enter some basic information about your property, and Zillow will provide you with a monthly rent estimate, helping you determine if a property is worth the money (Hint: refer to the 1% Rule[1] ).

This is what the results look like after hitting enter:

Alternatively, you can also just check the Zestimates of your comps to have an indication of the rent you can expect. The only challenge is that Zillow, or any computer program for that matter, can’t compare cosmetic finishes and details. At some point, you’ll want to compare any posted pics to see if a comparable property has recently been renovated or is in need of one!

Follow the instructions in the earlier section, pick one of the homes, and scroll down:

Here are some tips on figuring out the ROI based on your rental income:

1. 1. Calculate your annual rental income (Zestimate multiplied by 12)
2. 2. Figure out your cash flow by subtracting expenses (upfront and monthly) from the rent income
3. 3. Calculate your net income by adding equity build to your cash flow
4. 4. Divide your net income by the total investment to arrive at your rental property ROI

Moreover, check real estate market trends for local supply and demand. The higher the rental demand in the area, the more you can steer toward the higher end of the spectrum and generate more returns.

3. Use Zillow to get a mortgage estimate.

Lastly, if you're thinking about financing your investment property, Zillow's mortgage rental property calculator can give you a good idea of what you can expect to pay in interest and monthly payments. Simply enter the price of the home, down payment, loan term, and interest rate to get started.

Here’s what the calculator looks like:

You can also input more details including PMI, taxes and insurance, and HOA dues for an even more accurate estimation of your monthly payments. That way, you can quickly know how much you can afford.

Here are some additional tips when trying to finance your investment property:

• - Make a sizable down payment so you have more skin in the game while providing the bank with greater security against losing the investment. Plus, making a 20% to 25% down payment may qualify for a better interest rate.
• - Be a strong borrower with an excellent credit score (higher than a score of 740 so there’s no additional fee to maintain the interest rate) and the loan-to-value ratio. And have reserves in the bank to pay for personal and investment-related expenses for at least six months.
• - Consider a local bank or broker if your down payment isn’t as big as it should be, or if you have other extenuating circumstances. They’ll have more flexibility and knowledge about the local market. Just ensure that you do your due diligence before working with one.
• - Ask for owner financing to show that you’re serious about the transaction and ready to make a deal based on the accurate assumptions you’ve presented. Doing this is now more acceptable since credit has tightened and the standards for borrowing have increased.
• - Dip into your home equity if you have a significant amount of it in your primary residence or other investment properties. You can tap into it with a home equity loan, home equity line of credit (HELOC), cash-out refinance, or creative routes like peer-to-peer lending and life insurance.

Following these tips will increase your chance of success, minimizing any risk of depleting your funds before you even start to generate cash flow and gain equity on the property.

Leveraging Online Platforms

In addition to the three things we've covered here, there are plenty of other ways you can use Zillow to help with investing in rental properties. Be sure to explore all of the features and tools that Zillow has to offer so that you can make the most informed decisions possible about your real estate business.

And if you need more help, our inbox is always open for investors looking to get into the Metro Detroit real estate market.

Our has been operating in the area for more than two decades and has helped hundreds of investors get their slice of the lucrative market.