Getting rich is usually the motive behind becoming a real estate investor. Undeniably, there’s money to be had in the craft. However, the road to gold starts with learning about real estate topics, such as conducting a real estate market analysis. Investment property analysis is one of the first things beginner real estate investors need to learn. You may also see data analysis examples.
It is not a very complicated process, and with the right guidance, you will be able to fully understand what it takes to perform a real estate market analysis when selling or buying an investment property. Let’s start with defining and understanding what it is. You may also see functional behavioral analysis.
Real estate market analysis, also known as comparative market analysis or CMA, is the process in which a property’s value is determined based on the real estate market’s value of similar properties (or real estate comps) in the same geographical area. These comps also have to be recently sold properties or at least listed for sale. You may also see purpose and elements of a situation analysis.
It is worth mentioning that real estate comps should be between 1 to 3 miles away from the investment property in question. In addition, when conducting a real estate market analysis, you should only consider properties sold within 3 to 6 months. Usually, no less than three properties are used for comparison.
The real estate market analysis is considered one of the most essential steps for professional and beginner real estate investors alike because it helps them determine the estimated value of the income property that they are willing to buy, sell, or rent out. You may also see product analysis examples.
Investment property analysis is a great tool if you want to understand the current housing market state and how much investment properties similar to yours are worth. So if you are looking to rent out your property, a market analysis will help you identify the exact fair amount which you can charge your future renters for their monthly rent.
It is worth mentioning that the rent is usually between 0.8% and 1.1% of the house’s value. Investment property analysis is crucial in determining the listing price of your real estate property. By comparing your investment property to similar properties on the housing market, you can easily put a price on your rental property. You may also see even cost analysis examples.
This can help you make sure that your prices remain competitive without being absurdly expensive, or impossibly cheap. By knowing how much your competitors are offering for their real estate, you will have a standard that you can use to estimate how much you will ask for your property. You might also be interested in quantitative analysis.
However, it’s important to remember that current real estate market listings aren’t 100% correct, as they are perpetually subjected to estimation. It is also worth mentioning that the seller’s market goes for the highest prices, while the buyer’s market decides on the lowest prices when it comes to investment properties values. You may also see perform break even analysis.
Investing in real estate requires a certain knowledge of the real estate investor’s local housing market. As a property seller, a property buyer, or a landlord, paying attention to investment properties similar to your subject property in the same area can be very helpful and will provide you with realistic data on what to expect when renting your property, making an offer on a property, or listing your house on the market. You might also be interested in gap analysis.
So how do you perform a real estate market analysis?
Location is one of the biggest aspects in the world of real estate investments. Never forget that every property’s worth is affected by its location. In the case of investment property analysis, location is important due to two reasons: First, performing real estate market analysis requires that the property in question be compared to other similar properties located in the same area. You may also see policy analysis examples.
Second, the property should be located in an attractive area to be of great value. That is not to say that location is the only thing that matters when investing in a property, but it definitely is one of the most important features. For example, a house that is close to public transportation, schools, business centers, main roads, and public facilities is for sure a very hot investment in your local housing market.
To know an estimated value for that house, you need to compare it to investment properties located in the same or similar areas and were sold in the last six months or listed on the real estate market. As important as the location of an investment property is, it is not the only thing to take into consideration when conducting a real estate market analysis. There is another important feature in every investment property analysis. You may also see market analysis demand and supply.
Any buyer looking to invest in a property takes into consideration major characteristics that determine whether the investment property is worth the money or not. The property seller also looks into these characteristics in a property to decide on its price: square footage, house age, and the number of floors, bedrooms, and bathrooms. You can also take a look at earned value analysis.
Performing a real estate market analysis also includes looking into amenities, like pools, fireplaces, a central heating system, and so on. It is also important to make note of all the recent improvements done to the house, if there are any, as they play a role in making the house look more appealing to buyers. You can also check out competitive analysis.
After that, look into houses with similar characteristics. For example, comparing your pool-less house to one that has a big pool will not be sufficient since your house will prove less worthy. The same thing applies to the age of the house. You need to find real estate comps that were built in the same era. You may also see customer profitability analysis.
Comparing a property built in the 2000s to one that was built in the 1950s, even if they have the same number of rooms and floors, is just not right. First of all, the strength of the materials used for each property has many years of difference between them. For all we know, the older house is already falling apart from the inside. You may also see feasibility analysis examples.
So as much as possible, stick with properties that are similar in many ways. After comparing your property to similar ones in the same area currently on the market or sold recently, you can then determine when your property fits within the range of prices. You may also see customer analysis examples.
There are two main non-physical characteristics that are also taken into consideration during a real estate market analysis: vacancy rate and price per square foot.
Comparing your investment property to other similar properties allows you to have an idea about the vacancy rate of these properties and how it affects the rental income, for example. It also helps you decide on a monthly rental income through the comparison of the other properties’ rents by month. Also check out sales analysis.
It is important to know that the price varies depending on the square foot. If two real estate properties are different in size, the bigger property’s price by square foot will be less than the smaller property. You may also see investment analysis examples.
While performing real estate market analysis, you will notice that not all real estate comps are exactly the same. Sometimes, most of the characteristics match but for one or two. Make sure you jot them down during your investment property analysis in order to calculate. For example, if your investment property has four bedrooms, and a comp has three, then you have to add the additional bedroom’s value to the estimated value of your real estate property to have a more precise evaluation. You may also see job analysis examples.
For example, a couple might be considering writing an offer on a four-bedroom, three-bathroom, 2,100-square-foot, single-family home on a quarter acre of land. The house is listed for sale at $300,000. The couple’s real estate agent performs a market analysis and locates three similar properties that recently sold in the same subdivision. You may also see requirements analysis.
The first is identical in every way to the subject property except that it is located on a busy road. It recently sold for $275,000. The second has four bedrooms, three bathrooms, and is located on a quarter acre of land but is 2,400 square feet because it also includes a screened-in porch. It sold for $315,000. Here are more free analysis examples.
The third has four bedrooms, is located on a quarter acre of land, and is 2,100 square feet, but it only has two bathrooms, both of which are outdated. It sold for $265,000. Based on the differences in the properties examined in the market analysis, the real estate agent determines that $300,000 is a fair listing price. Her clients decide to offer $290,000 in the hope of negotiating with the sellers to purchase the property at $295,000. Take a look at business systems analysis.
Getting rich by investing in real estate is not a pipe dream. In fact, it is very likely to happen with the right knowledge and management. Real estate market analysis is one of the things beginner real estate investors need to enrich themselves with in order to set their first steps in the field of real estate investments. You might also be interested in product gap analysis.