Comparative market analysis in real estate is a very important term that every real estate investor should be aware of and know how to conduct. Keep reading this blog to understand real estate market analysis and how it helps you purchase the best investment properties in the market.
Comparative Market Analysis: Definition
Comparative market analysis is simply a method used in real estate in order to determine the value of your investment property in the market by comparing it to other similar properties in the same location or area. In other words, it is an examination of the prices of similar properties in a certain area in order to determine the price of a certain property in a specific area. Determining the market value of a certain property helps to get the best deals possible when purchasing investment properties.
Why Comparative Market Analysis is Important for Real Estate Investors
The only fixed fact about the real estate market is that it is changeable; therefore, the value of investment properties is always changing in accordance with the housing market. Real estate comparative market analysis gives real estate investors the opportunity to study the market and analyze it in relation to investment properties’ values and prices.
Performing real estate comparative market analysis is important for real estate investors when selling or buying investment properties. For sellers, comparative market analysis helps them identify a price for their properties that is not too high or lower than what the market provides. This helps sellers in finding buyers easily and selling the property in a timely manner. On the other hand, it is important for buyers to know and understand the value of properties in order to avoid overpaying or missing out on good deals and investments. Therefore, knowing how to conduct comparative market analysis helps you buy the best investment properties.
How to Perform Comparative Market Analysis
Step 1: Assess the Investment Property
As I mentioned previously, comparative market analysis is a process of comparing similar properties in the same area in order to determine the value of a certain property in accordance with the housing market. Therefore, the first step you need to do is assess and analyze the target property in terms of its age, infrastructure, construction material, size and square footage, location, facilities included as part of the property, number of floors, number of rooms, bedrooms and bathrooms and any recent additions or improvements. When you are done measuring these aspects through investment property analysis, you will have the information and data needed to start the comparison process.
Read “How to Value an Investment Property“ to get a detailed idea of how to value investment properties.
Step 2: Identify Properties that Are Comparable to Yours
The second step of comparative market analysis is looking for and identifying properties that are similar to the aspects of your property, located in the same area and have been recently sold. These are known as real estate comparables or real estate comps. Typically, you have to find properties that are similar to yours in terms of its type (single-family apartment, commercial property, residential property), size and square footage, facilities included such as swimming pool, gym, backyard, house garage etc., property’s age and construction conditions. It is advisable to search within 1-4 miles around your area while looking for properties that have been sold in the past six months, and you need to find 3-5 real estate comps.
Step 3: Choose Two Real Estate Comps
After you assess your property and come up with three to five real estate comparables in the same area, now the time has come to choose two comparable properties. It is advisable to choose one that has a slightly greater value than yours and another one that has a lower value compared to yours. The value of your property should be located somewhere between the values of the two properties that you choose.
Step 4: Start the Comparison Process
At this point, you have the data needed to assess your property and the real estate comparables needed. The next step is to start comparing your property to the real estate comps and identify a range of prices that can determine the value of your property in accordance with the housing market value at a specific period of time.
Mashvisor
With Mashvisor, access to real estate comparables has never been easier and it is doable from the comfort of your own house. You just need to choose a specific property to analyze and then Mashvisor will give you access to comparables that match or are similar to yours. While searching, you can choose the size, location or neighborhood, facilities, number of floors and bedrooms, etc. These filters help you find exactly what you are looking for and save your time and efforts.
Mashvisor works on investment property and neighborhood levels through providing data about neighborhoods or properties you are interested in. These data include cash on cash (CoC), occupancy rate and capitalization rate (Cap rate) and other expenses related to the specific property or neighborhood you are looking for. In addition to that, Mashvisor will suggest similar properties in the same area and you have the chance to use google maps to see pictures of the property and the area.
Mashvisor provides real estate investors with the best real estate investing knowledge, services, and tools that help them perform an accurate comparative market analysis. Click here to start using Mashvisor’s comparative market analysis tool and start analyzing investment properties in the US housing market.
Final Words
Knowing what it takes to get the best deals when purchasing or selling investment properties is a key and a start for successful real estate investments. Now that you know how important it is for real estate investors to understand comparative market analysis and also know how to perform it without the need of a professional agent, do not hesitate to use Mashvisor for that matter and much more.