Beginner real estate investors always seem to struggle with deciding where to invest in real estate. Buying an investment property is certainly not a simple task, especially in the context of real estate investing for beginners. The first step towards learning how to invest in real estate, however, is by learning how to conduct comparative market analysis. In this blog, we will try to simply explain one of the most important steps in real estate investing for beginners- conducting comparative market analysis. Are you ready to learn this and start making money in real estate right away? Continue reading!
#1 What is Comparative Market Analysis?
Comparative market analysis is also known as “real estate market analysis.” As the name suggests, real estate market analysis has to deal with investigating the real estate market. Studying the real estate market involves computing various real estate metrics. For instance, when wondering where to invest in real estate and trying to choose the best location, you should compare several places. This is typically done on the basis of numerical data for the specific real estate market. Such data is the median property price in the area as well as the return on investment, cap rate and cash on cash return associated with the location.
Comparative market analysis has another function as well. This is, namely, estimating the fair market value of the property of choice. Establishing the fair market value means to assume the property price based on what a knowledgeable buyer would agree to pay and a knowledgeable seller would agree to sell for if both are not under pressure of buying/selling.
The fair market value is usually estimated through the comparison of the chosen property with real estate comps. Real estate comps are properties which have been recently sold on the local housing market. Additionally, real estate comps are properties with similar characteristics to the one of your interest. This might include living area, number of bedrooms and bathrooms, etc. To learn more about the topic, make sure to visit “Comparative Market Analysis in Real Estate: The Basics.”
Beginner real estate investors might say “OK, that is clear, but what is the purpose of conducting comparative market analysis?”
#2 The Importance of Conducting Comparative Market Analysis
Beginner real estate investors might not be familiar with the purpose and importance of conducting comparative market analysis. For this very reason, we will dig deeper and reveal the benefits of conducting this type of analysis. Let’s begin.
Real estate market analysis might be extremely useful for you to start making money in real estate. As previously mentioned, through conducting comparative market analysis, the real estate investor can obtain important data about the chosen location– return on investment, cash on cash return, cap rate, etc. Based on these parameters, the house investor can find the most profitable neighborhood/city/state to buy a rental property. Besides that, comparative market analysis can be great in helping you establish the purchase or selling price of a rental property. This way you will not overpay for an investment and you will avoid selling your property below its market value. Additionally, knowing the property price helps in establishing the rent you should charge your tenants. This is because the rent is typically between 0.8% and 1.1% of the fair market value of a rental property. To make sure you have all the knowledge you need for this type of analysis, make sure to check out “Become an Expert on Comparative Market Analysis With Our Guide.”
So, how to invest in real estate? Well, in order to learn how to invest in real estate, learn how to conduct comparative market analysis!
#3 How to Conduct Comparative Market Analysis
The first step towards conducting comparative market analysis is gathering data about the local housing market. In order to explore the main characteristics of the local housing market, the real estate investor should firstly compute all the necessary real estate metrics. This is extremely important for finding a market where to invest in real estate and ensuring buying an investment property would be a good decision. There are many online websites, which can provide you with some of the numbers you need. Additionally, you need to know what each metric represents and what the exact formula for calculating it is. The last step, of course, is the actual computation of the numbers.
When we are talking about estimating the market value of a potential income property, there are additional steps to take. You need to begin by exploring the real estate comps with which to compare your property. They need to have similar characteristics, to be sold not longer than six months ago and to be in a three mile radius from your property of choice. After you have gathered this information, it is time to establish the fair market value of your selected investment. In order to learn how to conduct the analysis step by step, please read “How To Do Comparative Market Analysis Step by Step.”
#4 The Real Estate Investment Calculator
Sure enough, conducting comparative market analysis is an extremely hard and long process, especially when we are talking about real estate investing for beginners. That is why, you can use the help of different real estate market analysis tools. One of these real estate market analysis tools is the real estate investment calculator. This tool computes in no time all the numbers you might need. Such are return on investment, cap rate, cash on cash return, etc.
Mashvisor’s real estate investment calculator has other benefits for choosing and buying an investment property as well. The tool provides you with detailed neighborhood analysis and property analysis. The latter is extremely important to begin making money in real estate. Besides conducting comparative market analysis, the tool is very useful for conducting investment property analysis as well. So it is definitely worth checking out. To learn more about our product, click here.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
