Comparing rental properties across various housing markets is the key to securing a profitable real estate investment. In fact, rental property comparison should be the top priority for any investor who is looking to get into the real estate market. But what exactly is the best way to compare property? How to compare rental properties across the US? And what are some of the real estate investment tools that can help you streamline the process and identify the best rental property in any market? Keep reading as we provide you with a detailed guide on how to compare rental properties in the most efficient way possible.
The Factors You Should Consider When You Compare Rental Properties
Investing in rental property is only profitable if you manage to identify top investments. As a result, you need to take a multifaceted approach when you compare rental properties. Everything from location to projected income should be factored in when looking at rental comps. In any event, here are the variables that you need to take into consideration when you are trying to compare rental properties.
1- Location
You have probably heard this a million times by now, but location is a critical component of real estate investing. Naturally, this is one of the first factors that you should look at when you compare rental properties. The areas in which rental property investments are located have a huge impact on their profitability and long-term viability. While no location is perfect, it is important to weed out the areas that don’t meet the baseline requirements for an investment location. Below are the points you should focus on when you are looking to compare rental properties based on location.
- An ideal location for real estate investments should have a healthy job market and a diverse range of employers.
- The population in the area should be growing at a rate that is preferably higher than the national average.
- The median salary must be on an upward trend.
Related: How to Choose a Real Estate Market to Invest In
2- Neighborhood
After looking at the real estate market as a whole, your focus should shift to neighborhood analysis. When you compare rental properties, you need to look at the various amenities that each neighborhood has. For example, you should strongly consider buying rental property in an area that has many schools, shopping centers, and hospitals. As you would expect, this is paramount for attracting potential tenants to the area. Other factors to consider when looking for a good rental property include the quality of the public transit system and proximity to freeways.
3- Property prices
The most basic way to compare rental properties is to simply look at the price. This is a fairly straightforward comparison. However, the ideal price depends on a myriad of factors. For example, beginner real estate investors might want to opt for affordable rental properties. In fact, a low price means a smaller mortgage and therefore a more manageable monthly payment. This allows for more wiggle room when implementing a rental strategy and increases the likelihood of generating a positive cash flow. Furthermore, you need to look at the area’s cost per square foot to make sure that your income property is not overpriced.
4- Cap rate
Looking at the capitalization rate is a great way to compare rental properties. This is a ratio between the operating income that an investment property generates and its price or value. The great thing about using the cap rate to compare any type of real estate is the fact that it takes into consideration a property’s operating expenses as well as its vacancy rate. This is extremely crucial when it comes to assessing the true yield of rental property within a one-year time frame.
Related: What Is Cap Rate and How to Calculate It? – Infographic
5- Return on investment
Rental property analysis wouldn’t be complete if you didn’t look at the return on investment. For most real estate investors, the rate of return on rental property is the single most important variable. After all, this is the metric that helps you determine how much you are getting for your financial outlay. To calculate the return on investment on a rental property, you simply divide your annual net income by your total investment.
Related: What Is a Good ROI for Real Estate Investments?
As you can see, the process of comparing rental properties can be time-consuming and quite tedious. So is there an app to compare rental properties without requiring too much effort from the user? The answer is yes! The next section will show you how to leverage it to the fullest extent.
How to Compare Rental Properties with Mashvisor
In the past, real estate investors had to rely on a rental comparison spreadsheet to carry out their analysis. Needless to say, this is an outdated approach. In fact, the advent of specialized tools such as the ones that Mashvisor puts at your disposal has streamlined the process of comparing investment properties. These tools can even help you choose between Airbnb vs renting out the traditional way. Here is how you can use them to find the perfect rental property.
- The Heat Map Analysis Tool: This tool allows investors to locate the top-performing areas on a map. Using it will help you pick the best neighborhood to invest in without going through the hassle of analyzing each area separately.
- The Property Finder: Thanks to its AI and machine learning technologies, this powerful tool can find rental properties for sale with a high return on investment that match your criteria in a matter of minutes. Moreover, the listings are sorted in a way that allows you to easily compare rental properties based on listing price, income, and cap rate among many other metrics.
- The Investment Property Calculator: The Mashvisor calculator helps you determine the cash flow, the cap rate, the cash on cash return, and the occupancy rate of each listing. This allows for a fast and effective comparison between multiple investment properties.
The Bottom Line
Comparing rental properties before making a decision is a step that every real estate investor has to take. After all, analyzing every aspect of each potential investment is the only way to ensure making money in real estate.
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