Conducting research and market analysis in real estate is essential to becoming a successful investor, helping you find the right investment.
Investing in real estate is one of the best ways to earn gainful returns, diversify your portfolio, and minimize your risk. Unlike stock market investments, a real estate investment provides protection against inflation. And since most real estate investments are tangible assets, they are typically less risky than stocks and most other forms of investment.
Table of Contents
- What Is a Market Analysis in Real Estate and Why Is It Important?
- What to Include in a Market Analysis for Real Estate
- How to Get an Accurate Market Analysis in US Real Estate
However, while real estate investing can be lucrative, not all real estate markets and properties provide profitable opportunities. That is why it’s important to perform thorough research and conduct proper analysis before deciding to buy any investment property. It is a crucial process that can help become successful in real estate.
Remember that the location where you invest can either make or break your profitability. Choose the right investment location depending on your preferred rental strategy. Note that some markets will not provide profitable returns because they are not as optimal for investing in rental properties as others.
A thorough market research and analysis can help evaluate the investment opportunities in a particular market. It can also help you find out if a specific real estate market will be a good location for your chosen investment strategy.
This guide will teach you how to perform effective market analysis to find the right investment. We’ll also discuss the best tools that can help you evaluate different markets efficiently.
What Is a Market Analysis in Real Estate and Why Is It Important?
A thorough examination of the real estate market is a crucial resource for investors, enabling them to gain an understanding of the targeted investment market. It encompasses a comprehensive exploration of market patterns. A deep understanding of real estate market trends offers invaluable perspectives into property valuations, rental demand, rental earnings, occupancy rates, and other related factors.
To put it concisely, a rental market analysis involves evaluating the current conditions of the real estate market within a particular locality. Conducting a rental market analysis involves a comprehensive examination of numerous factors to accurately assess the market’s state. The factors include (but are not limited to) the following:
- Current inventory of available properties
- Recent sales data
- Average home values
- Average days on market
- Economic conditions
- Demographic trends
- Historical data
- Rental demands
- Neighborhood comparables
Why Should Investors Conduct Market Analysis in Real Estate?
As an investor, it is advisable to conduct a comprehensive analysis of the real estate market consistently, particularly when considering the purchase of a property for rental investment.
Engaging in such practice helps you understand the prevailing market conditions. It also allows you to assess the valuation and profitability of comparable properties. By doing so, you can make well-informed decisions and identify the most suitable investment property to acquire.
As an investor, you should always perform a real estate market analysis, especially if you are planning to buy a property for rental investment.
In general, the goal of a market analysis is to provide a clear understanding of the market dynamics and trends in a specific area. It helps real estate investors make informed decisions that are based on actual figures and what’s currently happening in the market—not just on mere speculations.
Performing a market analysis holds significance as it aids in assessing the suitability of a specific area for real estate investment. Through the examination of data on property valuations, rental rates, and market demand, one can ascertain the potential for a lucrative return on investment. The said analytical process empowers individuals to make informed judgments.
Similarly, a market analysis can also help you determine if the property for sale is priced reasonably. By analyzing data on recent sales, days on market, and current inventory, you’ll be able to identify the optimal sales price for the property. It gives you room for negotiation so you can maximize your profit margin.
How Can a Real Estate Market Analysis Be Used?
Market analysis in real estate can be used in a variety of ways, including:
- Making Investment Decisions: As an investor, the best way to use a market analysis is to identify areas with high potential for a profitable return. When done correctly, market analysis can help you make an informed investment decision.
- Conducting Property Valuation: You can also use market analysis in real estate to determine the value of a property and whether or not the listing price is reasonable. It can help you find the right investment that meets your budget and is also worth the price.
- Planning a Marketing Strategy: You can also use market analysis to establish a targeted marketing strategy that attracts potential renters. For example, if your analysis shows that the area is best for families with kids as it’s near excellent schools, you can use it when marketing the property.
Benefits of Performing Rental Market Analysis
If you’re considering buying either long term or short term rentals for sale, conducting a real estate market analysis is vital to help you make an informed decision. There are several benefits to conducting a rental analysis, such as:
1. Identify the Best Locations
Conducting a thorough analysis of the real estate market can greatly assist you in pinpointing the ideal areas for rental properties. Such an assessment can prove invaluable, particularly if you are finding the best short term rental markets. By delving into a comprehensive short term rental analysis, you gain valuable insights into which locations experience high demand.
Market analysis can also help you find the best markets for long term rentals should you wish to venture into the said investment strategy. By analyzing data on population growth, employment rates, and other demographic factors, you can determine the best areas where long term rental demand is high.
2. Determine Rental Rates
A market analysis can help you determine the best rental rates for specific properties in a particular area, helping you maximize your income-earning potential. By looking at data on average rents for similar properties, you can set competitive rental rates that attract tenants while maximizing your profits.
Setting the right rental rates is extremely important if you invest in short term rentals, where rates should fluctuate based on seasonality and vacation rental demand. A thorough market analysis is crucial for using dynamic pricing in short term rentals.
3. Estimate Operating Expenses
Before you decide to buy a particular investment property, you need to identify the potential income and expenses associated with owning and operating the rental property. By being able to estimate the operating expenses, you will get a general idea of how much the investment will cost you in the long run.
Make sure to find out all expenses involved in owning the property and running the rental business, such as property taxes, insurance, utilities, and maintenance costs. It helps you identify if a specific property will make a good investment or not.
4. Evaluate Potential Returns
By analyzing the real estate data on property values and rental rates, you can estimate the potential return on investment for a specific income property. Also, once you find the expenses, you can easily evaluate your potential returns. Depending on the rental estimate from the rental comps analysis that you made, you can identify which properties will be profitable.
5. Mitigate Risks
Conducting a thorough examination of the real estate market offers a valuable advantage in identifying potential hazards linked to a specific property or area. It is crucial to remain vigilant for specific warning signs, such as notable rates of unoccupied properties or a dwindling population. By understanding such risks, you can reduce your vulnerability accordingly.
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What to Include in a Market Analysis for Real Estate
Performing market analysis is such a huge task—especially if the market that you are analyzing is also large. However, it is not impossible to do. With the right knowledge, tools, and resources on how to get started, you can conduct your own real estate market analysis to find the best real estate investment. But first, you need to know what information you need to include.
A comprehensive market analysis can help you determine the current market condition that you are evaluating, as well as predict future trends. The said factors are crucial in helping you make the right investment decision and find the most profitable rental investment.
Here are some of the things to include in a market analysis for real estate:
Understanding the demographics of a particular area is crucial because it helps you determine whether there is sufficient demand for rentals from the current population. When performing a market analysis, you should research the age, income, education level, family status, and employment demographics in the area. They can affect the housing demand in the market.
2. Rental Supply and Demand
You should also analyze the current supply and demand of rental properties in the area. It will give you an idea of how many homes are available for rent and how frequently or quickly they are being rented out. You can use the information to determine if there is sufficient demand in the area for all rental property owners—including you, should you decide to invest there.
3. Property Types
Taking into account the different property types in the area, such as single family homes, condos, or multifamily properties, can help you determine the best property type for rentals. Also, be sure to find out the number of rental properties for each type, what their occupancy rates are, and how they are generally performing in the market.
4. Rental Market Trends
When you conduct your research, make sure to include the historical rental data and current market trends in the area. It includes analyzing data on property values, rental rates, rental demand, and occupancy rates over time. The said information is essential so you can determine if the market is stable, growing, or declining.
5. Neighborhood Amenities
Don’t forget to study the neighborhood qualities and amenities because they can greatly impact the value of your rental property. Check for amenities like the availability of public transportation, proximity to shopping centers and dining options, and the presence of schools. Also, consider locations that are near recreational facilities like parks, lakes, and beaches.
6. Rental Competition
Make sure to also analyze your potential competition in the area, including the number of rental properties with the same type, size, and features as yours. It will help you determine how much competition you’ll face as a rental property owner. By knowing how they perform in the market, you can also strategize how to position your rental to help you stand out.
7. Economic Factors
You also need to consider economic factors when conducting a real estate market analysis, such as the local job market, unemployment rates, and economic growth. Such factors can affect the demand for housing in the area and affect the rental rates. If you plan to buy vacation rentals for sale, watch out for factors that affect the tourism industry.
8. Local Regulations
Don’t forget to research the local regulations and zoning laws that may impact the real estate market. You must learn about building codes, property taxes, and any other laws that may affect the value of a property. If you invest in short term rentals, make sure that the favorable short term rental regulations are favorable.
How to Get an Accurate Market Analysis in US Real Estate
As mentioned, it’s possible for you to conduct your own research and real estate analysis; however, doing it manually may not be efficient. Aside from being time-consuming, manual research and analysis are also highly prone to error. You do not want to risk getting an inaccurate evaluation as it may lead to wrong decisions.
The best way to get a reliable market analysis in US real estate is by using a reliable estate analytics platform—Mashvisor. Mashvisor provides the necessary tools to help you find the best market to invest in according to your chosen investment strategy. And with Mashvisor’s Market Finder tool, you can easily identify the best real estate market for investing in rentals.
What Is Market Finder and How Does It Work?
Market Finder is a tool that helps you find the best location for real estate investing. It provides a bird’s eye view of the entire US housing market, so you can easily determine which market is optimal for your chosen investment strategy. With the tool, you can identify the hottest markets with the best investment opportunities.
Market Finder provides the top markets for investing based on your preferred rental strategy. All you need to do is explore the top US markets to see the top ten locations based on the Mashmeter score, rental income, cap rate, or crime rate. Alternatively, you can also select your preferred state to see the top markets based on the mentioned criteria.
You can easily zoom in on areas until you determine the most optimal neighborhoods for investing. You can add more filters by clicking the Filters link above the map, then select the property type, monthly revenue, occupancy rate, cap rate, and home value. Also, you can set the Mashmeter score, crime and safety, school rankings, and regulatory assessment.
Using the Heatmap to Find the Right Investment Property
To help you find the best market to invest in, as well as the best investment property to buy, you can go to the Map search and select your custom filters. The heatmap tool can help you determine the best areas that match your criteria based on:
- Cash on cash return for short term rentals
- Cash on cash return for long term rentals
- Short term rental income
- Long term rental income
- Listing price
- Short term rental occupancy rate
You can also set your filters by clicking the More filters link on the top-right corner of the page to find a for-sale property that meets your requirements. The filters include:
- Number of bedrooms
- Number of bathrooms
- Rental income for long term and short term strategies
- Year built
- Property size in square feet
- Property type
- Property status
From the results on the right, you can then select the property that interests you, and it will lead you to a property analysis page where you can evaluate the property’s profitability.
Don’t miss out on the opportunity to find the best investment property. Start your 7-day free trial with Mashvisor today.
Perform a Comprehensive Real Estate Market Analysis
Market analysis in real estate is a critical tool that provides valuable insights into the local real estate market and helps investors make informed decisions. Without a comprehensive understanding of the local market, it can be difficult to make the right business decisions that can lead to profitability and success.
Performing a thorough real estate market analysis will also put you at an advantage when renting out your property. It allows you to understand how your competition performs in the market, letting you position your investment to stay ahead of the game and stand out from the rest.
To help you conduct an efficient market analysis, it’s best to use effective tools like Mashvisor’s Market Finder. Besides helping you find the best rental market to invest in, Mashvisor can also help you search for the best property available for sale that matches your preferences. Moreover, it also offers thorough property analysis, not just analytics about the market.
Schedule a demo today to find out how Mashvisor can help set you up for success.