Real Estate AnalysisWhy Is Real Estate Market Analysis So Important? by Hamza Abdul-Samad July 16, 2017February 4, 2019 by Hamza Abdul-Samad July 16, 2017February 4, 2019Quick question: How do real estate investors find out an investment property’s price and value? The answer: real estate analysis.What is a Real Estate Analysis?Real estate analysis, also known as comparative market analysis (CMA), studies investment properties in a housing market to determine its value. Sounds similar to a real estate appraisal, right? While a CMA and appraisal may sound similar, there are some differences to note. For instance, a CMA is usually performed by a broker, and an appraisal by an appraiser. Also, a CMA is normally conducted free of charge. Appraisals are typically performed when the financing of the property is in question. A comparative market analysis, which will we now cover, deals with something else.Related: What are the Main Property Valuation Methods?Why is a Real Estate Analysis So Important?There are three main reasons why a real estate analysis is important. For starters, as already mentioned, a real estate analysis helps you determine the value of an income property. How on earth can you do anything in real estate without knowing a property’s value?Once you’ve purchased a rental property, your goal is to rent it out to tenants and make some rental income. The home’s rental income is contingent upon the property’s current worth. In other words, real estate analysis lets you know how much rent to charge. Depending on the property’s value, you can take a percentage ranging from 0.8% to 1.1%. If the property’s value is on the cheaper side, the percentage will lean towards the 1.1%. If the property is $350,000 or more, the percentage will be around 0.8%.Related: How to Set the Right Rent Price for Your Investment PropertyReal estate isn’t just about renting out properties; many investors opt for buying and selling to make a profit. For that reason, a comparative market analysis is necessary. By finding the property’s value, you are able to set a listing price for the property.Long story short, CMA is a vital part in real estate for finding value, charging fair rent, and setting listing prices.How to Conduct a Real Estate Analysis?Here’s a hint as to how a CMA is conducted, think of what the ‘C’ stands for.A comparative market analysis is performed by comparing similar properties that were recently sold (6 months is typically the latest) to the subject property. The analysis compares the properties based on many factors. Since no two properties are exactly alike, there are some adjustments made in the analysis.It is normally always recommended to consult a professional to perform a real estate analysis. Doing so will save you time and mistakes won’t be as likely. Still, if you are interested, check out this blog post entirely dedicated to the subject.What Factors Influence Comparable Selections?Comparable selections, or comps, are essential to the success of a real estate analysis. Here are the general features to look out for.Related: Everything to Know About Real Estate Comps and How to Find ThemLocationYou’ve heard it a billion times, and now you’re about to hear it one more time: location, location, location. There is a positive correlation between location and the value of a property. Location is the most important factor when dealing with rental properties. So, it should come as no surprise that location is a comp’s most significant feature. It’s best if the comps are in the same subdivision as the subject property. If not, then you will need to scope the broader neighborhood and larger area. Generally, finding comps in similar areas and subdivisions is the way to go. From there, you can gather all the necessary information from various comps.Property FeaturesSecond in line is property features; the number of bedrooms and bathrooms, for instance, is one of the first things to look for when searching for comps. Square footage is another vital feature. The type of investment property you want to compare with is also important. Is it a townhouse? A single-family home or a condo? Whatever the answer is, you will need to find out the type of your property and the comps. There are plenty of other features to think about, but how can you sort them out? Use Mashvisor’s comps and you will be able to filter out your desired features. Mashvisor makes your life a tad easier when deciphering the features for any property across America.Data The physical aspects of a comp, like location and bedrooms, are not the only things we are concerned with: the comp’s data is also compared. One example is vacancy rates. By comparing vacancies, you will get an idea of how often vacancies could impact your property. You can also compare the rent charged among similar properties. If you plan to renovate the property and add more amenities than the comps, you can get a baseline of how much rent to charge. Another helpful piece of data is the price per square foot, something that may be relatively constant among comps.What About Adjustments?The last, and definitely not least, consideration of a real estate analysis is adjustments. Why adjust the comps? Well, it’s most likely that your property and its three or four comps are not clones of each other.A great example of adjusting for comps differences is in the number of bedrooms or bathrooms. Let’s say that our subject property is a single-family home with three bedrooms. One of the comps is another single-family home in the same subdivision, but it has two bedrooms. Aside from this difference, the properties are virtually the same. How do we account for this difference? The answer lies in basic math.The value of the two-bedroomed house must be found, along with the values of the individual bedrooms. Then, you add the value of a bedroom to the estimated value of the subject property. Real-world examples may not be a piece of cake such as this one, but the idea is still relevant.For more info on the real value behind real estate analysis and real estate comps, check out Mashvisor! Start Your Investment Property Search! START FREE TRIAL CMALocationProperty ValuationReal Estate CompsReal Estate Data 0FacebookTwitterGoogle +PinterestLinkedin Hamza Abdul-SamadHamza is a long-time writer at Mashvisor. With a focus on real estate investing tips, concepts, and top investing locations, he aims to help all aspiring investors who come across his blogs to hit the bank with their investment property. Previous Post Multi Family Real Estate Investing: Debunking the Myths Next Post What Are the Best Ways to Make Money in Commercial Real Estate for Rent? Related Posts How to Buy Multiple Rental Properties in a Single Year How To Find An Investment Property Using Analytics What You Need to Know About Home Appraisal Joshua Tree Real Estate Properties: Should You Invest? Learn How to Do Heat Map Analysis to Buy the Best Real Estate Investments How Can You Recognize the Best Real Estate Investing Opportunities Out There? 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