When you are selling or buying an investment property, you will come across many real estate terms that are essential to the transaction. However, one term we know is crucial for any real estate investor to understand in order to get the best real estate investments: real estate comps.
Regardless of your level of real estate knowledge, real estate comps is an absolute must for you to know. However, for many beginner real estate investors, it sounds like a complicated matter. Thus, this blog is dedicated to those who are seeking to become the most successful real estate investors. We will be talking about real estate comps in the most simplified manner. Here are the most important aspects we will be discussing:
- What are real estate comps in real estate investing?
- How to use real estate comps to find the best real estate investments?
- How do you find real estate comps for your investments?
What are real estate comps in real estate investing?
Real estate comps (or comparables) is a term that refers to properties that are similar to the one a real estate investor is looking into. These similarities are considered in the size, location, condition of the property as well as other crucial features. In order for you to get a better understanding, we will talk about it from the buyer’s and the seller’s perspective as follows:
The property buyer: For a real estate investor who is looking to buy an investment property, he/she must use real estate comps to decide what price to offer for the seller. This, however, comes in the part where you are negotiating the price with the seller.
Another reason property buyers use real estate comps is to determine whether the price a seller is offering is reasonable. That is, of course, after comparing the property to other similar ones that are listed for sale.
The property seller: On the other hand, real estate investors who are intending to sell their properties, use real estate comparables to decide what price to set based on the current real estate market trends.
What is the importance of real estate comps in real estate investing?
Real estate comparables are VERY important when it comes to buying investment properties. As we said before, comps can determine the success or failure of an investment. Here are the advantages of using real estate comparables:
Lowering investment risks: Knowing how much a property is worth in fair market value will prevent you from overpaying. Therefore, using real estate comps will always help you find the best real estate investments.
Negotiating deals: As you already know, negotiating a deal is part of your real estate investing tasks. Therefore, using comps when negotiating a deal with a property seller will save you the effort of trying to convince the seller as long as you have solid numbers and facts. This way, you are more likely to get what you want out of the deal.
Make more profit: With real estate comparables, you can always determine what properties leave a higher profit margin for you.
Save on property appraisal: Of course, one of the ways to determine the price of a property is a home appraisal. Therefore, regardless of what strategy you are working with, real estate comps will definitely save you the time and cost of getting your home appraised.
How to use real estate comps to find the best real estate investments?
One way to use real estate comparables is to identify profitable investments in real estate. This comes in the form of identifying the right location, timing, property features, and detecting properties that are selling for a decent price. Here is how you use real estate comps to find the best investments:
Use real estate comps to analyze a location:
Well, it is no secret that location plays a major role in determining the profitability of an investment property. That is, especially, if you are trying to price a property whether to sell it or buy it. What you need to understand is that taking a look at the surrounding area is a key element. The location analysis is called the real estate market analysis. This kind of analysis should give you enough real estate comps to understand the market and to learn how to buy real estate property. Still, if you can’t get enough comps to set a price, you can always expand the area of analysis.
Use real estate comps to decide on the right timing:
Real estate transactions require that you perform them with the right timing. That is exactly what real estate comparables help you with. So really, to spot the best real estate investments you should also look at other properties that are listed for sale. This includes current properties for sale and ones that are a bit older. Thus, make sure not to look way back as such properties do not reflect the current market trends. Therefore, with this information, a real estate investor could decide for him/herself whether it is the time to carry on with an investment or not.
Property features are also important!
Another aspect that real estate comps deal with is property features. Now, you might think they’re not as significant as the location or the timing. You are wrong! Since real estate comparables are properties to which you compare the property under question, it is essential that these properties have almost the same features as the one you are looking into. It allows for a better comparison. Therefore, the features that you should take into account are size, the number of bedrooms in addition to any facilities such as a swimming pool.
In analyzing the features of an investment property using real estate comps, you can find the ones that are the most profitable in the location. These will make for the best real estate investments.
How to find real estate comps for your investments?
In real estate, there are three ways of how to get real estate comps. As a real estate investor, especially if you are a beginner, you get to choose. So, here is how to go about finding real estate comps for investment properties:
First: Get a house appraisal
One way of finding real estate comparables is to hire a home appraiser to determine the home value. He/she is a professional who will save you the time and effort of producing real estate comps. However, one thing you should keep in mind: the costs. Hiring a house appraiser will cost you money which will add up to property expenses.
Second: Conducting comparative market analysis aka (real estate market analysis) manually
If you ever ask yourself ‘how to get real estate comps for my neighborhood’, of course, a comparative market analysis is a very traditional way to do it. However, in order to perform it, you will have to conduct investment property analysis first.
Investment property analysis is a type of real estate analysis that deals with the property itself. Therefore, you’ll be able to detect the most important profitability metrics associated with it. These include the capitalization rate, the cash flow, the cash on cash return as well as the return on investment, in general. Only when you are done with it, you will have to perform the real estate market analysis to find real estate comps by address.
Once you have determined the previous, go ahead and perform neighborhood analysis. Use these investment properties as a reference or a basis to which you are going to compare your property. Thus, make sure to take into consideration other factors such as the size and other property features.
Finally, use Mashvisor’s rental property calculator
When we are talking about real estate comps, Mashvisor is the ultimate source. With our rental property calculator, you will be able to save time, effort, and money on trying to come up with comparables. Our calculator takes everything into consideration including all types of real estate analysis. So really, with this amazing tool, you will be able to sit back and get all the necessary comps and analytics you need to find the best real estate investments for your business.
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