The term “real estate comps” is often used by investors when analyzing their strategy. But what exactly are comps, and why are they important?
Table of Contents
- What Are Real Estate Comps?
- What Data Should You Include in Your Comps?
- Why Do Real Estate Investors Need Comps?
- How Can You Get Access to Real Estate Comps?
- Final Thoughts
In real estate investing, the success or failure of your investment depends on your ability to make the right decision when faced with a large number of options.
One of the most intimidating aspects that scare people away from investing in real estate is this.
There are plenty of real estate properties for sale around us at all times, which makes it harder for us to know that the one we choose to buy is the best option that is available to us.
So how do successful investors decide which property fits their investment goals or strategy, or which investment property will yield the biggest returns in the long run?
This is where real estate comps are used.
Without further ado, let’s jump into the topic of real estate comps and everything that you need to know about them.
What Are Comps in Real Estate?
The term real estate comps comes from “comparable sales”.
Comps real estate analysis is a technique that involves comparing recently sold properties to determine the market value of similar properties that you’re interested in buying.
By using the principle of substitution, a real estate comp analysis can ultimately tell you what a specific investment property is worth.
Of course, there are multiple types of comps for different types of investment strategies.
Real estate rental comps, for example, are used for analyzing traditional or Airbnb rental properties to determine their value and potential future returns.
The most important aspect when it comes to real estate comps is that the properties that you’re comparing should be similar to the ones you want to purchase.
What Determines Similarity?
For comps, real estate properties must be similar but not necessarily identical when it comes to their type and size.
This is further varied by the investment strategy that you’re using.
If you’re doing comps for a fixer-upper investment, for example, then certain details will be more important than others, like the age of the property and its condition.
Generally, however, comps will compare properties that are similar in terms of the number of bedrooms and bathrooms, lot size, construction and design, and any other notable features.
More importantly, there are specific aspects that must be nearly identical, such as the location.
Since markets vary greatly in terms of their median prices, rental rates, and other conditions, real estate comps can only be used for comparing properties within the same market down to the neighborhood level.
What Data Should You Include in Your Real Estate Comps?
When preparing for a comp analysis, any data that you can gather about the market and properties in it will be useful.
Naturally, the first data that you will need is the information that you know about the investment property or properties that you’re considering buying.
Since you’re comparing them to other similar properties, you will also need to gather data on recently sold properties or historical data related to the type of investment you want to make.
For example, if you’re doing an analysis involving real estate rental comps, then you will need to gather data about the rental income that each property in the area has had in the past—if any is available.
So, let’s take a look at each type of data and how you can use it.
Data About Your Ideal Property
Whether you’ve found a property that you like, or you just have an idea of what you would like to find, the characteristics of this property will be the focal point of your comparative analysis.
This data will act as a standard with which you will be comparing other properties.
If the purpose of your comp analysis is to determine the market value of the property, for example, then you will be comparing the prices of recently sold properties with the price of the property you have in mind.
Data About Recently Sold Properties
Recent property sales can be challenging to access.
Most investors will usually rely on a real estate agent to provide them with the data, although at a cost.
Generally, the data that you’re looking for here varies based on your need.
But you will need to gather as much information as possible about properties that were sold in the past X amount of time, as well as the characteristics of each property.
This means that you will probably end up with a large list of recent sales, and you will have to manually sort through them to eliminate ones that don’t match the characteristics.
If you have them in an Excel sheet, this is relatively easy to do by using filters and algorithms.
However, it is not a simple task, and it can be overwhelming for beginner investors.
Luckily, at the end of this article, I will talk about a solution that provides you with automatic real estate comps free of any hassle.
Data About the Market
Of course, even though rental comps are mainly about comparing properties with one another, it is always a good idea to include the market as a whole in your comparison.
The market’s average performance for the type of property you have in mind can act as a secondary axis to which you can compare both your primary properties as well as the recent sales.
This is especially useful in the case of real estate rental comps, as rental properties’ performance can change over time depending on the market.
So, having a snapshot of the market’s historical rental rates and price-to-rent can give you an idea of what the future might look like for your desired investment property.
Why Do Real Estate Investors Need Comps?
Real estate investors need comps to find out how much other buyers are willing to pay for a similar property in the same market.
However, real estate investors are not the only ones who use real estate comps, as we will see in a little bit.
But the value of using comps is to answer the question: do the numbers that I’m seeing for this property make sense?
For example, if you find a property that you like but that is listed for sale out of your price range, you might ask yourself if that price makes sense or if you can negotiate it down.
In this case, using comps helps you get an idea of what other buyers would do if they were in your place by looking at the prices at which they ended up buying similar properties.
So, let’s see exactly how each type of player in the real estate market uses comps to their advantage:
As explained in the example above, buyers can use comps to figure out if the property they’re interested in is listed for sale at a fair market price.
But how exactly does the information help them if, let’s say, the property was listed at a higher price than what it’s worth?
A home buyer can use this info when negotiating the deal with the seller.
To get the most value out of the comp analysis, the buyer may want to also compare the price at which properties were listed with the price at which they were eventually sold.
This can tell the buyer whether the prices of similar properties were being negotiated up or down in successful sales.
Similar to buyers, sellers will want to run comps to find out what the fair price would be for the property they’re trying to sell.
This helps sellers set a fair price on their property.
Overpricing a property will often lead to lower offers from buyers and a lower chance of selling the property.
However, a smart seller can use comps to their advantage if they find out that buyers are willing to pay more for similar properties even though they were listed for less.
Additionally, sellers can use findings that they get from their comps by providing data that proves the value of the property, such as its potential rental income.
If I, as a buyer, am trying to find a home and figure out what home values near me are, it is more likely for me to be interested in your property if I’m provided with data that shows me its potential as a rental.
Real Estate Professionals
This includes real estate agents and realtors, but more importantly, it also includes appraisers.
Home appraisers use real estate comps when determining the value of properties during the inspection.
Appraisers will access and review public records of the property and use comps from the MLS (Multiple Listing Service).
Both agents and appraisers use this info to get an idea about the market and what buyers and sellers are willing to pay or receive in exchange for each type of real estate property in that market.
How Can You Get Access to Real Estate Comps?
When asking what is real estate investing all about, you’ll find that it’s all about data.
Whether you want to use that data to do a real estate comp analysis, or you just want to get a general idea about a market, the biggest challenge that a beginner real estate investor will face is getting access to that data.
Traditionally, if I’m looking to find information about sold houses near me, I might struggle to find that info without hiring a real estate agent who has access to the MLS and can provide that data.
Nowadays, however, it is possible to find data about houses sold near me recently without having to hire an agent.
There has been a surge of online platforms and tools that aim to provide solutions to real estate investors in recent years.
From free mortgage calculators to rental property management platforms, the internet is riddled with all sorts of tools and gadgets for investors to play around with.
But when it comes to rental real estate, a tool that can provide you with all the data that you need as well as real estate comps free of any hassle, then Mashvisor is the tool for you.
What Is Mashvisor?
Mashvisor is a real estate platform that specializes in property and market analytics, including real estate comps.
With a focus on rental properties as the most popular type of real estate investment, Mashvisor offers property and market analysis tools for traditional and Airbnb rental properties.
Where Does the Data Come From?
The data that Mashvisor uses comes from trusted sources that are used by professional real estate agents and investors alike.
This includes MLS databases, Airbnb’s database, as well as directly from agents and sellers who use our platform to do their business.
Additionally, Mashvisor’s data is updated regularly to keep it relevant and fresh.
This means that you can use the platform to track specific properties and see if their status or information changes to make adjustments accordingly.
What Exactly Does Mashvisor Do?
Mashvisor analyzes real estate markets across the US by gathering large amounts of data and crunching it into easy-to-understand insights and rental comps.
With that in mind, the platform focuses on two metrics for measuring the potential and investment value of properties listed for sale.
This is done by using data on each property in the market regarding listing and rental prices, historical data, and much more to calculate metrics such as the cap rate and the cash on cash return.
Find Investment Properties Based on Data
By gathering and processing all of this data, and after calculating the projections and running the comps, the platform provides all of the insights and findings across multiple tools.
One of the main functions that investors use Mashvisor for is to search for investment properties that match their criteria.
Since the platform has access to all the data and analysis results, investors can use it to find properties based on these results.
The Investment Property Search tool gives you the flexibility to use several filters concerning the listing price, rental rate, return on investment, size, age, and many other characteristics of the property.
You will see the results on a map interface that lets you hover over each property to see a breakdown of its investment opportunity in terms of its price, rental rate, and cap rate.
This lets you do an easy and quick real estate comp analysis about a market to see what properties of a specific type and size are being sold for, or what their rental rates are.
Real Estate Comps Free of Hassle: Use Mashvisor
If you’re looking for a deep real estate comp analysis for a specific property with a single click, Mashvisor has that feature.
Instead of having to gather the data manually or download an Excel sheet and filter out the irrelevant results one by one, Mashvisor will simply show you the top comps for each property that you click on.
Properties listed on the platform will have an analysis page that includes their rental income calculator, mortgage calculator, all of their info, as well as their rental comps.
The rental comps section will include all similar properties in the area in a table format that includes the following columns:
- Similarity: This is a percentage score that tells you how similar the property is to the one you’re viewing based on our algorithm.
- Distance: This tells you the distance between the two properties—properties outside of a certain distance will not show up on the comps list.
- Number of bedrooms
- Number of bathrooms
- Monthly rate: This is the monthly rental income that the property is generating or can generate.
Note that these are the rental comps for traditional rentals.
Airbnb rentals, meanwhile, have different points of comparison, including their occupancy rate, nightly rate, and Airbnb ratings.
Understanding real estate comps, how they work, and what they’re used for is key to making a successful real estate investment.
Comps can help you get an understanding of specific properties before you commit to buying them, which can save you a lot of money in the long run.
While the complexity of comps and the amount of work needed to gather the data and do the analysis have always been an obstacle in the face of beginner investors, Mashvisor provides a solution for that problem.
You no longer have to gather the data manually and use a spreadsheet to analyze and compare properties in the market.
Instead, using Mashvisor allows us to find a home, find out what houses sold near me recently and what home values near me are, or get apartment comps effortlessly.
By subscribing to Mashvisor, you will gain access to all the data and tools that you need, including comps in real estate, to understand that data and make smart investment decisions based on it.
To start using our real estate investment tools today, click here to sign up for a 7-day free trial followed by 15% off for life on your Mashvisor subscription.