A beginner’s guide to real estate investing is not complete without the mention of real estate market analysis. This blog explains what the analysis is, why it’s important, how it’s different from a house appraisal, how to conduct it, and what the best tool used for the analysis is.
Real Estate Market Analysis – What It Is
The term may sound complex, but its meaning really isn’t. Real estate market analysis is simply analysis of a local housing market. It is also often known as comparative market analysis (CMA), which aptly describes how the analysis is conducted. But more on that later. For now, let’s discuss why comparative market analysis is important in real estate investing.
The Importance of Real Estate Market Analysis
The reasons real estate investing market analysis is important are a few. For starters, CMA helps determine the value of investment properties. Knowing the value of rental properties is essential when wanting to invest in any location for any investor, whether one is a beginner real estate investor or not.
Why is knowing the value of investment properties vital? One reason is that knowing the value lets you know how much rent to charge, which is the essence of making money with rental properties. In other words, CMA also helps investors find out how much rent to charge by determining a property’s value. The general rule is that if a property is less than $350,000 in value, you should charge anywhere from 1 to 1.1 percent of its value. If the investment properties in question are more than $350,000 in value, charging 0.8 percent of their value would be reasonable rent.
Real estate market analysis is important for another reason, which still ties in with a property’s value. By knowing a property’s value, a real estate investor can determine the property’s listing price when wanting to sell. This reason is applicable to investors of any real estate investment strategies, both for traditional and Airbnb rental properties.
Related: Four Things to Consider Before Purchasing an Airbnb Investment Property
Real Estate Market Analysis vs. House Appraisal
CMA and a house appraisal inform investors about the same core idea: the value of their property. The methods of real estate market analysis and house appraisal, however, are different.
For starters, CMA is conducted by a broker or an investor, and is typically free of charge. A house appraisal is conducted by a property appraiser, and warrants a fee. Also, CMA compares investment properties in a local housing market in terms of their listings prices. A house appraisal focuses on a single property, finding out its value based on its obvious features. So, while location is vital for each analysis, location matters more in CMA than in a house appraisal.
Note: Click Here to access readily available real estate market analysis for your neighborhood of choice!
How to Perform Real Estate Market Analysis
The next part of this beginner’s guide to CMA is how to conduct one. The process breaks down to three main steps.
Step 1: Conduct Investment Property Analysis
Your property must be analyzed first before comparing investment properties in your local housing market. There are a number of features to consider when analyzing your property in terms of value. The number of bedrooms and bathrooms, square footage, and the property’s age are great examples. An Airbnb calculator, like Mashvisor’s, can prove to be extremely helpful with this. The property’s amenities should also be considered in the analysis. A beginner real estate investor should try to be extra attentive when assessing amenities and features.
Related: How Mashvisor Revolutionized Cap Rate and Investment Property Analysis
Step 2: Identify Real Estate Comps
Once your property has been analyzed, it’s time to look for other rental properties used for comparison. In other words, it’s time to look for rental comps. Rental comps are properties that are similar to yours, typically in terms of structure and real estate investment strategies. It’s best to search for properties that are within a 1-to-3-mile radius from your property. By assessing their listing prices, a beginner real estate investor will be able to find out an appropriate listing price for his/her own property.
There are three types of listings to consider in real estate market analysis: current listings, pending listings, and expired listings. Current listings are investment properties that are currently on the rental market. These listing prices, however, tend to be more than their actual worth. The same can be said for pending listings, or properties that are being purchased. To find current and pending listings, be sure to use Mashvisor’s property search engine.
Related: The Importance of Real Estate Comps and the Best Way to Get Them
Step 3: Set a Price and Adjust the Data
Once the comps have been assessed, set a price for your investment property. Then, make some slight adjustments. Why is the need for adjustments? Obviously, not all properties are exactly the same. For that reason, adjustments must be made when performing real estate market analysis. For example, if your property has four bedrooms but your comps have two, then you will need to add the value of the two bedrooms to your overall analysis. Then, the price of your property can be reassessed, and the market analysis is complete.
The Best Tool for Real Estate Market Analysis
The best tool to use for real estate market analysis is Mashvisor. Mashvisor allows you to analyze your own property and find rental comps. With Mashvisor’s beginner’s guide to real estate investing, any beginner real estate investor can conduct real estate market analysis.
Note: Click Here to see a real estate market analysis for the area of your choice!
Real estate market analysis is essential for investing in real estate. Performing CMA will help investors determine the value of their income properties. Then, the potential rental income of the property can be estimated, along with its listing price. For more on making money through real estate investment strategies, and to learn more about comparative market analysis, start your trial today with Mashvisor!