Buying an investment property is the precursor to making money in real estate, but there are many other duties a real estate investor must conduct before and after a purchase.
For instance, the investor must ask him/herself “How much can I charge for rent?” before ever renting out. In order to answer that question, the investor must be able to answer another question: “How much is my house worth?” To properly address these questions, and many more, an investor must be familiar with a comparative market analysis, or CMA.
What Is a Comparative Market Analysis?
What is comparative market analysis or what is CMA? A CMA is one of the most important forms of analysis for both real estate investors and real estate agents. As hinted by the name, a comparative market analysis, also known as a real estate market analysis, is a real estate analysis based on market research in order to determine property value. It uses real estate comps, or comparables, to estimate a range for the property’s value.
Why Is a Real Estate Market Analysis Important?
Overall, a comparative market analysis is important when buying an investment property, renting out an investment property, and selling an investment property. The main purpose of conducting a CMA is to determine an estimation of property valuation based on market research. From this value, the listing price of an investment property can be determined. This makes a CMA vital for selling and buying property.
The property’s value is also used to determine an amount of rent to be charged. Properties over $350,000 in value typically charge 0.8% of the value, while those below that standard charge rent around 1.1%. As a result, a CMA is also important to know when understanding and setting a goal for the property’s return on investment.
What Is the Difference Between a CMA and an Appraisal?
Both a comparative market analysis and appraisal involve property valuation, but the implications of each analysis are significantly different. A CMA is typically conducted by investors or real estate agents, while appraisals are conducted by licensed appraisers. CMAs are usually free of charge, but appraisals are not.
A real estate market analysis only estimates a range in value relative to properties in a neighborhood analysis. An appraisal, however, is meant as an objective valuation of the property and thus has legal and financial implications.
Overall, each analysis fulfills specific purposes. Those of the CMA, as previously mentioned, deal with property valuation and rental income estimation.
How to Conduct a Comparative Market Analysis
So, the next question we need to address is “How to do comparative market analysis?” The process involves four steps:
- Neighborhood analysis
- Rental property analysis
- Finding real estate comps
- Using the comps and adjustments
1. Neighborhood Analysis
The first step of a comparative market analysis is to find an investment property you are interested in purchasing. This can occur in many ways, but the best method is to conduct a neighborhood analysis using an investment property calculator. The investment property calculator allows an investor to search for a market within a desired location and search for investment properties. The best investment property calculators, like Mashvisor’s, allow users to utilize a heatmap (shown below) in order to find properties based on expected return on investment, Airbnb occupancy rate, property price, and other parameters. Want to learn more about Mashvisor’s investment property calculator? Click here!
2. Investment Property Analysis
Once you have a property in mind, you’ll need to conduct an investment property analysis, also known as a rental property analysis. An investment property analysis is an analysis that sets the baseline of property valuation based on the property’s features. Features include location, area, square footage, proximity to amenities, number of bedrooms, number of bathrooms, property type, and much more. These features will help establish a range for your property’s value. From there, you can begin using real estate comps to adjust this value.
3. Find Real Estate Comps
The next step of a comparative market analysis is to identify real estate comparables or comps. Finding real estate comps requires a neighborhood analysis, which requires real estate investment tools, namely an investment property calculator. From there, the investor can use current listings, pending listings, and sold listings as comps. Current listings are properties that have not yet been sold and are still on the MLS. Pending listings are properties that are in the process of being purchased. The more recent the listing, the more helpful it is. As it pertains to sold listings, it is best to set a limit of properties that were sold from six months prior, maximum.
Real Estate Comps from Mashvisor
4. Compare the Properties
The final step of a comparative market analysis is to compare the comparables. Be sure to compare and contrast your property and listings based on the same features mentioned before. At the end of the analysis, you’ll be able to set a floor and ceiling value of your investment property of interest.
Where Can You Find Data for a Real Estate Market Analysis?
Now that you know how to conduct a comparative market analysis, you might be wondering: “Where can I find the data necessary for the analysis?” The answer is right in front of you: use Mashvisor’s real estate investment tools!
Typically, it takes about three months to manually conduct a CMA. If you use Mashvisor’s investment property calculator, however, it will only take a matter of minutes! Mashvisor’s neighborhood analysis can obtain data on listings. This data will include multiple features, such as the ones mentioned, and others, such as expected rental income, return on investment, Airbnb occupancy rate, and more. You can then export the constantly updated data and conduct the analysis from the comfort of your home.
For more on how to conduct a comparative market analysis with Mashvisor, click here to start your 7-day free trial!