Real estate investing is a great way to make money in the medium to long run, but have you noticed how many real estate terms there are? As a successful real estate investor, you have to be familiar with tens or even hundreds of real estate terms, what they mean, how to use them, how to find them, and – most importantly – how to make money with them. Here we are going to focus on one of these crucially important real estate terms – “real estate comps” – in order to see what real estate comps are, what investors need real estate comps for, and how to find real estate comps.
What Are Real Estate Comps?
Real estate comps is actually the short for real estate comparables, which are essentially real estate properties comparable or similar to a real estate property under question. Real estate comps have to consider a number of factors:
- Type of property: single-family home, multi-family property, townhouse, apartment, condo, etc.
- Square footage
- Number of floors
- Number of bedrooms
- Number of bathrooms
- Amenities
- Finishing
- Land area
- Major features: balconies, verandas, fireplace, garden, swimming pool, etc.
Related: How to Easily Find Real Estate Comps
Why Do Investors Need Real Estate Comps?
Generally speaking, investors need real estate comps when buying an investment property or when selling an investment property. Why? – you may wonder. Because real estate comparables are the basis for real estate market analysis, particularly comparative market analysis (CMA). Comparative market analysis serves as a tool for determining the market value of a real estate property. Real estate investors need to know the fair market value of an investment property when they want to sell one of their rental properties or when they want to buy a new income property to expand their real estate investment portfolio.
Related: How To Perform A Real Estate Market Analysis
How Do You Find Real Estate Comps?: Three Ways
1. The Traditional Way: Real Estate Market Analysis
To find real estate comps through comparative market analysis is a lot of hard work. First, you have to conduct investment property analysis of your own rental property in order to identify the exact features of the home whose value you want to determine. Then, you need to identify three comparable recently sold properties in the same area.
To find comparable properties, you have to pay attention to all the factors which we listed above including type of property, number of rooms, amenities, land area, and other features. In order to find accurate real estate comps, you have to choose properties that are very similar to your home.
When we talk about recent real estate comps, real estate experts agree on sales in the past three months although it depends on the dynamics of the local housing market. Moreover, you should also look at pending listings and expired listings. Expired listings will be an excellent indicator of overpriced properties for sale, so you will immediately get to know what price is too much for ask for in your neighborhood.
Same area usually refers to real estate properties within a radius of 1 to 3 miles away from the home you are valuating, after you make sure there are no major differences in the locations within this radius.
Once you find your real estate comps, you need to set a floor price and a ceiling price, which will result in a price range. After that, you have to compare your own property under question very closely to the available real estate comps to see whether it is better or worse for the final tuning of the property price, or the fair market value of your home within the set price range.
Unfortunately, to find real estate comps in this traditional manner is quite difficult. The required investment property analysis and real estate market analysis require a lot of time and efforts, which in the world of real estate investing equals money. And there are plenty of other ways for real estate investors to spend their time, efforts, and money, such as looking for the best real estate investments and analyzing the best investment strategies.
So, what’s another way to find real estate comps?
2. Hiring a Professional Real Estate Appraiser
You can find real estate comps by hiring a professional real estate appraiser. This is a real estate professional who specializes in valuating real estate properties, so this individual is capable of telling you exactly how much your home’s value is in the current housing market.
The downside? Well, getting a home appraisal costs money. Paying to a real estate appraiser though might still be a good option for investors as it will save them lots of time and efforts, while providing them with a very accurate market value for their property for sale. It is an efficient way to find real estate comps.
3. Using Mashvisor
There is a way to find real estate comps which is even better than hiring a professional appraiser, and it is using Mashvisor. Mashvisor has developed an investment property calculator, a type of real estate investing tool that also functions as an Airbnb calculator, which does all the analyses and calculations for you. It saves you both time and efforts when you want to find real estate comps.
Related: Why An Investment Property Calculator Tells You More Than Just Numbers
Mashvisor works at two levels:
Neighborhood Level
As we all know, location is crucially important in real estate investing, and location means not only city but also neighborhood when it comes to buying income properties. To choose the best neighborhood for your real estate investment goals, Mashvisor provides you with all the crucial numbers for the major neighborhoods in hundreds of US cities. All important metrics are included: cash on cash return, cap rate, rental income, median property price, etc. All numbers are divided for the traditional and Airbnb rental strategy, in which case you also get to see the Airbnb occupancy rate. You can narrow down your search by filtering the number of bedrooms, the number of bathrooms, the square footage, your budget, etc. to get the most accurate real estate comps for the neighborhood.
Property Level
Once you have chosen your neighborhood, you can zoom into specific investment properties for sale. Once again you will have at your disposal as a real estate investor the property price, the rental income, the cash on cash return, the cap rate, the occupancy rate, and the expenses – by traditional rentals and Airbnb rentals. All these numbers are based on real estate market analysis and traditional and predictive real estate analytics, which means they are very accurate and reliable.
After reading this article, don’t get us wrong – every real estate investor needs to be able to conduct comparative market analysis to find real estate comps on his/her own, regardless of the state of technology. After all, real estate market analysis is at the core of understanding real estate investing. What we mean to say is that you don’t have to waste your time and efforts on that when you can get a rental property calculator like Mashvisor’s to do all this for you.