If you are thinking of buying an investment property, “real estate comps” is a term you should familiarize yourself with right away. Not only that – you will also need to learn how to find real estate comps accurately, efficiently, and resourcefully in order to be competitive in the real estate investment business.
No worries, in this article we will show you what real estate comps are, how they help property investors make better decisions, and how to find real estate comps time- and cost-efficiently in 4 different ways.
If making money with real estate is something of interest to you, keep reading!
What Are Real Estate Comps?
Before we establish the best ways for how to find real estate comps, we have to make sure we know what exactly they constitute.
Real estate comparables, or real estate comps for short, is a term used in property appraisal. This simply refers to other real estate properties which are as similar in type, size, and characteristics to the property you are analyzing as possible. Moreover, they must be located in the same location (within a radius of 3 miles) as the property you are buying or selling, and should have been sold in the past 3 months maximum. As such, real estate comps comprise the foundation of comparative market analysis (CMA), which is a fancy term for real estate market analysis aiming to establish the fair market value of a home or an investment property for sale.
How Do Real Estate Comps Help Property Investors Make Good Decisions?
Whether you are selling or buying an investment property, you will have to conduct comparative market analysis to determine the right price of the property you are dealing with. When you want to sell your house, especially without a realtor, you want to make sure that the price is not too low so that you don’t lose money from the deal. At the same time, you want to assure that the listing price is not too high either as this will push property buyers away, and many days on the market is a negative indicator for future buyers.
Meanwhile, if you are buying an investment property, how much you pay for it is a key determinant of your return on investment in both the short term (in terms of cap rate, cash on cash return, and rate of return) and the long term (in terms of natural appreciation). You don’t want to pay more than the fair market value for your rental property because this will immediately push your return on investment down. At the same time, if you see an investment property for sale much below the current market value, you should proceed with caution as this might signal some serious problems with the house, such as the foundation, for example. The money you save from the purchase might not be enough to fix such a major problem with the property.
Now that you know how important comparables are in the property investment business, the only thing left is to answer the question: “How to find real estate comps in different ways?”.
How to Find Real Estate Comps Most Efficiently
1. Getting a Home Appraisal
The standard and most straightforward way of how to find real estate comps is to hire an appraiser. An experienced real estate appraiser specializing in the location where you want to sell or buy a property will be one of the best sources for this task. He/she will conduct careful property analysis to establish the exact features of your property, after which he/she will compare it to similar properties in the area sold in the past couple of months to get you the fair market value.
However, getting a home appraisal has one major disadvantage. It costs money, which will add up to your one-time start-up costs and eat into your profit from the real estate deal. An appraisal on a single-family home costs about $300-$400, while the price for a multi-family home starts at $600 and goes up with the size of the property for sale. Since you might end up not buying the first investment property you get appraised, the cost for all the home appraisals you need to get might add up to a significant amount.
2. Working with a Real Estate Agent
Unless you have strong reasons to believe that you want to go through an FSBO real estate deal, whether you are the property buyer or property seller, you might consider hiring a real estate agent. A realtor who focuses on the area where you are buying/selling has access to the local MLS real estate property listings. This means that he/she will be able to provide a list of properties for sale similar to yours. Moreover, he/she will know the sale prices of real estate comps which were sold in the past couple of months and how different these were from the listing prices.
When looking for ways of how to find real estate comps, it’s important to remember to go for the closing price (or the sale price) and not the asking price (or listing price). In a strong buyer’s market or seller’s market, these values can be drastically different.
Related: Is It a Buyer’s Market or a Seller’s Market?: How to Tell the Difference
But that should be something which your agent is well familiar with. Once again though, there is a financial drawback to this method of finding real estate comparables, especially if you are the property seller. In most real estate transactions, the agents’ fees are paid by the seller, so this adds up to his/her selling costs and decreases his/her return. If you are buying an investment property, on the other hand, you should definitely consider working with a top performing local real estate agent as he/she will be able to secure the best deals on the properties you like.
3. Conducting Comparative Market Analysis
If you absolutely don’t want to hire a home appraiser or work with a real estate agent, you can go on your own in your quest of how to find real estate comps. The way to do that is to perform CMA. Comparative market analysis is the process of analyzing carefully the property you are considering buying or selling, after which finding at least 3 very similar properties in the vicinity which were sold within the past 3 months. It might sound easy, but it’s not. Unless you are an experienced real estate investor or another real estate expert or have a lot of free time and don’t mind wasting lots of efforts, you should not really go for this option. If you want to invest in a dynamic market as most top places to buy rental properties, the property for sale you want to buy will be long gone before you are able to conduct the required CMA.
Related: How to Do Comparative Market Analysis Step by Step
4. Using Real Estate Tools
The fact that conducting comparable market analysis on your own in the old-fashioned way will not yield the best results doesn’t mean that there isn’t a way of how to find real estate comps by yourself time- and cost-efficiently. The real estate technology has developed tremendously in the past few years, and some must-have real estate investment tools have emerged. Every real estate investor should have those in order to remain competitive and succeed in the current real estate business.
Related: 8 Must-Have Real Estate Investment Tools
One of these tools is Mashvisor’s rental property calculator. Using big data and predictive analytics, it will show you not only investment properties for sale in the neighborhood you are interested in but also real estate comps. Getting these results will require only a couple of minutes, compared to the days and weeks you will need to spend on performing CMA the standard way.
Related: Rental Property Calculator: Just for Beginners or a Tool for All Real Estate Investors?
Moreover, Mashvisor’s investment property calculator will do for you all calculations and analysis to help you find the most profitable investment property in any location, based on your search criteria and budget. With one tool, you will be able to conduct both investment property analysis and real estate market analysis quickly and accurately.
There is no right or wrong way for how to find real estate comps when selling or buying an investment property. However, there are ways which cost less time and money and others which cost more. Mashvisor’s rental property calculator will optimize the process for real estate investors who want to spare their time and efforts on strategizing how to grow their investment portfolio instead of on conducting manual comparative market analysis.