Real estate investing is the epitome of gaining financial stability and security in the long term.
Whether you have just graduated from university or are on the brink of retirement, real estate investing is for just about anyone. Many real estate investors do it as a part-time venture, while other investors treat is a full-time business. Regardless of what you decide to do, real estate is the ideal long-term investment plan and one with many perks along the way. However, keep in mind, delving into real estate investing is no easy task; do not expect to have the best real estate investment properties to fall into your lap out of nowhere. There is no such thing as free lunch, and you must work hard and perform the right real estate market analysis to find the best cash flow properties in a city and neighborhood of choice.
How can you decide if a rental property will reap a good return on investment? How can you asses the true value of an investment property before closing the deal?
The good news is real estate can be self-taught, and there is no need to go to real estate school to become a successful investor. But, with that said, what you can do is read, read, read; the internet is full of real estate knowledge and insight on ‘how to invest in real estate?’, ‘how to buy your first rental property?’, ‘best places to invest in the US’, etc. Anyone (with the right motivation) can learn and acquire the knowledge to become his/her own real estate expert. To make it easier for you, check out Mashvisor blog for real-time insight and valuable real estate investing tools to help you find the best real estate investment properties in a matter of minutes.
Related: Learn How to Invest in Real Estate While Having a Full-Time Job
What Is Comparative Market Analysis?
Real estate investors cannot guarantee a profitable real estate investment without having conducted real time real estate market analysis, or in other words, comparative market analysis (CMA). Comparative market analysis determines the value of a property in comparison to other similar and recently sold properties located in the same area. The sell price of these similar properties is called real estate comps. These real estate comps are essentially used to determine the estimated market value of the investment property.
Real Estate Comps
Real estate comps is a very popular term in real estate investing, and it is crucial that real estate investors take a look at recently sold properties to determine the market value of the investment property of choice before they decide to sell or buy.
The key criterion is to select the most identical properties in terms of size, shape, and condition which includes but is not limited to:
- Comparable square footage. Larger square foot properties are worth less per square foot than smaller square foot properties.
- Comparable construction age. The age of the property should be within a few years of other comparable sold properties.
- Comparable amenities, upgrades, and condition. Upgrades play a huge role in increasing the valuation of the property. Moreover, delayed and accumulated maintenance will drop the estimated value of the home.
- Location, location, location. Homes in prime locations and situated in a cosmopolitan city will have a higher valuation than homes in a run-down neighborhood. Make sure to find comps in similar neighborhoods under similar conditions.
How to Conduct a Comparative Market Analysis?
In order to perform a comparative market analysis, find real estate comps in the following:
1. Current Running Listings
Current running listings are the first place to look for real estate comps. Recognize that these properties are in direct competition with your investment property in order to set a competitive price. You want to shoot for the highest price but remain competitive at the same time. Setting a very high price will decrease the demand for your property and dissuade any prospective buyers. Keep in mind, a CMA valuation is only an estimation and not necessarily indicative of the market value. The asking sell price may not be aligned with the market value until it sells, and in a buyer’s market, most sell for much less. To gain a fast access to all recent listings across the US, head over to Mashvisor for all real estate comps in the city, area, or neighborhood of choice.
Related: How Mashvisor Revolutionized Cap Rate and Investment Property Analysis
2. Pending Listings
Pending listings are not real estate comps per se, but they do give a general reference to where the price is headed nevertheless. Use pending listings to determine the discrepancy between the price you want to set and the pending price. The bigger the discrepancy between the prices, the longer it might take for the home to sell.
3. Sold Listings
Sold properties within the past six months are your real estate comps. These are the comps you will take into account to come up with your comparative market analysis. The closer your appraised value to the market value, the more competitive the price giving you the most leverage.
4. Expired Listings
Expired listings are a deviation from the market value, and as a result taken off the market. Refer to expired listings to keep your appraised price in check and aligned with the market equilibrium. These listings can help real estate investors mitigate the risk of prolonging the sale; if your asking price is as high as of the expired property, you must go back to your comparative market analysis and amend as deemed necessary.
How to Find Real Estate Comps for Comparative Market Analysis?
1. Head over to Mashvisor for all the current running listings across the country.
2. Refer to The Federal Housing Finance Agency for recently sold listings, including all home mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration.
3. Take a look at The FNC Residential Price Index for market data and trends available for cities across the country.
Related: How Is Cap Rate Used for Evaluating a Real Estate Investment?
Real Estate Comps Are Not Fixed
It is very important to re-iterate that your comparative market analysis is subjective and only an estimation of the true market price. The closer you are to the equilibrium market value, the better of course. But you can never be 100% accurate with your figures, you can only estimate a range of where the price should fall if conducted properly. Also, a comparative market analysis should not stand alone for evaluating an investment property. There are many other factors which could affect the value of the home and its market value in the future. Measuring the ROI entails other metrics and tools, i.e., an investment property calculator and property inspection, to arrive at a more concise appraisal.
Head over to Mashvisor to find your real estate comps in an instant!