Renting out a residential investment property is undoubtedly profitable. But you have to find the right one. Once you start your search and find a property for sale, it’s important to ask, “Is that residential investment property worth it?” How can you fully and definitively decide if you should purchase a certain income property for sale? In this blog, we’ll put that looming question to rest.
3 Steps to Analyzing a Residential Investment Property for Sale
To properly ensure that an investment property is worth buying, you need to have access to accurate and insightful real estate data analytics. But even that isn’t enough. The real estate data also needs to be structured in a way that makes sense for analysis.
And to know if a residential investment property for sale is a good investment, you need to obtain data for the 3 main levels of a real estate analysis:
- A location (or neighborhood) analysis
- A residential investment property analysis
- A comparative market analysis
So, what is the solution? Conduct your analysis using Mashvisor. With Mashvisor’s real estate investment software, you will be provided with the necessary tools and data for each phase of analysis. As a result, you’ll be 100% confident when picking a rental property to buy.
Let’s dive into the 3 steps and how Mashvisor will help you carry out each one.
1. Conduct a Neighborhood Analysis
First, you will need to study the local real estate market where the investment property is located. As the old saying goes, the three most important things in real estate are location, location, and location. It might be overused, but there’s plenty of truth to it. An income property’s location greatly influences its profitability and investment viability. As a result, you will need to analyze a rental market in various ways.
For starters, make sure it has high investment potential. An area with the following features is a great fit for residential real estate:
- High walkability score
- Good local private and public school ratings
- Access to public transportation
- Open business and a growing economy
- Nearby amenities and attractions
- High real estate appreciation rates
You will also need to take a look at and understand the market’s real estate data analytics. With Mashvisor’s real estate heatmap, you can do this in a few minutes. Like heatmaps used by weathermen, Mashvisor’s heatmap will color-code areas based on certain statistics. Mashvisor’s heatmap is incredibly easy-to-use and user-friendly. All you need to do is enter the city where the investment property is located. You’ll immediately see a map that includes the specific neighborhood you’re looking to analyze. Now, you can conduct a neighborhood analysis that will help you compare the local market you’re interested in to other neighborhoods in the area. Mashvisor’s heatmap allows you to compare neighborhoods based on:
- Listing price
- Traditional rental income
- Airbnb rental income
- Traditional cash on cash return
- Airbnb cash on cash return
- Airbnb occupancy rate
The heatmap will color-code the market, using reds and greens, based on your entered filters. With Mashvisor’s heatmap, you will be sure that your residential investment property for sale is located in the best neighborhood.
Related: This Heatmap Will Show You Where to Invest in Real Estate
After confirming that the neighborhood is one of the best in the city, you can visit its Neighborhood Analytics Page. Here, you’ll find even more information that you can use for a neighborhood analysis like:
- Number of properties (Airbnb, traditional, and investment properties for sale)
- Optimal rental strategy
- Walk Score
- Airbnb occupancy rate
- A rent analysis
- Comps
2. Analyze the Residential Investment Property for Sale
Now that you know whether the residential investment property is located in a good neighborhood or not, you can further analyze the property. By using Mashvisor’s investment property calculator, you will have no doubts as to whether a property is worth buying or not.
The rental property calculator conducts an investment property analysis to help you figure out if the property in question meets your investment goals. It uses real estate comps and Airbnb data (that comes directly from Airbnb) for part of its analysis. The calculator also requires user input, particularly the costs of financing residential investment property. Real estate investors can provide data on the following:
- Type of residential investment property loan
- Down payment
- Mortgage interest rates
- Loan term
In addition to mortgage costs, you can adjust the estimates given for rental property expenses which include:
- One-time startup fees (ex: furnishing, inspection dues, closing costs)
- Recurring costs (ex: HOA dues, insurance, income tax)
Then, the calculator does all the rest. It will provide you with a variety of metrics and data, ranging from the price to the rate of return on a rental property:
- Property price
- Property type
- Days the property has been on the market
- Year built
- Number of bedrooms and bathrooms
- Presence of heating and cooling systems
- Tax history
- Airbnb rental income
- Traditional rental income
- Monthly rental property expense estimates
- Airbnb and traditional cash flow
- Airbnb and traditional cash on cash return
- Airbnb and traditional cap rate
- Optimal rental strategy (Airbnb or traditional)
- Airbnb occupancy rate
- Rental comps
- Investment payback balance
All of this data is needed to ensure you find cash flow properties.
Related: Mashvisor’s Rental Property Calculator: A Guide for Beginner Real Estate Investors
3. Carry Out a Comparative Market Analysis
Now that you’ve analyzed the income potential of your residential investment property, it’s time to make sure it’s priced reasonably. There are many properties for sale in the US housing market that are overpriced – possibly because the seller is in need of more money than the property is actually worth or is simply unaware of how to properly price the property. So it falls to you to conduct a comparative market analysis (CMA).
A comparative market analysis will help you determine if the investment property is priced fairly compared to the market. This analysis requires that you find 3-5 real estate comps. These are properties in the local market that are similar to the one you’re eyeing in terms of location, size, type, condition, and amenities. The simplest way to find these comps is to, once again, use Mashvisor’s investment property calculator. Mashvisor’s tool automatically gathers a list of the best real estate comps for your residential investment property for sale. Then, you can easily and quickly conduct your CMA. To learn more about how to conduct this analysis, read: Comparative Market Analysis: A How-To Guide for Real Estate Investors.
If you find from the CMA that the house is reasonably priced, then it could be well worth the purchase based on your findings in the neighborhood analysis and investment property analysis.
To Sum It Up
Successfully investing in rental properties requires analysis and Mashvisor is all you need to know if a residential investment property is worth it. To ensure the property you have in mind will provide you with a high return on investment, CLICK HERE to start a 7-day free trial with Mashvisor.