In real estate, you learn something new every day and come across various real estate terminologies. You probably came across real estate market analysis at one point or another throughout your real estate career. For those who are not familiar with the concept, stick around and continue reading. This article will help beginner real estate investors to learn more about real estate market analysis, what it is, why it is important, how it is conducted and what are the different tools used.

Related: How To Perform A Real Estate Market Analysis

What is real estate market analysis? Why is it important?

The ultimate goal of every real estate investor is to achieve the highest return on investment by making the optimal investment decision. A real estate market analysis does just that. It helps investors choose the best performing investment properties in a certain market so that investors can avoid spending their money on a purchase that does not match their investment goal or search criteria.

Real estate market analysis, which is also known as comparative market analysis, is the process of analyzing and studying current market values of properties. This is important because it helps property investors determine the market value of their own property. It is done by using real estate comps or properties that share similar characteristics/features with your property.

Advertisement

Real estate comps should be recently sold properties or properties that are currently listed for sale. You should consider properties that were sold within a 3-6 month period. How can you determine the value of your property if you compare it to a property that was sold two years ago? Also, real estate comps should be between 1-3 miles away from the investment property in question and you should have no less than three properties for comparison.

Related: The Importance of Real Estate Comps and the Best Way to Get Them

How to conduct a real estate market analysis

In order to successfully invest in real estate, you need to gain knowledge of your local housing market. Whether you are selling an investment property or buying one, you need to pay close attention to investment properties similar to yours in your area.

Conducting a real estate market analysis can appear daunting for many investors since there are so many things to consider. However, it is not impossible and with the right tools and knowledge, it can be easily performed. So, how do you conduct a real estate market analysis?

1. Choose a location

Location is a very important aspect when determining the potential future for your investment property. So many factors are affected by the location of your property. Always choose locations that offer a high return on investment, cash on cash return and cap rate. The investment property you want to purchase should be located in an attractive area to be considered of great value. While most people would prefer to buy a property in their local area, that doesn’t necessarily always have to be the case. There are great investment opportunities for out-of-state investment properties.

Read Also: When Is Out of State Real Estate Investing a Smart Choice?

2. Choose the right type of investment property

After you choose the area or market you want to invest in, you have to choose the type of investment property. Choosing your investment property depends on what your investment strategy is and what the best performing type of property in your area is. Some property types perform better than others in certain real estate markets.

Make sure you do your homework thoroughly before making any decisions. Your chosen investment property will greatly influence the other steps to your real estate market analysis. So make sure you choose right.

Some real estate investment properties you can choose from are single-family homes, multi-family rentals, condos or townhouses. Each one has its own way of managing and gaining profits. To help you gain more knowledge about the different types of investment properties, read this article: What Are the Best Types of Property for New Real Estate Investors?

3. Find real estate comps

You’ve picked your location and chosen your investment property, now it’s time to start searching for real estate comps or properties similar to yours. Aim to find a few (at least 3-5) comparable properties that share similar features to yours in terms of size, age, number of rooms, and their functionality to the one you are considering. You can get access to recent listings of investment properties all over the US through Mashvisor along with the needed data and analysis.

To start out your 14-day free trial with Mashvisor, click here.

4. Compare investment properties

Now that you found comparable properties, it should be easy to compare these properties together to determine your property’s market value. You need to compare the properties based on their prices. Find the properties with the highest/lowest price. Then find what factors might have affected the property’s price. Ask yourself, what features do the high-priced have that the low-priced properties lack? You need to do this for the listed investment properties that you’re comparing and the investment properties that were recently sold. This allows you to determine whether prices have increased or decreased.

Your final step is to decide where your property falls within the price range of the real estate comps that you have chosen. This price is the market value of your home. So whether you are selling your investment property or buying one, knowing the market value for your subject property will greatly help you out.

Real estate market analysis tools for finding investment properties

To help you locate investment properties to analyze, you need the right real estate investment tools. Going through listings of properties through different real estate investing websites is not enough. You need to collect the right data about the investment property to use for your real estate market analysis. The main data that you will need for each property includes the property’s listing price, rental income and estimated expenses for the property.

Property finder tools

You can find property listings and learn about their price, rental income, and other aspects related through various online tools and real estate websites such as Zillow.com, Trulia.com, Redfin.com, and Mashvisor.com.

Mashvisor’s property finder tool will help you find the best performing properties in your selected city/cities of choice. Not only will it help you find properties, but it will give you all the necessary tools for conducting a real estate market analysis with ease and in a very short time.

Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!

Heat map tools

Using a heat map tool will help you narrow down your search for properties and focus on a smaller market within a larger market. Mashvisor’s heat map tool allows you to find investment properties based on your search criteria through various filters.

So begin your search for investment properties and start analyzing them. Don’t let real estate market analysis scare you and prevent you from becoming a successful real estate investor. With the right tools and set of mind, you can find properties within minutes!

To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.

Start Your Investment Property Search!