Analyzing the ever-changing real estate market is a key factor in investing. What you’re buying into and how much you’re paying for it has a direct effect on whether your investment will pay off. Getting the best list price on the right property is best achieved by conducting a thorough market analysis. As a real estate investor, it’s important to understand the market to purchase and manage properties with the best long-term success, which is where a market analysis comes in.
What Is Real Estate Market Analysis?
A real estate market analysis is a comparison of like properties in the same market used to determine the value of a specific property. Comparing the different angles of an investment is important — especially in real estate markets that differ by city and neighborhood.
Historic Market Data
Once you have a property in mind, check the historic market data. What has happened with real estate prices in the past? Who owned this property? Have renovations been done? How have the taxes changed? You can find information filed with the town regarding permits and renovations, the age of the septic system and major issues. Knowing the history of a property sheds light on the current value and future possibilities.
Population Growth or Decline
Take a look at the town that you are interested in investing in. Has the population been growing? What kind of people live here or are moving here? Is it a hotspot for college kids and on a college cycle? Are young families moving to town to settle down and grow? A thriving town with families moving in tends to increase home prices and hold value.
On the flip side — has there been a decline in population in recent years? Why? Who is leaving this area and might that change in the future? Understanding who lives in the area and why helps you to make the best investment. A declining population may mean a better sales price — with an indication of a comeback or a sign to forget that property and move on.
Jobs Data
Another important aspect to analyze is the job data. What jobs are held by residents? Are the jobs here to stay? What college degrees are likely needed for these occupations? How much is the average household income? What are the unemployment rates like? Jobs can tell a story about a town and show its potential. Are the primary residents higher-up professionals and executives? That could be great if they have money to spend and want larger homes with home offices or luxury real estate. Are low-income sales and fast-food jobs the norm in this city? In that case, apartments in a lower price range may be more ideal.
Housing Market or Rental Activity
Speak with a local Realtor when doing a real estate market analysis. They should be fully educated in the housing market and on rental activity. Consider asking these important questions before jumping into a real estate investment:
- Is the market hot?
- Is it a buyer’s or seller’s market?
- Are properties selling over asking?
- What percent of asking are they getting?
- How long are properties generally on the market?
- What is the housing inventory like?
- What is the rental vacancy rate?
- How much are rentals going for?
- Are rentals long term?
- How much turnover is there with homes?
- What condition are the homes mostly in?
- What type of home is most appealing in this area?
- Do residents take care of their properties?
Local Market Trends
To check out local market trends, head to the local hotspots. Grab a local newspaper at a breakfast cafe and chat with locals. Look up community websites and social media pages and do some digging. The information is there; you just need to find it.
Investing in unfamiliar markets can be a gamble. You can purchase a property having no idea that a certain part of town is less sought after than another and find that your property is harder to rent out. Or you weren’t aware that one part of town cannot belong to the lake community — which is a big deal locally. Maybe there are two elementary schools, and one is much better than the other. These are things you have to know before purchasing. Diving in and doing your research on local market trends helps you make the best real estate investment.
Comps
Comps are a huge factor in determining the best price point to purchase an investment property and figuring out potential rent. Look at homes that have recently sold in the last six months. Check out properties that are the same style, have the same number of bedrooms and bathrooms and are in the same area of town. Similar square footage and yard space are also key. By looking at comps that have recently sold, you can see what people are willing to pay for this type of house in this area and what you should expect to pay.
Also, check out rentals in the area and what they are going for if your investment is going to be a rental property. You may be surprised how few rentals there are in the market and how in demand they are, or you may discover a rental glut. You will at least be able to realize what you can make monthly off your investment and whether the property you are interested in will be a good fit as a rental.
Appraisers also use comps to determine home market value. The appraiser reports back to the mortgage lender and says what they believe the home is worth. The appraisal report affects financing for the homebuyer. If you have already analyzed the market and have run the comps yourself, you will be in a much better position to secure financing at the right price.
Local Businesses and Amenities
To do a full real estate market analysis, a good investor must know the local businesses and amenities. What businesses are there and are they doing well? Is there a grocery store or public transportation nearby? How are the schools ranked? People want to move to a town with easily accessible shopping and great schools.
In addition, recreational activities such as community areas, beaches and parks bring more home buyers and renters in. A walkable and thriving downtown with restaurants and activities increases the chance you make a great investment with tenants eager to move in.
Updating Your Market Analysis
If you own real property, you must update your market analysis every few years. Neighborhoods can change over time, and a once sought-after market can lose value. You can then identify the best time to sell and get out before you lose too much money on your investment.
Alternatively, you may find out that your investment property is at its peak and you should sell now to get the best return possible. An updated market analysis also helps you determine the current rent rates. Maybe rental prices are rising, so you can evaluate and increase yours, too.
Benzinga’s Best Real Estate Investment Platforms
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Best Price Starts You Out Right
A real estate market analysis can help you purchase a property for the best price and maintain it for the best success. Understanding the market and tracking your investment keep you on the road to the best returns and long-term appreciation. Benzinga is always here for more helpful investment information as you grow and transform your real estate investments.
Frequently Asked Questions
What does a real estate market analysis include?
A real estate market analysis includes a thorough overview and understanding of past and current markets, an evaluation of homes that are comparable to the selected investment property and a good understanding of local businesses and amenities.
Do home prices drop in a recession?
In general, home prices tend to drop in a recession. More supply and less demand tend to lower home prices. People who bought at the height of the market may need to get out of their mortgage and may sell for less. Family members start moving in with each other to save money, causing more houses to become available at more reasonable prices. Overall, recessions cause more people to become unemployed and unable to pay their mortgages, which can result in price drops.
Why is a real estate market analysis important?
A real estate market analysis is important because it provides inventors insight into properties they are considering purchasing. It helps them determine whether the property is a good investment.
