1. Home
  2. /
  3. Blog
  4. /
  5. Investments
  6. /
  7. How to Conduct a Real Estate Market Analysis

How to Conduct a Real Estate Market Analysis

real-estate-market-analysisWhen you purchase real estate, figuring out the right price is essential to getting the best deal. If you’re in the market for a turnkey property or other type of investment real estate, it’s even more important that you crunch the numbers. If a property seems like it would be a good investment, conducting a real estate market analysis will give you a better idea of what that property is really worth.

What Is a Real Estate Market Analysis?

A real estate market analysis (or comparative market analysis/CMA) looks at the market value of similar properties in the geographical area where your potential investment property is located. The comparable properties will generally be located within one to three miles of the property you’re considering and they’ll include properties that have listed for sale or sold within the last three to six months.

Conducting this kind of analysis will do more than give you an idea of where you should be in terms of purchase price. If you’re planning to buy an investment property with the intention of making passive income through renting it out, a real estate market analysis will give you an idea of what you’ll be able to charge for rent each month.

To perform a real estate market analysis, follow the following steps:

1. Analyze the property you’re considering.

Make a list of factors that affect the value of the investment property you’re thinking of purchasing. Include things such as square footage of the home, lot or land area, number of bedrooms and bathrooms, the age of the home, property amenities such as a swimming pool, outdoor space, fireplaces, balconies, etc. Also make note of the property’s location in relation to public transportation, schools, shopping, etc.

2. Make a list of comparable homes.

Next, identify homes within a three-mile radius that are comparable to your target property. Find properties that are similar in terms of square footage, amenities, age, and updates. Include homes that have sold in the past three months (you may extend the timeline to six months if need be), current listings of homes for sale, and pending sales. Try to find an equal mix of homes that are for sale and homes that have sold. You can get the information you need by calling the local assessor’s office, perusing real estate websites, as well as researching the Federal Housing Finance Agency (FHFA) website and FNC Residential Price Index.

3. Crunch the numbers.

To get an average price-per-square foot for each property, divide its price by its square footage. Take the price-per-square foot for each house in your list, add them all together, and then divide it by the number of houses to get the average price-per-square foot. This will give you a ballpark idea of what an investment property should be worth. Choose one property that’s definitely worth less than your target property in order to set a floor price, as well as one property that’s worth more than your target property to set a ceiling value. These numbers will help give you a price range for your investment property.

Other Things to Know

While a real estate market analysis is an excellent tool, keep in mind that the number you arrive at will be a subjective value. Real estate market prices are subject to the kind of market you’re currently in, with homes in a seller’s market being valued higher and a buyer’s market driving values lower. It’s also important to understand that the market value you reach from a real estate market analysis is not the same as an appraised value, which is a number can only get from a licensed appraiser.

You’ll also want to consider the rent price and vacancy rates of any rental properties that are included in your list, as it’s essential that you’re able to keep an investment property rented out at your target price in order to generate income. By doing your homework and investing wisely, you’ll be on the path to creating long-term wealth from your investments.

Skip to content