A key aspect of investing is finding good investment properties. Here’s how you can make your own real estate market analysis template.
Table of Contents
- What Is a Market Analysis in Real Estate?
- Why Should Real Estate Investors Do a Comparative Market Analysis (CMA)?
- How to Prepare for Your Real Estate CMA
- What to Include in a Real Estate Market Analysis Template
- How to Do a Market Analysis in Real Estate
- To Recap
Before investing in any new real estate property, investors must conduct a real estate analysis. This is the most essential part of investing, as it determines how profitable your income property could be. This data will show if the money you put into the investment will be a greater return on investment in the end. Investors typically use a real estate comparative market analysis template for this data.
For example, if you purchase a listing for $200,000 and plan to lease it long-term, you must make sure that the average rent prices in the area are worth the overall investment. Additionally, it is important to check that long-term rental properties are even wanted in this location. If your market analysis real estate template shows there is no desire for long-term rentals, then purchasing the listing is probably a bad investment.
On the other hand, if your location has a need for long-term rentals, a real estate market analysis template can show you how much you are able to charge for rent. This is important to make sure you are not over or under-charging renters. Either would likely cause you problems with making a profitable rate of return.
Though a CMA real estate template is a helpful tool, always note it is not completely accurate, as it is based on predictions.
What Is a Market Analysis in Real Estate?
Before you can use a comparative market analysis real estate template, you must know what the purpose of a market analysis is. In real estate, a comparative market analysis (CMA) is a tool or strategy used by investors to determine the profitability of a property by comparing it to similar ones on the market.
Although this is a great way to determine factors like rental rate or property value, you must also consider other aspects that go into property value. Even if your property is the same size in square feet with the same number of bedrooms and bathrooms as another in the same neighborhood, it may not be worth as much. Lot size and amenities also go into determining a property’s value, and sometimes these are not shown on a comparative market analysis real estate template.
Related: The Best Comparative Market Analysis Tools for Beginner Investors
Why Should Real Estate Investors Do a CMA?
Investors should use a real estate market analysis template when purchasing any new property as it helps them see if that location is worth investing in. This tool compares your potential listing to other ones in the area that have similar features. If you see that the comparable locations are not performing well, then it’s likely that the property you wish to buy won’t do well, either.
A real estate CMA could save investors money by not investing in a property that won’t be successful.
How to Prepare for Your Real Estate CMA
Before you complete your real estate comparative market analysis Excel template, you need to understand all of the data going into the form. Most of the information you will need can be taken from similar properties in the area. These are called comps. Essentially, real estate comps are similar listings to your property and are able to help you predict information about property value.
Besides comps, below are some great ways to help prepare for your real estate CMA.
CMAs Are Different Than Appraisals
Although a comparative market analysis uses a lot of the same information an appraisal would, they are two different things. The main difference between the two is that appraisals are done by licensed, professional appraisers to get a sense of the property’s value. Meanwhile, a comparative market analysis is done by real estate agents, not appraisers, with the goal of estimating fair market value.
Overall, CMAs and appraisals each base their calculations on different parameters. Only someone with extensive knowledge of the housing market, like a broker or an investor, can complete an accurate and reliable CMA.
Related: Appraisal Value vs. Market Value—What Is the Difference?
Rule of Three
When preparing to create your CMA, investors and agents typically follow the rule of three. Basically, this means finding three properties as similar as possible to your own that have sold within the last few months. Using these three properties, you can alter specific details of each to determine what your property value should be. These three properties are really just as similar comps as you can find to compare to your own.
Considering Market Conditions
The main reason you should only use comps that have sold within the last six months is that market conditions change so frequently. In your real estate market analysis template, the conditions of the market are the hardest thing to predict. Always keep in mind in your CMA that certain housing market conditions may change within a matter of a few months.
Come Up With an Average Price
Once you have found comps in the area which you think are fairly similar to your property, it may be a good idea to come up with an average price for these properties. This will just help in the future to know what to expect when it’s time to purchase or sell a property. Below are the components needed to calculate an average price:
- Square feet
- Listing price
- Number of bedrooms
- Number of bathrooms
- The age of the house
- Recent upgrades or renovations
- Amenities like a pool or patio space
- Garage spaces
- HVAC systems
As the real estate current market can be tricky to predict, taking a look at the historical data may also help gain an understanding of what to expect. A good place to go to see how the market has performed is the National Association of Realtors (NAR).
The last essential preparation step is to have a plan set in mind for your target market audience. This means doing extensive research on the neighborhood your property is in to see what type of person would want to rent the property. Then, you are able to come up with a marketing strategy to promote your property. This research will also help determine property values.
Below are some key aspects that would help decide your target market and property value:
- Major employers in the area
- Education levels
- Market overview
- Data on job growth
- Data on population
- Market trends
What to Include in a Real Estate Market Analysis Template
Now that we looked into some important real estate trends to keep in mind, we can discuss what data and components you should include in a real estate market analysis template.
A CMA must include the lot size of the property, as that is a huge factor in determining property value. The difference between even a quarter of an acre can impact the overall value.
This is where you find the best comps to use when trying to figure out a property’s value. It is important to try to find similar properties in the same location because it gives the most accurate calculations. If there have been no recent sales in your location, try to find areas with similar homes, amenities, neighborhoods, schools, etc.
Condition of the Property
This includes how old the property is and the year the building was constructed. You should also include any renovations and upgrades done on the property. For example, a newly constructed property with new materials will likely be more valuable, though an old building with upgrades could also be much more valuable than other homes built in the same year.
Number of Bedrooms and Bathrooms
This is another essential component of comparable market analysis. It is likely that more bedrooms and bathrooms will add value to the overall price.
Square Footage of the Property
While the lot size is important, the size of the property itself can add value to the home. Similar to the number of bedrooms and bathrooms, more square footage will add value to the home.
Properties with special features will be more desirable to buyers or renters. This means certain amenities will also make the value of the property increase. Some of the most common special features are:
- Swimming pools
- Private garage spaces
- Finished basements
Financing When Sold
How you plan to purchase the home can affect the overall purchase price. In a buyers market, there might be contingencies that could impact the sale. Some contingencies could be certain repairs the buyer requests to be done to the home before the sale. This could increase the selling price. Always be considerate of how you choose to finance a home as it might affect the price in the end.
Date of Property Sale
It is important to keep an updated real estate market analysis that reflects the changing housing market. The market is likely to change every few months, thereby changing the property value.
How to Do a Market Analysis in Real Estate
Now that you know exactly what components go into a real estate market analysis template, doing one will be easy. Below are five steps to doing your own free real estate comparative market analysis template.
1. Conduct a Property Analysis
Basically, everything you need to include in a property analysis can be found in the previous section. All of these components make up a full property analysis.
2. Access the Listing Price and Property Value Estimate
Looking at the listing price and estimated property value will give you an idea of the condition of the home. This pricing, as long as it is priced fairly, should reflect any current renovations or upgrades made to the property. This can help create a good starting place for your real estate market analysis.
3. Look at Comps
Next, you should compare your property to others in the area that have similar features. This can help determine additional value to the home by addressing special features like extra rooms, square footage, swimming pools, and garage spaces. After finding around three great comparison properties, you can adjust the current pricing accordingly, as well as continue generating your market analysis.
4. Visit the Property
Once you have a general idea of the price range for the value of the property, you should visit the building and see the condition in person. Doing a walk though will help shine a light on aspects of the home that you might not see from pictures or descriptions. This will give you the last necessary components of a CMA.
5. Complete Your Market Analysis and Determine the Value
Once you have all of the blanks filled in your real estate market analysis template, you will be able to calculate a precise property value. In this step, you should also calculate the average price per square foot on your comps to accurately price your own property. Below is the equation for this calculation:
Average Price per Square Foot = Selling Price of Comp / Square Footage
Complete this calculation for each comp property to have the best estimate of the property value. All of these steps are essential in market analysis and will give you accurate and reliable results.
Related: 10 Factors That Affect Property Value
As an investor, conducting a short term rental analysis is an essential part of finding a profitable investment. This strategy is the best way to ensure you will generate a high return on investment. Mashvisor knows investing can be tricky sometimes, thats why we recommend visiting our site to help. We offer comprehensive tools and services that guide you though complicated investment transactions, including making a real estate market analysis template.
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