Real estate investment analysis is a crucial investment aspect for real estate investors. Investing in real estate can give you long-term returns if done right. To succeed, you must understand how to analyze different properties. This helps you make a good investment for better returns. Many people panic at the mention of analysis because we all imagine unending processes associated with numbers and figures. If you’re one of those people, here’s an introduction to real estate investment analysis to get you started.
Identify the property type
Before starting the analysis, you have to identify the type of property you want. Do you want commercial, residential or industrial, and office properties? Choose a property type that aligns with your investment plans and interests.
Determine the value
The primary objective of any real estate investment opportunity is to get good returns. Regardless of the type of property, you must understand its value. This helps you to determine whether you’ll get the targeted returns. Without a proper understanding of the property’s value, you might be overcharged, resulting in irreparable losses. To get the correct estimates, you can use the following methods to determine the value.
- Comp Analysis
A comparable or comps involves comparing your ideal property with other recently sold properties within the same area. You can compare the amenities and states of the properties and make adjustments to get proper estimates. This method is used for single-family homes.
- Income Analysis
This method uses the projected future income of the property to determine its current value. Investors in commercial and residential real estate use this method.
Correct as much information on the property as possible. Ensure you know its size, the land size, features, and current condition. Find information on current income, expenses, and financial details such as loans and mortgages. Compare the Pro-forma data (data provided by the seller) with actual data. A seller’s information may be appealing but inaccurate. Therefore, get actual data from the county’s property records and buildings properties management to confirm seller’s information.
Determine Future Income
Get past information on the property income, to project future income. Learn of its past monthly rent, vacancy rate, and other income such as parking fees and laundry services. This can help you know what to expect and whether the rates are within the current market prices. Additionally, you can plan for unforeseen changes during the investment horizon.
Calculate the Expenses
Managing a rental property requires money. Being the landlord, you’re responsible for everything, including maintenance, repair, taxes, and insurance.
Return on Investment
Calculating the return on investment helps you know the profits you can expect from the property. You can add the expenses and subtract from the income and then divide by initial equity to determine the percentage returns you can expect.
Conducting a real estate analysis may be tedious, but it’s important for a profitable investment. Before investing, ensure you have the property’s information to help you determine the income, the expenses, and the projected income. While the seller can give useful information, ensure you confirm it from credible sources.