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How to Use a Comparative Market Analysis to Estimate Property Value
A comparative market analysis is an easy way for the average real estate investor to estimate the value of a rental income property. A method of appraisal common to real estate investing that's not difficult and, with a little practice, can be used by anyone.
It's simply comparing the features of one property to your property, and locating recent sales in the same or similar location in which those features are as close as possible to the features in your property.
Their are only a few caveats.
The properties you select for your comparative market analysis should be in the same general market area as your property. There can be vast differences in sales price between properties located in cities just several miles apart.
The sale date of the comparable property should be fairly recent. Perhaps within the last six months or so (the more current the better).
The size of the properties you select to analyze should be somewhat comparable to the size of your property. It won't help your cause to select 2-4 unit buildings when you're trying to estimate the value on your 20-unit building, and vice versa.
Here are some major features to consider.
Price of the most recent sale Date of the most recent sale Number of units Mix of bedrooms and bathrooms in each unit Square footage of living area Age of building Lot size Income stream (current rents vs. market rents) Overall condition of the property Operating expenses (master-metered utilities vs. tenant pays) Parking (open, covered, or garages) Amenities (views, fireplaces, patios or decks, play area, furnished washer and dryer or laundry facility or none) Proximity to our subject property
Obviously the more comparable properties you can select the better. Adjust for the differences (adding or subtracting value based on the differences) and Viola! you'll arrive at a estimated market value for your property that will make you proud. And for your sake, hopefully also delighted.
James R Kobzeff - 3 Nov 2006.
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