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Home » Investment property » The Importance of Real Estate Market Analysis for Investing

What do successful property investors have in common? They conduct a real estate market analysis each time they buy a property. They take the time to do the math and compare similar properties before closing the deal. Unfortunately, many first-time investors buy properties based on their intuition, not information.

Before investing in real estate, it’s important to know how to analyze the market. Whether you’re looking to buy a home in Miami Beach or Fort Lauderdale, a thorough market analysis can provide you with the numbers you need to make an informed decision.

What is a Real Estate Market Analysis?

What is a Real Estate Market Analysis?

A real estate market analysis, otherwise known as a comparative market analysis (CMA), determines the investment property’s value based on the value of comparable properties (referred to as “comps”) within the same geographical location. It’s worth mentioning that in CMA, the comparable properties must have been sold recently (within three to six months) or listed for sale. They should also be at least one mile away from the investment property.

While a CMA sounds like an appraisal, there are several differences between the two. For example, an appraisal is conducted by an appraiser, while a CMA is typically conducted by a real estate broker or property manager. Additionally, appraisals are designed for commercial properties, while CMAs are better suited for residences. Since it is not the same as an appraisal, it does not contemplate the investment property’s legal and financial value.

Why is a Real Estate Market Analysis Important?

Why is a Real Estate Market Analysis Important?

A real estate market analysis is an integral part of any investment. It determines the approximate value of the property in question and helps investors choose the right residential properties. Generally, it helps property investors avoid bad investments.

Additionally, property investors who are looking to rent out the property can benefit from market analysis, as it provides an estimate of how much they can charge for rent. It also determines the appropriate listing price for the rental property.

However, since this type of market analysis is based on estimations, it’s important to remember that it isn’t 100% accurate. It does, however, provide buyers with a snapshot of the real estate market that they’re planning on investing in.

Where Should You Look For Your Data?

Where Should You Look For Your Data?

If you’re performing the CMA on your own, you might be wondering where to begin. Fortunately, there are plenty of resources that are readily available to you. Here’s where you can obtain the information you need to perform a rental market analysis:

#1 Historical Data

Historical Data

Property investors are forward-thinkers. They want to know where the real estate market is going to be in 5, 10, or even 20 years. To determine this, it’s important to understand where the market has been. Consider reviewing reports from the National Association of Realtors (NAR) to learn what types of properties have been selling the most and for how much.

#2 Demographic and Statistical Data

Demographic and Statistical Data

Get to know the area where you’re planning on investing. An excellent source for information is market summaries, where you can find data on population growth, job growth, employment opportunities, education levels, quality of life, local housing market activity, and more.

#3 Other Sources

Other Sources

Social media, forums, and community websites may not be the most “formal” of sources, but they’re worth looking into. The internet has tons of transparent data that will give you an unbiased view of the real estate market. Use it to discover how its actual residents feel about living there.

How Do You Conduct a Real Estate Market Analysis?

A CMA is conducted by comparing the investment property in question to similar properties. It determines the estimated value based on several factors, however, since no two properties are the same, you may need to make some adjustments to obtain the most accurate evaluation.

#1 Look at the Location

Look at the Location

Location is one of the most important aspects of any real estate investment. First, CMA requires that the investment property is compared to similar properties within the same location. The “comps” must have been sold in the last six months. Second, in order to attract as many tenants as possible, the property should be in an area that’s complete with public facilities. A rental property that has access to public transportation, schools, hospitals, and the like is definitely going to be a hot investment.

#2 Choose Comparables

Choose Comparables

Choose at least six similar properties or “comps” in the area. Three of them should have been sold in the last three to six months, while the rest should still be on the market. When choosing comps, you should consider the following:

  • The number of bedrooms and bathrooms
  • The square footage
  • The lot size and shape
  • The age or original construction date
  • The number of stories
  • The outdoor features (e.g., swimming pool, patio, storage sheds, scenic views, etc.)
  • The neighborhood
  • The school zone

The comps should be as similar to your property as possible. For example, if your property has two floors and three bedrooms, a good comp would be a home with two floors and four bedrooms. Keep in mind that it doesn’t have to be exactly the same.

#3 Determine the Price of the Comps

Determine the Price of the Comps

Once you’ve selected your comps, the next step is to determine the average price per square foot of each property. To calculate this, simply follow the formula:

Price / floor space (in square feet)

If you’re unsure whether your calculations are correct, we recommend hiring a real estate broker or property management company. They will be able to accurately determine this figure while taking into account each property’s unique characteristics such as its elevation, basement, attic, and so on.

#4 Make Adjustments

Make Adjustments

The final step in your real estate market analysis involves making adjustments to your comps. You will notice that your comps are not exactly the same. To make sure that your market analysis is as accurate as possible, make sure to adjust the value of your investment property based on these differences.

For instance, if your property has three bedrooms and a comp has two, you will have to add the value of one additional bedroom to the estimated value of your property.


Succeeding as a property investor isn’t easy, but with the right knowledge, the chances of finding success are much higher. A real estate market analysis is one way to ensure that you’re taking the right step in your journey as a property investor.

If you’re looking for investment properties in South Florida, visit Luxury Property Care. Our property managers can help you secure your ideal property. Through our in-depth market analysis, we can determine the best possible price for each property, helping you put your money in a home that generates the highest returns.

Call us today at (561) 944- 2992 or complete the contact form to learn more.

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