The real estate market is the most competitive and profit-making sector in business. If you invest in the real estate market, you know that it will give you a massive return in the end, especially if you know what exactly you have to do with it. If you don’t know how to do it right, it is not a suitable option for you as every real estate investment doesn’t have the potential for profitability. You must pick the right option as an investor to avoid any financial losses in the future.
Since many properties are available for sale in real estate, how would you know which one is the most profitable investment for you? You must consider different factors to determine the property’s potential. It is where the detailed analysis of the real estate market comes into play.
Seasoned real estate investors always do a proper competitive analysis of the market before investing in any property. It helps them decide whether a property is worth investing their money and time in or not. Moreover, it improves the chances of getting financial gains.
In the past, investors relied on manual research before making a final investment decision. However, nowadays, investors have more advanced technology and tools to analyze the real estate market. They can also seek help online from experts and apps to find the right investment property.
Are Market Research and Competitive Analysis the Same?
Competitive analysis and market research are interrelated but not the same. Market research is the first step in which investors gather all the necessary information about different properties and their locations. On the other hand, competitive analysis is one of the categories that market research covers. It is the next step in which investors analyze the competition in the market by using all the information and data they gather through market research.
What Are the Benefits of Performing Market Research and Competitive Analysis?
Market research and competitive analysis help investors make informed and calculated decisions regarding investment property. It is the most crucial step investors shouldn’t skip, as it can cost them millions of dollars.
Benefits of Market Research
Let’s first talk about the benefits of market research.
Understanding the Market
To determine your opportunities, it is crucial to have a general understanding of the market, that is, the trends and changes. It also helps identify the risk factors of real estate investment based on the current trends.
Identifying Demands and Opportunities of the Future
Market research and analysis will allow you to understand the economic conditions and growth of the market. This way, you can predict the potential future demands and opportunities. It will help you answer questions like, “When will the property value increase for you to sell it at a maximum profit?” and “Will the future developments help get more residents for the area of the property?”
Understanding the Needs and Demands of Buyers and Renters
Through detailed analysis and research, it is also possible that you will learn about the needs and demands of both buyers and renters. Since you will be familiar with the real estate market’s know-how, you can determine how many investors plan to buy or sell the property.
Choosing the Best Neighborhood
It depends upon the rental strategy which neighborhood will be an optimal option. For instance, some neighborhoods might be ideal for short-term rentals but not traditional ones. With proper market research and analysis, you can determine which neighborhood you should choose to maximize your ROI. Moreover, it will help you avoid those neighborhoods which can be a turn off for your renters.
Determining the Price
You can determine the pricing of both housing and rentals with the help of proper market research. This way, you can also calculate the profit you will get from home values or rental rates.
Choosing the Right Investment Property
Considering the data and information you gather from market research, you can decide which property is right for you. You should also consider your preferred investment strategy to make the best decision regarding the investment property that pays you off.
Benefits of Competitive Analysis in Real Estate
Now, let’s look at the benefits of competitive analysis in real estate.
Determining the Potential Income
As an investor, you must determine the potential income you can earn after investing your money in a specific property. Competitive analysis of the real estate market helps you get an idea about the average income of your competitors. This way, you can identify how much a similar rental property will rent.
Creating a Plan
When you perform competitive analysis, you start to identify the similarities and differences between you and your competitors. It enables you to create a plan to be more successful than your competitors. You can focus on their strengths and shortcomings to ensure that you do better than them. You can even brainstorm ideas with your team to develop better plans. Moreover, it will help you identify the gaps and fill them to create more growth opportunities for your real estate business.
Identifying the Right Strategies
After analyzing the competition, you can also explore the strategies that can work effectively to earn maximum profit. You can identify the most profitable amenities your competitors are offering. You can then modify these strategies and use them to see how effective they turn out to be for your investment plans.
What Are the Possible Steps for Doing Market Research and Competitive Analysis?
Now that you know the difference and benefits of both market research and competitive analysis, you should also see how you can perform both. Whether you are new in the real estate business or have relevant experience, you should know these steps.
Here are five essential steps mentioned to help you with the process.
Step 1: Gather Real Estate Data
The first and most crucial step is gathering real estate data to do a competitive analysis of the market. It will include everything from the location, economic condition, and tourism to the housing demand, home appreciation rate, and cash return.
Step 2: Gather Comps Data
Real estate comps refer to properties similar to the property you plan to invest in. They must have the same neighborhood, location, and other features for better comparison.
Step 3: Calculate the Return
Using the data, you can calculate the return you will get from buying or renting a property. Make sure that you include all the expenses that affect your net profit. Knowing your financing option beforehand is even better for getting more accurate results.
Step 4: Perform the Competitive Analysis
Now that you have gathered all the data through market research, you can perform the competitive analysis. You can compare the subject property with the real estate comps with the maximum similarities. Likewise, you can analyze how they are performing to see whether they are a profitable option or not.
Step 5: Analyze the Competition
The final step is to analyze the competition using real estate comps. You must study each of them in detail to see which one is in close competition with your subject property. It will help you get more insights into what you should expect while investing in that area.