Why is a Real Estate Market Analysis Important?

commercial property market analysis salinas ca

Investing in real estate is a smart move. Investing in real estate smartly is an even better move. In order to make the most profit from your real estate investments, you should hire a property management services company to conduct a full real estate market analysis on every property you are considering to purchase as an investment property. Here’s what the analysis is and multiple reasons why a commercial property market analysis is vital to your real estate investments.

What is Commercial Property Market Analysis?

The property market analysis is a tool used by wizened property investors to ensure that their money is well-spent. Nobody enjoys making a bad investment as the money lost is rarely, if ever, regained. The analysis provided by a good commercial property management firm in Salinas CA allows you to see what a property is really worth based on the surrounding property values. Then you can bid or buy at a price that is more in line with the value of the property and not lose money.

1. Keep More Money in Your Pocket for Other Investments

If you could buy two properties for the price of one, and the two properties would garner more profit in a month than just the one, you’d buy the two. Additionally, if the two properties together cost less than the single property, you’ve just essentially doubled your profit and you kept some extra cash in your back pocket to invest in a third property. That’s smart investing, but you wouldn’t know it if you just buy properties on a knee-jerk reaction. The market analysis you receive on all three properties you’re interested in would reveal which two properties will give you the most bang for your buck and the least headaches for the immediate future.

2. Locate Properties With Historically High RORs

Part of a market analysis is viewing historical data for a given area. Just because a property is located near Beverly Hills, for example, doesn’t necessarily mean it will be a profitable property. Examine the historical data on the property and the area as a whole. Compare it to neighboring properties several blocks over or a couple miles away. If the historical data shows that the value of your investment only climbs over time, or has a few minor dips, it’s a worthwhile property to consider for your portfolio.

2. Use Demographic and Statistical Data That Dictate Property Usage and Potential Value

Let’s say you’re interested in a commercial rental property. It has multiple units to rent to tenants, and some of those units are already generating income because the property has some tenants. Examining the demographic and statistical data of the tenants the building currently has, as well as the data about the area surrounding the property, tells you whether or not the property would make a good investment. If the building is run down, needs frequent repairs by tenants not responsible for repairs, and/or may need more upkeep than you can manage, you may still consider it a worthwhile investment if you can afford property management services from property management companies. If your investment budget is tight, and the demographic and statistical data suggest you’d be in the hole before you even advertise open and available units, you may want to leave this property in the listings.

4. Determine If the Property Is Overpriced for Its Location

When the real estate market is strong, you want to jump right in and take advantage of the potential profits. The trouble is, if you buy properties that are overpriced for their location, usage, etc., you lose. A real estate market analysis can tell you exactly what you should pay, and if the seller isn’t willing to negotiate down to the more reasonable price, there are other properties you can pursue. The sad thing about most real estate investing greenhorns is that the leap before they look and often pay far too much for properties they should have bought for less. It’s a tough market, but holding out for better pricing on better investment properties is how the best investors do it.

5. Once You Own a Property, Market Analysis Helps You Set Reasonable Property Rental Pricing

Once an investment property is yours and you have made the choice to rent it out (if it isn’t a rental property already!), the market analysis helps set rental pricing. You can look at all of the information you gathered before you bought the property to determine what a fair rental price is/would be. When potential renters come across the property and discover that you are offering a very reasonable rent price, they are sure to jump at the chance to rent from you.

It’s also important to set the rent just slightly above the going rate. If you can’t get tenants at your higher asking price, you can adjust the rent down to the amount you want and are willing to accept to attract more potential tenants. You can also offer discounts or move-in deals that shave a little off the higher amount and still allow you to make some profit.

In Conclusion…

Real estate investing is exciting, but like all investments, you could lose your shirt if you aren’t diligent about research. A commercial property market analysis is your research and your insurance against a larger percentage of the worst mistakes you could make. Find the right firm for this service, and use it consistently for every property you are considering. The added expense of the analyses you receive more than pay for themselves in the long run because you aren’t buying into bad investments. That doesn’t mean you won’t make any mistakes at all along the way, but your due diligence with the analyses prevents you from making a lot of mistakes you would have regretted.