Learn how to interpret the results from the quick market research exercise.
- All right in the last video you learned how to use this worksheet here, this model. Before we use it we got to fill it in with some information about the market that you're interested in, right. So remember we had the properties listed for sale. You've got at least three here I hope. And we looked at sales comps, recently sold properties that are very similar in the same market. And we looked at what they sold at and put in their information. Then we also looked at properties, similar properties that are currently being listed for rent in that market.
And I hope you have at least three of those also. In this example I went through the market that I was looking at, a part of downtown Las Vegas, where I have seven properties listed, and then I have seven recently sold sales comps, and then I have seven rental comps. So how do you use this now? All right well let's look at the first part. So we've got some information here, this tells us kind of the averages of the properties you're looking at. So on average the ones that you're looking at is three bed in my case here I have seven, but notice here first, B4, notice here, I put a zero here, okay.
I started gathering four bedrooms and three bedrooms but I decided I only wanted to look at three bedrooms afterward. So this one, I'm just going to leave it out of the averages here, by putting a zero here I'm going to take it out. If I put a one it adds it back, but I'm going to put a zero because if I'm only looking at three bedroom, two bath comparables for sales and for rents well this four bedroom, two bath one is going to throw things off here. So I'm going to put a zero and what that does is it takes it out of my results here, okay.
So now all of these are ones, which means all my averages are based on these six. Six is enough, okay, to get a feel for the market. Now I know that, look this area tends to be older, the average year is in the 1960s with the exception of the last one that was built in the 80s. Most of them have slightly larger lots, the more recent one is smaller, right. They're all about 1300 to 1400 square foot except for this one that is a little bit smaller.
And what we see then we have the listing prices, the average is around 150,000 here, the average asking is 116 per square foot. But notice that this one here, you see this one, that's a significant outlier. It's asking for 150 per square feet, right, and that's a little odd. And it's older, it doesn't seem like there's a lot of things that's very special about it either. And when I look at my notes around the curb appeal and the fixtures it's actually pretty crappy.
And it requires the most work. This may be one of those listings where the owner is delusional and is opportunistic, hoping for a sucker to buy it at a huge listing price. You know because they got it for 40 grand only three years ago. It doesn't see like they did anything to it and they're trying to make a healthy 100 plus thousand profit from that. They're not going to get it but this is what they're asking for. So you know what, I'm going to take this out as well because this is not a real listing. It's not a serious listing, okay.
So when I take that out, now when I look at this these are my five properties here where I'm looking at. So it doesn't change things all that much but it does lower the average asking price a little bit. Okay so what I'm seeing now is for the listings that I'm actually interested in looking at the asking price is about $109 per square feet, okay. And here are some other specs. Now let's look at recently sold comps. So I pulled seven properties that I put in there and what I did was I had one and then I started putting the information in here and then I realized when I started looking at the photos that it was renovations that were kind of in progress but it was incomplete, somebody decided to not finish it and list it for sale.
So you would basically have to finish the renovations there and so this would involve a lot of work. 'Cause you got to figure out what they did or didn't do and you got to make sure everything's done right. So instead of leaving this in my comparisons, 'cause I'm not really going to be looking at this at all I'm going to take that out and I'm only going to look at the sales of properties that look similar in state compared to the ones I'm considering, okay. So when you have that, here it calculates the averages. Now by comparing these two sets of data I get to see that what I'm looking at that are listed for sale compared to recently sold ones in the market, I see that the ones I'm looking at are slightly larger in terms of square footage, it's about 8% larger.
They're all about three bedroom, two bath. Lot sizes for the recently sold are a little bit bigger then the ones that I'm looking at right now. But notice here, see of the ones that I'm looking at the sales price is a little bit lower but the price per square footage that they're asking for is pretty much identical. So what we're seeing is that based on this small sample size I get the sense that what the properties are listed at are basically selling close to listing price. There's really non premium and there's really no discount at this point, okay.
So that gives you an idea of the state of that market. But here's the thing though, of the ones that are recently sold, they look nicer on the inside and on the outside compared to the ones that are being listed right now. So the listing price is asking for the same thing but it's uglier on the outside and it's older and, at least from my eye, it requires more work to get it ready for renting it out to a tenant. So that's some cause for concern.
And maybe there might be some room for some discounts here for you to negotiate if there aren't a lot of other buyers looking at the same listings. All right now with that let's look at the sales comps. Again same thing but now the relevant thing is the rental rate that they're asking for, okay. And here looking at very similar properties in the area and notice that the asking rate of rent is about $1150. So but for the ones that you're looking at they tend to be a little bit bigger, okay.
They don't look as good so what it's going to tell me is that if I put in some work to make it look better then I can be reasonably confident that I can have an asking rent of somewhere between 1,000 and $1200, okay. And because the units that are asking for 1150 on average here, they tend to look nicer maybe I can be more conservative in my estimates for my analysis. So here just with all those comps here it tells me some things about what I can expect to pay for the product.
It tells me some ideas of what I can expect to collect in terms of rents as well. So in the next lecture let's see how we can put those assumptions in to all this information and run an analysis on a specific property.
- Conducting market research
- The seven-stage investment process
- Due diligence: Validating and verifying your investment
- Financing and closing
- Exiting: Selling your investment
- Investment considerations and strategies
- Measuring returns
- How debt impacts your return
- Real estate analysis case studies