The following blog post is the fourth in a series of posts based on a course that Jan Brzeski and Greg Hebner taught at UCLA Extension in early 2013. The course will be offered again in August, 2013. For more information, please visit their website. Running Comps Before Purchasing a Property When it comes to real estate you would be wise to remember that the comps don't lie. No matter what you think a property is worth, the comparable sales in the market that are similar to your property are going to drive its actual value.
To analyze comps you must know local market, its proximity to the subject property, the number of beds/baths and the square footage. Some places to look at comps are Redfin, Trulia, Zillow, and Realtor.com. Better yet, the MLS provides tools that none of these other sites do. A good agent who knows how to work MLS can analyze distressed vs. non-distressed sales and do all kinds of searches based on different criteria to give you more accurate comparisons.
When you are analyzing the comps, look at cost per square foot. Appraisers use this method all of the time. It's a simple rule of thumb. If you have a property that you think is a hundred and fifty dollars per square foot and everything around it is a hundred then you need to assess your value or assess why your property would be more valuable. Is it the view? Is there something unique about it? Knowing the value of similar properties in your area will help you to get a better picture about whether your value is realistic.
When buying an investment property, you should also look at rents. The easiest way to do this is to pretend you're a tenant - landlords may be very different in terms of what they really want to get for a property vs. what they are listing it for. Listings can be found in CraigsList in most major cities, on TopHat or on Rental.com. Ask around to find out what the rents are to determine if the rental income you are projecting is realistic.
Once you have the information from your comps you can use them to project income. This will give you a more accurate idea of whether a property is a good investment.