Welcome to my new article on real estate market analysis 2021; it is a tough time for millennials and Gen Z’s on the marketplace. The market value has suffered a drastic fall over the last 12 months and it is forecasted that it can get better by 2021.
Recent estimates show that the real estate industry is valued at $42.42 trillion, and is expected to grow at a Compound Annual Growth Rate (CAGR) of 3.95 percent to reach $49.02 trillion by 2021. Businesses and consumers across the globe rely heavily on real estate as a means to house their businesses and employees, as well as provide them with shelter and the basic needs of life such as food and clothing. Real estate also enables people to raise their standard of living by providing secure shelter and the ability to own a piece of land or property, whether through home ownership or through renting, thus helping people to work hard and succeed in life. Real Estate Market Analysis 2021
How to Do a Real Estate Market Analysis – 7 Steps
Step 1- Property Analysis
The first step in your real estate market analysis is to perform an analysis of the property. The following characteristics should be evaluated:
- Area and neighborhood: Drive around the neighborhood the property is located to assess the quality. If you are looking at an out-of-state property, utilize online resources like, Google Street View to see which streets or pockets are nicer than others. Keep in mind that Google’s images may be out of date, so it may be difficult to determine how nice the neighborhood actually is.
- Size or square footage.
- Lot size.
- Number of bedrooms and bathrooms: The number of bedrooms and bathrooms is extremely important when determining the value of a home. For instance, two-bedrooms are less favorable than three or more. And homes with only one bath often sell for a lower value.
- Other rooms: Because homes with more bedrooms generally mean a higher price, it’s a good idea to see if rooms that may have been used as an office or den would qualify as a bedroom. Check out local building codes to ensure other rooms can legally be classified as bedrooms.
- Number of floors.
- Construction age: When the house was built, remodeled, added onto, etc., plays an impact on valuation of the property. Newer homes will be valued higher unless maintaining the antiquity or original architecture of an old home is considered desirable in the area.
- Amenities and features: Several amenities and features that may increase the property’s value include, a fireplace, deck, garden, swimming pool, balcony, etc. Other amenities could be that the house is located in a gated community with a clubhouse or access to tennis courts. All of these variables impact the value of the home.
- Proximity to local amenities: Consider if a property is located or near a busy road, if it has quick freeway access, if it’s close to stores, public transportation, parks, schools, etc. Additionally, look to see if a property is in close proximity to undesirable sites like a garbage dump or industrial buildings.
- Recent or notable improvements.
Step 2- Assess the Original Listing Price
Once you’ve done the property analysis, look online for the original listing, if possible. This will give you a good idea of the general condition of the home. Go through the photos and descriptions for any upgrades, remodels or potential issues. The builder or developer should also be listed so you can determine if it was custom built or cookie-cutter home.
Step 3- Check Property Value Estimates
Utilize online resources like Zillow Zestimates to give you the estimated market value of the home. As these are market value estimates, they may not be totally accurate, especially if changes have been made to the home. But this will provide a good starting number to go off of as you continue your real estate market analysis.
Step 4- Search Comps
The next step is to search for properties that are comparable to yours. Comparable properties should have the same number of bedrooms and bathrooms, within 300 square feet in size, located in the same neighborhood, similar lot size, age of home and features.
Identify Recently Sold Properties in the Area
By looking up sold listings online, you will be able to see exactly how much similar homes sold for in the area. Look at past listings within a radius of one to three miles from your property. Search for homes that were sold in the last three months, as this will give you the most accurate value as market trends fluctuate. Then, if necessary, expand your search to the last six months. Pick three to five comparable properties and add them to your list of comps.
Search for Current Listings of Comparable Homes
Next, look for current listings of comparable homes within a one to three mile radius. Choose three homes, at minimum, that are comparable to yours. Keep in mind that these listing prices are not necessarily real values. Typically, a sellers’ market tries to inflate values by pricing higher, while a buyers’ market tries to deflate values with lower prices. The value of unsold homes is impacted by real estate trends. Current listings will give you a good idea of what your competition is like.
Consider Pending Listings of Comparable Homes
Pending listings have not fully closed yet, however, looking at these listings will give you real time insight into how the market is doing.
Look at Expired Listings of Comparable Homes
The last thing you’ll want to look at is expired listings of similar homes. This is extremely valuable information for your market
analysis because usually properties that have expired were priced too high.
Sources to Gather Real Estate Analytics
You might be asking yourself, where do I find all of the information I need for my comparative market analysis? The following are good resources to find the analytics you need:
- The Federal Housing Finance Agency (FHFA). This website has data on recently sold properties within specific regions.
- The FNC Residential Price Index. Data from more than 20 metropolitan areas that are based on home appraisals. This index also helps buyers and sellers understand current market trends.
- Real Estate Websites. Popular websites like, Zillow, Trulia, and Redfin are great for checking prices of active listings or recently sold properties.
Step 5 – Determine a Price Range
Now that you have compiled a list of all the necessary information, it’s time to determine a price range for your property.
Set Your Ceiling Value
Choose one property from the three to five comps you found, that is definitely worth more than yours. The property may be on a better street, offers more features or is newer. This number will be your ceiling value – or at the top of your price range.
Set Your Floor Price
Then pick a property that is definitely worth less than yours. Maybe it is located on a busy street, has fewer features, or less desirable curb appeal. This number will be your floor price – or the bottom of your price range.
Step 6- Assess the Home in Person
There is no better way to accurately price a home than to assess it in person, if possible. When walking through the property, take note of factors that will impact value, such as: overall condition, any additions or upgrades, amenities, features, necessary upgrades or repairs, as well as the exterior and landscaping.
Step 7- Decide the Market Value
Based on all your research, you should have a price range for what your property is worth. Take into account everything you observed while walking through the home and how it will impact the value. Then, take the selling prices of the comparable homes on your list, divide that price by their square footage, and get the price per square foot for each home. Once you have calculated the average price per square foot of your comps, multiply that by the square footage of the home you are trying to sell or buy.
FACTORS TO CONSIDER IN A POTENTIAL REAL ESTATE INVESTMENT
To analyze a real estate investment opportunity, you need to consider four factors. These factors can be visualized using the real estate diamond framework, introduced by Harvard Business School Professor Arthur Segel in the online course Alternative Investments. It shows how four factors—product, people, external environment, and capital markets—are interconnected in the real estate investment space.
The visual shows a factor in each corner of the diamond with arrows indicating that it influences the others. As such, it’s critical to consider all four factors when analyzing a real estate investment. Here’s a breakdown of each factor and its many facets to consider.
1. The Product
In real estate, the product is the building and the land it sits on. When assessing an investment opportunity, one major advantage of real estate is being able to physically see, touch, and experience property for yourself. The goal with any investment is to increase the product’s value so you can earn a return. With that in mind, assess the product for anything that may decrease its value.
Consider items such as:
- Infrastructure: Is the building physically sound and up to code? Are there built-in design flaws—for instance, floor plan, fixtures, or wall thickness—that could make the space unappealing?
- Signs of damage: Think mold, plumbing issues, faulty heating and cooling systems—anything that could make the space unlivable.
- Physical location: Is the property close to highways, public transportation, offices, parking, green space, or stores and restaurants? Consider the appeal of renting the space from the renter’s perspective and of visiting the space from the perspective of their business’s potential patrons.
- Local supply and demand: What are vacancy and absorption rates like in the area at the time?
- Projected costs: Are there any improvement projects that need to be done? How will maintenance requests be handled? What are property tax rates like in the area?
The property itself provides much to consider when analyzing an investment opportunity, but it doesn’t exist in a vacuum.
2. The People
Something unique about real estate as compared to other types of investments is the flexibility of its deal structure and how much of an investment’s success relies on maintaining good relationships.
In Alternative Investments, Segel lists just a few of the people you need to have a positive relationship with when investing in a new building:
- Fire chief
- Police chief
- Building architect
- Neighbors
- Lawyers
- Contractors
- Subcontractors
- Roof inspector
- Elevator inspector
“The list of relationships you need to manage goes on and on,” Segel says. “It’s these various ad-hoc relationships and working with many kinds of people—that’s what makes this business so much fun.”
Because of real estate’s flexible deal structure, Segel advises investors to brush up on their negotiation skills.
“Because real estate has non-standard pricing and flexible deal structuring, everything and any transaction is a negotiation,” he says.
When analyzing a potential investment, consider the relationships you have with the people involved. If there are existing strained relationships, perhaps this isn’t the right investment for you. With so much riding on how you interact with others, it can literally pay off to have a good rapport and negotiation skills.
How to perform a real estate property analysis: Analyzing metrics
Once you have all the data, look at the metrics, which will give you a better idea of whether a rental property will ultimately be a profitable investment. Here are a few real estate metrics you can use the next time you need to do an investment analysis.
Net operating income (NOI)
When it comes to analysing metrics, your first step should be to find the net operating income for the property. NOI is a measure of the income the property will generate after accounting for operating expenses. While NOI is not enough to get a full picture of the profitability of a property, it does form the basis of many other equations you’ll use in your analysis.
The formula for net operating income is as follows:
Rental income + other income – operating expense
While the bulk of your income will likely come from tenant rent, be sure to account for any additional sources of income, such as parking revenue or income from laundry facilities. On the other hand, maintenance, utilities, and all of the other usual suspects should get included in the operating expenses portion of this equation. However, your mortgage payment should not. Net operating income doesn’t account for debt service.
Conclusion
Real estate market has been a thing for a long time. If you have been following the development for a few years, by 2021, your real estate investment can be paid off quite easily. But what is more lucrative than merely the capital appreciation is the rental income you can get from your home. In order to know how much rental yield you will receive from your property, let’s do a market analysis of real estate in 2021 and its potential rental yield.