One of the most important things you can do when considering purchasing a rental property is to have a rental analysis performed. This report focuses on the unique needs of the commercial real estate market and gives you a thorough understanding of the building and the surrounding area. While you can research and analalyze this data, a property management company can gather this information. Here are some things to understand about your rental analysis.
The first part of any analysis is to identify the type of property you are considering. It helps to understand the advantages and disadvantages of each rental type to make an educated decision about the property you are purchasing. Vacation rental homes have a different set of expectations than multi-family rentals.
A commercial real estate comparable analysis looks at the properties that are physically near yours and of a similar property type. When looking at similar properties, location is based on the physical area of the investment property. If it is located in the city, comparable properties can be within a few blocks. However, you may have to expand your search radius to several miles for suburban properties.
It is important to know the features and benefits of the surrounding area to identify the type of tenant you will attract. Developing a marketing strategy includes identifying what features your potential renter will require in a home. Ask yourself these questions to better gauge the rentability of the property:
- What is the walkability score of the area?
- Where are the closest shopping and restaurant options?
- What are the ratings of nearby public and private schools?
- Is there adequate public parking if your building does not have private parking?
- What activities are nearby for my residents – libraries, parks or museums?
Understand the rental rate per square foot for both your commercial real estate investment and comparable properties. This gives you a baseline to determine where your rates align with your competition. With this information, you can increase or decrease your rent based on the amenities offered. Some types of amenities include:
- Parking garage
- Fitness center
- Community garden
- Security service
- Washer and dryer hookup
- Patio or balcony
Selecting a good investment property is more than just looking at a building and signing a sales contract. It is an investment in time and money to build a profitable future for yourself.