Property analysis report is basically a detailed outline of all the facts that you have discovered while analyzing a property. It contains plenty of useful information that helps you decide if you should consider making an investment in the property or not.

Do you make an investment without checking out its various features and weighing the pros and cons of each? No. Right? Whenever there is a huge sum of money involved in an investment, it is always wise to perform a proper analysis of the investment to make the best decision. A similar approach must be adopted while going for property investment.

It helps you evaluate the potential value of the property and decide for whether the offer is worth making or not. There are multiple steps involved in a property analysis. These steps are extremely critical to know if the property will provide enough profits or not. To help you out with conducting a property analysis, preparing a report of the same, and knowing some basic metrics of the process, we have put up a detailed guide to property analysis.

If you are new to property investment, have a look at Property Investment for Beginners.

What is a Property Analysis Report?

A property analysis report is basically a detailed outline of all the facts that you have discovered while analyzing a property. It contains plenty of useful information that helps you decide if you should consider making an investment in the property or not. Some of the useful information recorded in a property analysis report is as follows.

  1. Analysis of the demographic, geographic, and social data.
  2. Physical details and economic characteristics of the properties. For example, physical design, area, etc.
  3. Price at the time of purchase including basic costs, renovation costs, amenities costs, etc.
  4. Maintenance and operation expenses like property taxes, insurance, licenses, advertising costs, and so on.
  5. Revenue information like rent receipts.
  6. Competitive information regarding how the property is comparable with other similar properties in the region in terms of age, condition, and other amenities.
  7. Financing details like loan amounts needed to finance the property, down payments, interest rates, and closing costs.

A property analysis report is a beneficial tool if you wish to understand the standards of the property in the real estate marketplace. It also helps to conclude whether you should buy, hold, or sell the property. If you have performed a detailed and proper property analysis, you must make sure that the information obtained is accurate and from reliable sources only.

Looking for feasibility study? Have a look at What is a property feasibility study?

How To Conduct A Property Analysis?

There are mainly three steps of property analysis. These are, evaluating the rental potential of a property, performing the comparative market analysis, and lastly, finding the right investment in your property. Have a look at the detailed description of each of these steps.


1. Evaluating the Rental Potential of the Property

There are several factors that determine the rental potential of a property, such as location, rental strategy, target tenants, and so on. The location of the property largely impacts its rental potential. To determine the effect of location on the rental trends in that area, you can research how the values have changed over time.

Secondly, a rental strategy is very important to consider while planning to invest in a property. Make sure that you know what kind of tenants you are looking for, how strong is the competition for those services in that area and so on.

Thirdly, be sure of your target tenants. This is important because once you have decided to make an offer on the property, knowing your target tenants will help you design effective marketing strategies.


2. Performing a Comparative Market Analysis

A comparative market analysis ensures that you get a decent deal on an investment property. It includes comparing similar properties in the area to find a fair market price of the property. You can look at the listings of properties in that area online. You can also go through the list of prices of the properties which have been sold in that area recently.

This helps you find an average purchase price that you can expect for a property. Comparative market analysis is also helpful in determining the capitalization rates of your property.

3. Finding the Right Investment Data For the Property

Finally, gather the right property data that outlines the rental income generated by the property from monthly rent. It is a standard procedure in the case of investment property, but you may not get it while purchasing residential properties. You can ask for similar data from the seller of your property.

It is important to note here that you must not follow any information blindly. It is always good to do your own research while making such a big move.

Looking to buy a property in Canada? Have a look at the Property Tax In Canada

What is the Basic Property Analyzing Metrics?

While doing a property analysis, you must consider the analyzing metrics to find out whether the property is worth investing in or not. There are mainly three real estate metrics that you must know about. These are net operating income (NOI), cash-on-cash return, and capitalization rate (cap rate). Let’s look at each of these metrics in detail.

  • Net Operating Income (NOI)

Finding the net operating income of your property is the first step while investing in a property. Net operating income or NOI is the amount of income that will be generated by the property following the accounting of operating expenses.

Though NOI doesn’t give you a clear picture of the profit potential of a property, it does give you a basis for solving other equations during your property analysis. To calculate the net operating income of the property, you must take the difference of the sum of rental income and other income, and operating expenses.

Net operating income= Rental income + other income-operating expenses

Most of your income will be derived from the rents. But you should always be sure to add additional income sources like parking revenue, laundry facilities and so on.

In contrast, maintenance facilities, utilities, and other usual costs in the property should be included in the operating expenses. If there are mortgage payments associated with the property, you shall not include them in the operating costs.

  • Cash-on-Cash Return

As the name suggests, cash-on-cash return is simply the income generated over the investment made. You can calculate the cash-on-cash return of your property by dividing the net operating income of your property by the amount you have paid for buying the property.

The investment calculations will include the closing costs, the repair costs, and any other expenditure that you have made on the property to make it ready for renting purposes. In other words, cash-on-cash is the return on investment with respect to the amount you have invested to own the property.

  • Capitalization Rate (Cap Rate)

You can obtain the capitalization rate by taking a division of your net operating income of the property with the valuation of your property. If your property has a higher capitalization rate, it has a higher reward potential but greater risks.

However, there is no ideal value of the capitalization rates that the investors must aim for. All the investors can decide their capitalization rates according to their comfort levels.

It is a valuable tool to compare multiple properties to find out which one of them will perform better in the long run. Also, if you are aware of the market cap rate in your area, you can use the formula to find out how your property will stack up against the standards of your competitor properties.

You might also like to explore below external contents on feasibility study:

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