Comps
One thing I often do when a client wants to buy a particular property is offer a list of comparables. I’ll list all the properties that are active, in contract, and that have been sold in the last year in the same area, including relevant details.
Comps show the price per square foot that properties are listed, and at what price they’ve sold. This way we know how low we can reasonably offer (in a seller’s market there are often counter offers).
While price per square foot can indicate upside value, rents will tell you immediate value. In real estate we ask: what’s the GRM? The GRM (gross rent multiplier) is the fastest way to determine an apartment building’s immediate value – divide the price by its yearly rents. The lower the GRM, the better the cash flow.
Comps tell you a story of a neighborhood, but they don’t tell you the whole story. Market activity can shift within months – inventory can dry up, more buyers enter the market – and what you could buy 8 months ago isn’t always what you can buy today. That said, it’s good to use as many tools as you can when making an investment, and comparables just make you wiser.