A new study shows the best markets for single-family rentals in 2017 for real estate investors are in the areas away from the high-cost West and East coast markets and housing hot spots like Denver, Dallas and Austin.
The report from ATTOM Data Solutions identified and ranked 25 counties with the best potential for future growth in returns for real estate investors on single-family rentals.
In all 25 counties, average weekly wages increased at least 5 percent annually and outpaced growth in fair market rents. All 25 counties also had gross annual yields of 9.5 percent or higher.
The top five counties for single family rental growth were:
- Trumbull County, Ohio, in the Youngstown metro area (17.2 percent)
- Saint Lawrence County, New York, in the Ogdensburg-Massena metro area (17.1 percent gross annual rental yield)
- Richmond County, Georgia, in the Augusta metro area (16.6 percent)
- Broome County, New York, in the Binghamton metro area (16.4 percent)
- Lucas County, Ohio, in the Toledo metro area (14.5 percent)
For instance in Lucas County, Ohio the median price for a three-bedroom home was about $88,000, while monthly rent for one of those homes this year projects to be $1,066.
“You’re getting a nearly 15 percent return on your money annually, which is a pretty good investment. That’s a gross return not including expenses, but it certainly ranks very high compared to the rest of the country,” said Daren Blomquist, senior vice president at ATTOM, told the Toledo Blade.
The report analyzed single family rental returns in 375 U.S. counties each with a population of at least 100,000 and sufficient rental and home price data, along with more than 6,000 U.S. zip codes with a population of 2,500 more and sufficient rental and home price data. Rental data was from the U.S. Department of Housing and Urban Development, and home price data was from publicly recorded sales deed data collected and licensed by ATTOM Data Solutions.
“While good returns on single family rentals are hard to come by in high-priced coastal markets and in some other housing hot spots such as Denver and parts of Dallas, Austin and Nashville, solid returns on single family rentals will continue to be available in many parts of the Southeast, Rust Belt and Midwest for investors purchasing in 2017,” Blomquist said in the release.
“And single family rentals should continue to yield strong returns in many parts of the country going forward given the market undercurrents of low rent-ready housing inventory and low homeownership rates. Average fair market rents increased in 2017 in 86 percent of the markets we analyzed even while average wage growth outpaced rent growth in 67 percent of markets — a recipe for sustainable growth in the rental market,” Blomquist added.
The average annual gross rental yield (annualized gross rent income divided by median purchase price of single family homes) among the 375 counties was 9.0 percent for 2017, down from an average of 9.1 percent in 2016.
Counties in Georgia, Maryland, Pennsylvania post highest single- family rentals returns
Counties with the highest annual gross rental yields were:
- Clayton County, Georgia, in the Atlanta metro area (23.7 percent)
- Baltimore City, Maryland (23.6 percent)
- Bibb County, Georgia, in the Macon metro area (23.5 percent)
- Monroe County, Pennsylvania, in the East Stroudsburg metro area (20.6 percent)
- Saginaw County, Michigan (18.8 percent).
Among 40 counties with a population of at least 1 million people, those with the highest gross rental yields were:
- Wayne County, Michigan, in the Detroit metro area (17.3 percent)
- Cuyahoga County, Ohio in the Cleveland metro area (13.2 percent)
- Allegheny County, Pennsylvania, in the Pittsburgh metro area (10.6 percent)
- Philadelphia County, Pennsylvania (10.1 percent)
- Franklin County, Ohio in the Columbus metro area (9.9 percent).
Counties with lowest single-family rentals returns
Counties with the lowest annual gross rental yields were:
- Arlington County, Virginia, in the Washington, D.C., metro area (3.4 percent)
- Williamson County, Tennessee, in the Nashville metro area (3.9 percent)
- Santa Cruz County, California (4.1 percent)
- Norfolk County, Massachusetts, in the Boston metro area (4.2 percent)
- Santa Clara County, California, in the San Jose metro area (4.2 percent).
Including Santa Clara County, the lowest gross annual rental yields for counties with a population of at least 1 million:
- Kings County (Brooklyn)
- New York (4.4 percent)
- Orange County, California, south of Los Angeles (4.6 percent)
- Fairfax County, Virginia, in the Washington, D.C., metro area (4.6 percent)
- Queens County, New York (4.7 percent).
Rental yields decrease in 57 percent of markets
Median sales prices for single family homes rose faster than average fair market rents in 213 of the 375 counties (57 percent), resulting in declining gross annual rental yields in the same percentage of counties.
Counties with the declining gross annual rental yields included:
- Los Angeles County, California
- Cook County, Illinois, in the Chicago metro area
- Maricopa County, Arizona in the Phoenix metro area
- Miami-Dade County, Florida
- Queens County, New York.
Seattle Single-Family Rents Leveled Off
“Unlike their apartment counterparts, single-family home rental rates in the greater Seattle area have leveled off significantly,” Matthew Gardner, chief economist at Windermere Real Estate in Seattle said in the release. In King County the annual gross rental yield in 2017 is down from 2016 thanks to median home prices increasing 5 percent compared to a 1 percent increase in average fair market rents.
“While home prices in this area continue to see steep increases, rents have not followed suit. I believe this is because the incomes of those who rent single-family homes are not keeping pace with rising home prices. Thus rents have had to adjust to the realities of the market.”
“Single-family home rental rates will likely continue to see very modest increases, as many of these renters are converting to buyers,” Gardner continued. “In fact, ‘Boomerang Buyers’, who were forced to become renters when they lost their homes to foreclosure, are now in a position to qualify for a mortgage again. This process could lead to declining demand for single-family rentals. This could force landlords to adjust their rents accordingly in order to keep their properties occupied.”