Online residential real estate investment management firm HomeUnion released the ten best and ten worst markets for single-family rental (SFR) property returns. The results show SFRs in the Midwest and Southeast to be the most profitable.

  • Single-family rentals in Los Angeles and California offer the lowest returns compared to other metros across the country.
  • Cleveland, Ohio is prime for rental investments.
  • Out of the 50 metros HomeUnion examined, a majority offer between 6 and 7 percent cap rates.

Online residential real estate investment management firm HomeUnion released the ten best and ten worst markets for single-family rental (SFR) property returns. The results show SFRs in the Midwest and Southeast to be the most profitable.

Steve Hovland, director of research services at HomeUnion, said that although coastal communities might be the best for the long term investor, but “the ROI won’t be as immediate as it will in the Heartland.”

According to HomeUnion’s list, which analyzes first-year SFR returns, or cap rates, Cleveland, Ohio offers the best return on investment when it comes to rental properties. Cap rates are the correlation between the property’s net operating income (rent minus expenses) and the market value of the property.

As mentioned Cleveland, Ohio offers investors the best return. According to HomeUnions data, Cleveland SFRs offer an 11.1 percent cap rate. Coming in second place is Columbia, South Carolina, where SFRs afford investors a 9.7 percent cap rate.

“SFRs are outperforming many other investment vehicles, including bonds and gold. As interest rates remain low after the June Brexit vote placed downward pressure on U.S. treasuries, bonds and other investments will continue to be low yielding assets. Investment real estate has proven to be a successful part of a diversified portfolio, and these markets offer the largest returns,” Hovland said in a press release from HomeUnion.

SFRs in some markets offer great returns

Chicago, Illinois SFRs are right in the middle of the cap rate returns pack offering 6.8 percent.

Houston, Texas’ rentals fall just below Chicago’s with 6.4 percent cap rates. And not too far below that sits Miami where SFRs are delivering 6.1 percent returns. The strongest percentage of metro areas examined by HomeUnion are in the 6 to 7 percent range.

With that said, Baltimore, Maryland offers the same 6.1 percent cap rates that Houston does.

Washington, D.C., where rent is barely affordable as is for 23 percent of the renting population, offers 4.6 percent cap rates.

The New York metro offers even less of a return than D.C. with only a 3.5 percent cap rate. And even below that sits Los Angeles and San Francisco where cap rates of 3.1 percent and 2.5 percent, respectively, are some of the worst in the country.

Email Britt Chester

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