If you are a single-family home investor, it’s time to look away from coastal markets. Data released last week from Attom Data Solutions, identified the top 25 U.S. ZIP codes for buying single family rental homes in Q3 2017 based on rate of return and other factors.

  • Markets where prices are far above the average have limited opportunity and affordability for both investors and homebuyers.

If you are a single-family home investor, it’s time to look away from coastal markets. Data released last week from Attom Data Solutions, identified the top 25 U.S. ZIP codes for buying single family rental homes in Q3 2017 based on rate of return and other factors.

The top 25 list includes ZIP codes in Atlanta, Houston, Central Florida and Dallas.

The ZIP code with the the highest potential annual gross rental yield was 30238 in Atlanta at 17.7 percent, followed by 77373 in Houston with 13.5 percent and 34472 in the Ocala, Florida-metro area at 13.1 percent.

All of the top 25 had rental yields of 10 percent or higher, delivering a potential annual cash flow of $10,000 or more for a cash buyer after property taxes, insurance, maintenance and other property management costs.

Attom Data looked at potential rental yields and cash flow, vacancy rates, home price appreciation, population growth, neighborhood quality and average property age across 4,854 U.S. ZIP codes and 439 U.S. counties.

The ZIP codes in the top 25 for buying single-family rentals all posted year-over-year increases in rental rates, population and home prices. They also all had a vacancy rate of 5 percent or lower for non-owner occupied homes, and at least 25 percent of all single-family homes were non-owner occupied in these ZIP codes.

For both buyers and investors, the California affordability crunch creates a challenge. Los Angeles, San Jose and Santa Barbara were all among the areas with the lowest yields. Only one ZIP code in California made the top 10, the Los Angeles exurb of Lancaster, California.

Good news for buyers in Q3

Earlier in October, Attom released their Q3 2017 home affordability index, which showed that while home affordability in the third quarter improved compared to the previous quarter in 60 percent of 406 U.S. counties analyzed in the report it was still worse than a year ago in 79 percent of those counties.

Why the change?

“Falling interest rates in the third quarter provided enough of a cushion to counteract rising home prices in most U.S. markets and provide at least some temporary relief for the home affordability crunch,” said Daren Blomquist, senior vice president at Attom Data Solutions.

Blomquist went on to say that in order to provide sustainable relief, home price appreciation will need to slow, and wage growth will need to rise. Wage growth is a critical part of the equations for residential homebuyers.

Since Q1 2012 median home prices have risen 73 percent while average weekly wages have only increased 13 percent over the same period.

Wage growth still outrages home price growth in about half of all local markets down from 216 counties in Q2 2017 and 205 counties in Q1 2017. This was the first time since Q1 2012 that at least half of all markets saw wage growth outpacing home price growth.

Counties where wage growth outpaced home price growth in Q3 2017 included Cook County (Chicago), Illinois, and Maricopa County (Phoenix), Arizona.

On the opposite end of the spectrum, counties where home price growth in Q3 2017 outpaced annual wage growth included Los Angeles County, California, and Harris County (Houston), Texas.

Nationwide, buying a median-priced home in the third quarter of 2017 required 29.5 percent of average wages, which is close to the historic average of 29.6 percent.

However in parts of New York and California, buying a home consumed the bulk of average wages.

In Kings County (Brooklyn), New York, the price of a home would require 125.8 percent of income, followed by Marin County (San Francisco), California, with 104.7 percent.

Conversely, buying a median-priced home required the lowest percentage of average wages in Clayton County (Atlanta), Georgia, at 12 percent and Bibb County (Macon), Georgia, at 12.5 percent.

What both these reports together show is that markets where prices are far above the average have limited opportunity and affordability for both investors and homebuyers.

San Francisco, Los Angeles and Brooklyn are particularly strained. For both homebuyers and investors, Atlanta is worth a look.

Deidre Woollard is the co-founder of Lion & Orb, a real estate public relations company. Follow her on Twitter @Deidre.

Email Deidre Woollard

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