What regions are cashing in on single-family home investments?

Georgia, Maryland and Michigan offer the best return on investment for small and mid-tier investors

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Inman Connect New York | January 29 - February 1, 2019

Attom Data Solutions today released the results of its Q1 2018 Single Family Rental Market report, which ranks the best U.S. markets for buying single family rental properties.

Nationally, the average annual gross rental yield among the 449 counties in the study was 8.9 percent for 2018 — a 0.3 percentage point decrease from 2017. (Average annual gross rental yield is the annualized gross rent income divided by median purchase price of single family homes.)

Attom Data Solutions senior vice president Daren Blomquist said despite the decline in gross rental yield, the single-family rental market remains strong, thanks to small and middle-tier investors.

“The biggest increase in market share over the past year has come among investors owning six to 10 single family rentals, followed by those owning between 11 and 100 rentals,” said Blomquist in an emailed statement.

“These smaller to mid-tier investors are benefitting from newfound efficiencies in acquisition, financing and property management that allow them to buy outside their backyard in areas with higher potential returns, and to leverage their money to buy more properties.”

Georgia, Maryland and Michigan the best ROI

On a county-by-county basis, Baltimore City, Maryland (28.6 percent); Bibb County, Georgia in the Macon metro area (21.8 percent); Montgomery County, Alabama, in the Montgomery metro area (21.7 percent); Wayne County, Michigan in the Detroit metro area (21.7 percent); and Clayton County, Georgia in the Atlanta metro area (20.3 percent) had the greatest potential annual gross rental yields.

Beyond offering the highest potential annual gross rental yields, investors Southern and Northeastern markets have experienced a sizeable bump in potential annual gross rental yields from 2017 to 2018.

Rowan County, North Carolina in the Charlotte metro area led the way with a 36-percent year-over-year increase, followed by Randolph County, North Carolina in the Greensboro metro area (+32 percent); Tazewell County, Illinois, in the Peoria metro area (+21 percent); Baltimore City, Maryland (+21 percent); and Kings County, California in the Hanford-Corcoran metro area (+20 percent).

“At Roofstock we are seeing increasing interest from investors in a number of SFR markets that have historically not gotten much love from the large institutional players,” said Roofstock CEO and co-founder Gary Beasley in a press release. “These include many cities in the Midwest, South, Southeast and even certain markets in the Northeast.”

“Investors are attracted to the strong rental yields in many of these less flashy cities like Cleveland, Pittsburgh and Detroit, as well as perennial favorites like Atlanta, Houston and Charlotte which have been popular with investors for several years,” he added. “The nice thing about SFR is there is enough variety out there that there really is something for every investor, depending on their unique objectives.”

Properties in saturated markets are doing the worst

Arlington, Virginia, in the Washington, D.C. metro area (3.6 percent); Santa Clara County, California, in the San Jose metro area (3.6 percent); San Mateo County, California, in the San Francisco metro area (3.7 percent); Williamson County, Tennessee, in the Nashville metro area (4.0 percent); and Kings County (Brooklyn), New York (4.0 percent) had the lowest potential annual rental gross yields in 2018.

Looking forward, Attom said investors would be smart to look at “Low Risk-High Return” counties with potential annual gross rental yields of at least 10 percent, investment property vacancy rates no more than 5 percent and property tax rates lower than 1 percent:

Read the full study here.

Methodology

For this report, Attom Data Solutions looked at all U.S. counties with a population of 100,000 or more and with sufficient home price and rental rate data. Rental returns were calculated using annual gross rental yields: the 2016 50th percentile rent estimates for three-bedroom homes in each county from the U.S. Department of Housing and Urban Development (HUD), annualized, and divided by the median sales price of residential properties in each county.

Email Marian McPherson