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Hidden single-family rental markets remain profitable for investors

Counties in Texas and Oklahoma top the list

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There have been a number of reports out recently indicating that institutional investors are losing interest in real estate. However, a recent report from RentRange and RealtyTrac revealed that there are still a number of single-family rental markets that investors would benefit from checking into.

The markets were determined by evaluating gross rental yield data, a commonly used method of comparing properties. The rental yield is determined by dividing the gross annual rental income by the purchase price or market value of the property.

The analysis was limited to single-family homes with three bedrooms. The top 25 markets had the highest gross rental yields in counties where institutional investor purchases accounted for 5% or less of all residential sales in the three-month period ending in July, and the unemployment rate was 7.5% or lower.

“Buying single-family homes as rentals still yields solid returns in many markets across the nation, but it is difficult for individual investors and even small-to medium-sized institutional investors to find reasonably priced inventory in markets dominated by the 800-pound gorillas in the single-family rental space,” said Daren Blomquist, vice president at RealtyTrac.

A September report from Preqin, based on interviews with 140 private real estate investors, revealed that the proportion of investors making new private real estate commitments dropped in the last year, with smaller investors becoming more hesitant to make commitments.

Blomquist noted that this analysis has identified the top overlooked markets where single-family rentals still make good financial sense but where there is little to no competition from the big players.

According to Wally Charnoff, CEO of RentRange, “Real estate investment opportunities vary greatly market by market. “The availability of gross rental yield information and other valuable analytics empower buyers to make more scientific decisions about where to invest,” he added.

The hidden gem counties represent opportunities for smaller investors or owner-occupiers. Investor activity climbed to more than 5% of the market in over 20% of all counties for the three months ending in July.

Wichita County and Lubbock County, both in Texas, were the two top hidden gem markets, with gross yields of 13.4% and 11.8%, respectively. Onondaga County in New York and Canadian County in Oklahoma followed closely with a 10.9% and 10.8% gross yield. Finally, Tompkins County in New York rounded off the top-10 list at 10.7% gross yield.

Interestingly enough, six of the top-25 investor-saturated single-family rental markets are located in Georgia.

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