A new report put out by RealtyTrac, a source for comprehensive housing data, released its first quarter 2016 Single Family Rental Market Report, showing the best and worst markets to buy rental properties.
The 448 counties with populations of at least 100,000 were ranked based on the potential annual gross rental yield and identified the vest counties for future growth in the single-family rental market.
“Rapidly rising home prices and tepid wage growth have dampened single family rental investment returns and growth potential in many markets, but there are still plenty of solid opportunities available for real estate investors willing to cast a wider geographic net,” RealtyTrac senior vice president Daren Blomquist said.
“Rents are rising faster than median home prices in 45 percent of the markets analyzed, indicating continued strong demand for rentals in those markets, while annual wage growth is outpacing rent growth in 43 percent of the markets, indicating room for rising rental returns in those markets,” Blomquist said.
This map shows the SFR returns in all 448 counties:
The average annual gross rental yield from the counties was 9.4%, down 0.1% from the first quarter of 2015.
Baltimore City, Maryland had the highest annual gross rental yields at 28.5%. Clayton County, Georgia came in second with 25.8%, followed by Wayne County, Michigan; Bay County, Michigan and Macon County, Georgia.
In the south Florida market, Miami-Dade County’s potential single family rental return was 8.4%. Rates are typically rising to 4% and home prices are up 11% annually.
“The strong South Florida rental market continues to give solid returns to the investors,” said Mike Pappas, Keyes Company president and CEO. “Our limited land with growing population give the investors an additional equity kick in rising prices.”
This map shows the best and worst SFR returns in each state:
Source: Realty Track
On the other hand, the county with the lowest annual gross rental yields was Arlington County, Virginia at 3.3%. This was followed by California Bay area at 3.4%, then Williamson County, Tennessee and Kings County, New York.
The Seattle market, within Kings County, the potential rental returns for 2016 ranked 394 of the 448 counties analyzed.
“I would expect to see a modest slowdown in rental rate growth given the distinct ties that there are between rental rate growth and income growth,” said Matthew Gardner, Windermere Real Estate chief economist.
“I am also finding that some softness is starting to enter the single family rental market in Seattle for other reasons,” Gardner said. “The first is that home prices are increasing to such a degree, specifically in King County, that investors will not be able to get sufficient yield on rents given high prices that they have to pay for houses.”
“Secondly, many single family rental households are families who had lost their previous home to foreclosure and are now becoming so-called ‘boomerang buyers’ who are now starting to be able to qualify for a mortgage again and are likely heading back into home ownership,” Gardner said. “This will reduce demand for single family rentals, and millennials will not take their place as they prefer urban multi-family units.”
This table shows the 17 best SFR growth markets:
Out of the 448 counties, the report ranked 17 as the best markets for future growth in single-family rental returns. In these counties, weekly wages grew by at least 5% annually, and wage growth grew at a faster rate that annual rental rate growth.
Of these 17 counties, here are the top 5:
5. Warren County, New Jersey of the Allentown, Pennsylvania metro area with a percent annual gross rental yield of 10.8% and a percent annual wage growth of 6%.
4. De Kalb County, Illinois of the Chicago metro area with a percent annual gross rental yield of 11.3% and a percent annual wage growth of 8.9%.
3. Woodbury County, Iowa of the Sioux City metro area with a percent annual gross rental yield of 12.4% and a percent annual wage growth of 11.3%.
2. Camden County, New Jersey of the Philadelphia metro area with a percent annual gross rental yield of 12.9% and a percent annual wage growth of 5.5%.
1. Genesee County, Michigan of the Flint metro area with a percent annual gross rental yield of 15.3% and a percent annual wage growth of 5%.