Real Estate

Returns on single-family rentals drop to lowest level in 9 years

But that’s not deterring investors

Single-family rental returns dropped to the lowest level in nine years for homes purchased so far in 2016 among the 473 counties analyzed in the Q3 2016 Single Family Rental Market Report from ATTOM Data Solutions, a source for housing data and the parent company of RealtyTrac.

The average annual gross rental yield, defined as the monthly rent, annualized, divided by the median home price, came in at 8.7% in the first seven months of 2016, according to the report. This is down from 8.8% in 2015, and the lowest level since 2007’s 7.3%.

“While average rental returns on properties purchased so far in 2016 are at a nine-year low, these returns are still attractive compared to alternative investing opportunities,” ATTOM Senior Vice President Daren Blomquist said. “After a drop-off in single family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again.”

“Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner occupied single-family homes, one in every four single-family homes, these single-family rental investors will be an important and likely growing force in the real estate market for years to come,” Blomquist said.

During the first seven months of 2016, 2.7% of all single-family home sales were purchased by institutional investors. This is an increase of 29% from the 2.1% share in 2015.

“The single-family rental operations have been proven in a public market,” said Gary Beasley, CEO and co-founder at Roofstock, an online marketplace for performing, tenant-occupied single-family rental homes. “These homes can be managed like apartments.”

“When we first got started, we thought we could do that, but in the last year or so investors are really starting to believe it,” Beasley said. “You’ve seen a couple of the public companies ramp back up on buying along with other institutional investors who have been on the sidelines who now want to get involved.”

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