The Best Places to Buy Single-Family Rentals in Q1 2015

By on July 24, 2015

Want double-digit returns and rents that soar more than 10 percent a year? It’s possible for the savvy real estate investor. A new report just released by RealtyTrac identifies 20 markets with the potential to deliver returns of more than 15% and several over 20% during Q1 2015.

Plenty of good options still exist for single-family residential rental investors in many U.S. counties, according to a recent report, analyzing U.S. single-family housing data. Investors can use the data to look at specific markets that have strong and growing populations of Millennials, Gen-Xers, and Baby Boomers.

Single-family residential rental properties are expected to bring in an average return of 9.05 percent during the first quarter of 2015, but 20 individual markets show the promise of returns of more than 15 percent.

Two counties in Georgia — Clayton and Bibb — show potential annual gross yields of 25.83 percent and 22.33 percent, respectively, the highest of 516 counties analyzed. Clayton County is located in the Atlanta metro area, while Bibb County is in the Macon, Ga. metro area.

Baltimore and Richmond offer potential annual gross yields of more than 20 percent and yields surpass 17 percent in the following counties: Wayne (Detroit metro area); Philadelphia; Pasco and Hernando counties (Tampa, Fla., metro area); Oswego (Syracuse, N.Y.) and Wyandotte (Kansas City metro area).

Baltimore County also holds the distinction as the county with the highest annual average cash flow — $13,770 — for a leveraged investor. Philadelphia County (in the Philadelphia metro area) and Clayton County (Atlanta metro area) round out the top three counties with the highest average annual cash flow for the leveraged investor of $12,048 and $11,352 respectively.

Although the rental returns forecast in some counties may be eye-popping, the risks may be high was well. An investor should certainly weigh those risks carefully by conducting thorough due diligence. Most of the counties in the top 20 for the highest gross rental yields also had unemployment rates above the national average, which could translate into renters having trouble paying the rent. This could suggest that investors may see more evictions in these counties than in other, more economically stable markets and possible higher than normal vacancies as well.

Top 20 Markets


The same report also provides investors with information about markets that are considered safe havens for the SFR investor.

Just three cities were identified as both a top 20 market for rental returns and a top 10 safe haven market. They are: Richmond County in the Richmond, Va., metro area; Trumbull County in the Youngstown-Warren-Boardman, Pa./Ohio MSA; and Muskegon County in the Muskegon-Norton Shores, Mich., metro. All three of these counties are known for having very affordable median home prices under $80,000. Fair market rents ranged from $961 to $1,306, and gross returns were all above 15 percent.

Safe Haven Markets

Muskegon County was unique in that it also was identified as one of the nation’s 35 markets that experienced a rental increase of 10 percent or more from 2014 to 2015. Rent there rose 10.46 percent from 2014 to 2015.

Investors should be aware that such huge rental increases are not the norm across the country. Among all counties analyzed with rental data available in both 2014 and 2015, the average “fair” market rent for a three-bedroom home was $1,255 in 2015, up 2 percent from an average of $1,230 in 2014.

Several of the counties at the top of the list with the fastest growing rental rates were metro areas that have been experiencing strong economic growth from a rise in domestic oil and gas production. Midland, Texas — home of the Permian Basin gas an oil producing region — was at the top of this list with rents that rose 24.14 percent over a year ago. The next five counties on the list are all within the Denver-Aurora metro area, a region that broke its annual oil production record last year.

The severe drop in oil prices, if sustained, could put a damper on rentals in these metros — if oil and gas prices remain suppressed for a long period of time.

Percent Change in Rents

“With homeownership rates at their lowest level in 20 years, historically low levels of housing starts and relatively low home prices in many parts of the country, there is still plenty of opportunity in the U.S. housing market for single-family rental investors employing a variety of investing strategies,” said Daren Blomquist, vice president at RealtyTrac.

“Whether focusing on markets where homeownership-shy Millennials are migrating, markets where recovering Gen X homeowners-turned-renters are prevalent, or markets Baby Boomers are testing for retirement, investors can find good options with solid potential rental returns.”

Read more at Welcome to Buy to Rent Finance

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