Returns Remain Attractive on Single-family Rentals, but Good Deals Are Harder to Find

Contributing Writer, B2R Finance | Real Estate Investment

By Kerry Curry, B2R Contributing Writer

Returns on single-family rental properties continue to provide attractive investing opportunities compared to other options, according to the “Q3 2016 Single Family Rental Market Report” from ATTOM Data Solutions.

The average annual gross rental yield — monthly rent, annualized, divided by median home price — among the 473 counties studied by ATTOM Data Solutions was 8.7 percent for properties purchased in the first seven months of 2016, down just 0.1 percent compared to the same time period a year ago.

Although the slight dip brought the gross rental yield to its lowest level in nine years, investors are still very bullish on the sector.

That’s because demand for rental housing remains very robust as consumer attitudes toward homeownership continue to shift.

“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,” said Daren Blomquist, senior vice president at ATTOM Data Solutions.

“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.”

Homeownership rates peaked at 69.1 percent at the end of 2004 and have been dropping ever since, reaching a low of 62.9 percent in the second quarter of 2016, the lowest level in 50 years, according to the U.S. Census Bureau.

Nationwide, 2.7 percent of all single-family properties that sold in the first seven months of 2016 were purchased by institutional investors — entities purchasing at least 10 properties in a calendar year, according to ATTOM Data, the parent company of RealtyTrac. That was up 29 percent from a 2.1 percent share in the first seven months of 2015 and followed two consecutive years of declines.

Certain areas of the country are extremely hot right now.

In the northern Dallas suburb of Plano, residential properties are selling like hotcakes as Toyota completes construction of its North American headquarters and prepares to hire as many as 1,000 locally while offering relocation options to 4,000 employees located in California, New York and Kentucky.

The area is in high demand from real estate investors due to the robust demand from consumers, but investors are having a very hard time finding properties at reasonable prices, says Brent Germany, a broker with Keller Williams in Plano, who bought his first flip on the MLS earlier this year.

“It took me two years to find that opportunity,” Germany told B2R Finance. He said he made a low offer that was accepted on the first day the property was listed because the owner needed to sell quickly.

Many properties in Plano are only on the MLS for one day, he said, due to the high demand, and often sell for over the list price. “Even the properties that need tons of work don’t provide enough margin for an investor to purchase,” he said. But if they manage to already have property in the area, they are seeing a lot of upside on their investments, he said. “Rental prices are through the roof because there aren’t enough houses for people to buy,” Germany said.

Seattle is also seeing demand that is driving up prices.

“The more desirable homes close to job centers in the Seattle metro are also trading for a substantial premium and this impacts rental rate yield as the home values are disproportionately high,” Matthew Gardner, chief economist at Windermere Real Estate, told ATTOM Data. “Because of this, we are seeing a slowdown in sales to investors who are looking to rent the homes out. Additionally, the number of ‘distressed’ or foreclosed homes in the area has diminished rapidly and there are far fewer deals in the Seattle market.”

Counties included in the analysis all have a population of at least 100,000 and sufficient rental and home price data. Click on the links to drill to more specific data broken out by a variety of different metrics.

         SFR returns interactive county heat map

         22 best SFR markets with low vacancy rates

         19 best SFR markets with wage growth

         17 best SFR markets that are millennial meccas

         18 best SFR markets with low competition from institutional investors (hidden gems)

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