SFR Investors Win Higher Yields When they Cast a Wider Net

Contributing Writer, B2R Finance | Real Estate Investment

By Kerry Curry, B2R Contributor

Counties in Baltimore and Atlanta are among the best markets for buying single-family rentals because of the high yields found there, according to a report from RealtyTrac, which ranks 448 counties and 6,551 ZIP codes based on potential annual growth rental yield on single-family properties.

Baltimore City’s rental yield was a whopping 28.5%, while Clayton County, Georgia, in the Atlanta metro brought in a 25.8% return. Bay County, Michigan, in the Bay City metro area (21.2 percent); and Macon County, Georgia (20.6 percent) were also highlighted in the report.

Best & Worst SFR Returns by State

Counties with lowest single-family rental returns

While investors may view some of the markets generating the highest yields with trepidation because of an aging housing stock and economic challenges in those regions, they are also finding that popular housing markets are becoming increasingly difficult for generating sufficient yield due.

The high acquisition cost of single-family properties in markets such as the California Bay Area, Washington, D.C., New York and Seattle have depressed yields in those metros.

Arlington County, Virginia, in the Washington, D.C., metro area brought in the lowest annual growth rental yield, just 3.3 percent while California Bay area counties of San Francisco (3.4 percent), San Mateo (3.6 percent), Marin (3.9 percent), Santa Cruz (4.0 percent) and Santa Clara (4 percent) were among those counties with tepid returns.

Wage and millennial growth

The report also breaks down what it considers the best growth markets based on wage growth, single-family rental growth and millennial population growth.

Wage growth was strongest in Philadelphia, and Sioux City, Iowa, while the best markets for millennial growth were in Milwaukee, Richmond, Virginia; and Killeen, Texas.

Overall, the average annual gross rental yield among the 448 counties analyzed was flat — 9.4 percent, down slightly from 9.5 percent in the first quarter of 2015.

Still, the report notes a number of markets bringing in strong returns.

“There are still plenty of solid opportunities available for real estate investors willing to cast a wider geographic net,” said Daren Blomquist, senior vice president at RealtyTrac. “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.”

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