Rents are rising faster than wages in more than half of the counties that were analyzed.
The coming year may present a mixed bag for the real estate industry, but one area that could see opportunity is an investment property, particularly single-family rental homes, says ATTOM Data Solutions.
ATTOM released its Q1 2019 Single Family Rental Market report, which ranks the best U.S. markets for buying single-family rental properties in 2019.
The report analyzed single-family rental returns in 432 U.S. counties each with a population of at least 100,000 and sufficient rental and home price data. Rental data was from the U.S. Department of Housing and Urban Development, and home price data was from publicly recorded sales deed data collected and licensed by ATTOM Data Solutions.
The average annual gross rental yield (annualized gross rent income divided by the median purchase price of single-family homes) among the 432 counties was 8.8 percent for 2019, up from an average of 8.7 percent in 2018.
“Buying single-family homes to rent them out is a better deal for investors so far this year, than it was at the same time in 2018, as profit margins are rising in a majority of counties across the United States,” said Todd Teta, chief product officer at ATTOM Data Solutions.
“Last year, at this time, investors were seeing returns drop in three-quarters of the counties that were analyzed. So far this year, those margins are up in six out of every 10 counties analyzed. But despite the generally rosier picture, profits vary widely and investing in the single-family home rental market is not always a great move. The typical bottom-line gain from county to county this year has ranged from as high as 29 percent to as little as 3 percent.”
Counties in Baltimore, Macon, Vineland, Rockford, Detroit post highest rental returns
Counties with the highest potential annual gross rental yields for 2019 were Baltimore City, Maryland (24.5 percent); Bibb County, Georgia in the Macon metro area (21.9 percent); Cumberland, New Jersey, in the Vineland-Bridgeton metro area (21.2 percent); Winnebago, Illinois, in the Rockford metro area (17.1 percent); and Wayne County, Michigan in the Detroit metro area (17.1 percent).
Along with Wayne County, Michigan, the highest potential annual gross rental yields among counties with a population of at least 1 million were Cuyahoga County (Cleveland), Ohio (12.0 percent); Allegheny County, Pennsylvania (10.9 percent); Cook County (Chicago), Illinois (9.7 percent); and Philadelphia County, Pennsylvania (9.4 percent).
Rental returns increase from a year ago in over half of the counties analyzed
Potential annual gross rental yields for 2019 increased compared to 2018 in 248 of the 432 counties analyzed in the report (57 percent) led by Buncombe County, North Carolina in the Asheville metro area (up 29.1 percent); Santa Clara County, California in the San Jose metro area (up 24.8 percent); Henderson County, North Carolina, in the Asheville metro area (up 24.6 percent); Erie County, Pennsylvania (up 24.3 percent); and Muscogee County, Georgia in the Columbus metro area (up 23.5 percent).
Along with Santa Clara County, California, the biggest increase in potential annual gross rental yields for 2019 compared to 2018 among counties with a population of at least 1 million were Sacramento County, California (up 12.2 percent); Orange County (Los Angeles), California (up 10.9 percent); Dallas County, Texas (up 10.8 percent); and Kings County (Brooklyn), New York (up 10.6 percent).
Counties in San Francisco, San Jose, and New York post lowest rental returns
Counties with the lowest potential annual gross rental yields for 2019 were San Mateo County, California, in the San Francisco metro area (3.4 percent); San Francisco County, California (3.7 percent); Marin County, California, also in the San Francisco metro area (4.0 percent); Santa Clara, California, in the San Jose metro area (4.2 percent); and Kings County (Brooklyn), New York (4.3 percent).
Along with Santa Clara County, California and Kings County, New York, the lowest potential annual gross rental yields among counties with a population of at least 1 million were in Fairfax County, (Washington, D.C. metro area) Virginia (4.7 percent); Queens County, New York (4.8 percent); Alameda County (San Francisco metro area), California (4.9 percent); and Orange County (Los Angeles metro area), California (5.0 percent).
Rents rising faster than wages in 55 percent of markets
Rents rose faster than wages in 236 of the 432 counties analyzed (55 percent), including Los Angeles County, California; Harris County (Houston), Texas; Maricopa County (Phoenix), Arizona; San Diego County, California; and Orange County, California.
Wages rose faster than rents in 196 of the 432 counties analyzed (45 percent), including Cook County (Chicago), Illinois; Kings County, New York; Queens County, New York; Clark County (Las Vegas), Nevada; and Tarrant County (Dallas-Fort Worth), Texas.
Best single-family rental growth markets in Cleveland, Columbia, Pittsburgh, Rockford, Atlanta
The report identified 98 “SFR Growth” counties where average wages grew over the past year and with potential 2019 annual gross rental yields of 10 percent or higher.
The 98 SFR Growth markets included Wayne County (Detroit), Michigan; Cuyahoga County (Cleveland), Ohio; Allegheny County (Pittsburgh), Pennsylvania; Milwaukee County, Wisconsin and Marion County (Indianapolis), Indiana.