One trend that accelerated following the Great Recession was the incidence of investors buying single-family…
One trend that accelerated following the Great Recession was the incidence of investors buying single-family homes to rent out.
Traditionally, single-family homes have been owned by the occupants. Home ownership is the backbone of the “American Dream”. Owning a single-family home is the greatest (often the only) source of wealth-accumulation for ordinary Americans.
So, it is alarming to see a trend in which more and more Americans rent their homes from investors, rather than owning them. Over time, this means that investors benefit from rising home values while renters incur ever-rising rents.
It’s not an exaggeration to say that this trend of investor-owned SFHs – if it continues to grow – will pose a threat to our traditional notion of the “American Dream” in the years to come.
Investors are in this market for a reason: the return on investment can be attractive.
Recently, property database curator ATTOM Data Solutions ranked the best U.S. markets for buying single family rental properties in 2019.
The Attom 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 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.
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).
Expect to see more of this activity
Attractive profits tend to lure additional investors into the market. So, we can expect to see more of this activity in counties where the returns are most favorable.
What this means is that would-be homeowners are often competing with investors when buying a home. In such scenarios, the ordinary buyer often loses. Investors often buy with cash, and are a bit less price sensitive than the typical home buyer.
Home buyers are facing rising interest rates (and thus more expensive mortgages), and often have to save for years to come up with a down payment. They don’t have as much flexibility in their dealings as well-heeled investors often do.