SOURCE: RealtyTrac

RealtyTrac

January 29, 2015 00:01 ET

RealtyTrac Ranks Best U.S. Markets for Buying Residential Rental Properties in First Quarter of 2015

Markets With Highest Potential Rental Returns in Georgia, Maryland, Virginia, Michigan; Markets With Biggest Rent Jumps in Texas, Colorado, North Carolina; Report Also Ranks Top Markets for Renting to Millennials, Gen Xers and Baby Boomers

IRVINE, CA--(Marketwired - Jan 29, 2015) - RealtyTrac® (www.realtytrac.com), the nation's leading source for comprehensive housing data, today released its Q1 2015 Residential Property Rental Report, which ranks the best markets for buying residential rental properties in the first quarter of 2015.

The report also looks at which markets are seeing the biggest increases in rental rates in 2015 compared to 2014, and provides rankings of the best safe haven residential rental markets, along with the best markets for renting to Millennials, best markets for renting to Generation Xers, and best markets for renting to Baby Boomers.

"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.

"There are certainly markets where buying single family rentals no longer makes sense because of rapidly rising prices over the past few years," Blomquist added. "Savvy single family rental investors will tread cautiously in such markets despite the siren song of strong home price appreciation." 

"Buying single family homes as rental properties in Southern California is reserved for those that have a very specific investment strategy," said Chris Pollinger, senior vice president of sales with First Team Real Estate, covering the Southern California market, where annual gross yields on rentals range from less than 5 percent in Orange County to nearly 9 percent in the inland San Bernardino County.

For the report, RealtyTrac analyzed median sales prices for single family homes and condos and average fair market rents for three bedroom properties, along with unemployment rates and demographic trends in 516 U.S. counties with a combined population of 236 million people -- 76 percent of the total U.S. population. (See full methodology below.)

The 516-county analysis found an average potential return on residential rental properties of 9.04 percent in the first quarter of 2015, down slightly from an average potential annual return of 9.06 percent for residential rentals purchased in the third quarter of 2014 -- the most recent residential rental property report issued by RealtyTrac.

Best markets for buying residential rentals in Georgia, Maryland, Virginia and Michigan
Markets with the highest potential rental returns were Clayton County, Ga., in the Atlanta metro area (25.83 percent), Bibb County, Ga., in the Macon metro area (22.33 percent), Baltimore City, Md., (20.99 percent), Richmond City, Va., (20.42 percent), and Wayne County, Mich., in the Detroit metro area (19.34 percent).

Top 20 Markets for Residential Rental Returns

County Name   Metro Area 2015 3
Bedroom
Fair Market
Rent
November
2014
Median
Home Price
Annual
Cash Flow for
Cash Investor
(after tax and
insurance)
Annual
Gross
Yield
Clayton   Atlanta-Sandy Springs-Marietta, GA $1,213 $56,344 $13,773 25.83%
Bibb   Macon, GA $960 $51,600 $10,803 22.33%
Baltimore City   Baltimore-Towson, MD $1,574 $90,000 $17,637 20.99%
Richmond City   Richmond, VA $1,306 $76,750 $14,605 20.42%
Wayne   Detroit-Warren-Livonia, MI $1,128 $70,000 $12,563 19.34%
Philadelphia   Philadelphia-Camden-Wilmington, PA-NJ-DE-MD $1,440 $92,000 $16,001 18.78%
Pasco   Tampa-St. Petersburg-Clearwater, FL $1,280 $86,000 $14,165 17.86%
Hernando   Tampa-St. Petersburg-Clearwater, FL $1,280 $86,000 $14,165 17.86%
Oswego   Syracuse, NY $1,039 $70,000 $11,495 17.81%
Wyandotte   Kansas City, MO-KS $1,221 $83,250 $13,495 17.60%
Richmond   Augusta-Richmond County, GA-SC $990 $70,000 $10,907 16.97%
Marion   Ocala, FL $1,055 $75,000 $11,618 16.88%
Madison   Anderson, IN $930 $68,000 $10,215 16.41%
Monroe   East Stroudsburg, PA $1,322 $100,000 $14,474 15.86%
Mobile   Mobile, AL $1,036 $78,550 $11,340 15.83%
Trumbull   Youngstown-Warren-Boardman, OH-PA $866 $66,950 $9,461 15.52%
Muskegon   Muskegon-Norton Shores, MI $961 $75,200 $10,487 15.34%
Niagara   Buffalo-Niagara Falls, NY $982 $77,000 $10,714 15.30%
Citrus   Homosassa Springs, FL $1,020 $80,000 $11,128 15.30%
Winnebago   Rockford, IL $1,011 $80,000 $11,020 15.17%

Best markets for renting to Millennials
Among the 516 counties analyzed there were 50 where the millennial share of the population was above the national average of 22 percent, where the millennial population increased at least 5 percent between 2007 and 2013, and where potential annual rental returns on residential properties were 9 percent or higher.

"With the aggressive growth of companies like Amazon, and the arrival of several Silicon Valley newcomers like Facebook, Twitter, Google, and Apple, Seattle is becoming an increasingly popular spot for Millennials," said OB Jacobi, president of Windermere Real Estate, covering the Seattle market, where Pierce County ranked as one of the top 50 markets for renting to Millennials and King County saw a 34 percent jump in Millennials between 2007 and 2013 -- the 13th biggest increase of the 516 counties analyzed in the report. "Not only do many of these Millennials have stable employment, but strong job prospects going forward, and a rosy forecast for future salary growth. All of this has turned Seattle into a sweet spot for those looking to buy rental properties. Vacancies are low, rents are on the rise, and growth in Seattle's tech sector is providing a built-in clientele for investors with no signs of slowing." 

Millennial magnet markets with the highest annual rental returns were Baltimore City, Md., (20.99 percent annual gross yield), Richmond City, Va., (20.42 percent), Philadelphia County, Pa., (18.78 percent), Wyandotte County, Kan., in the Kansas City metro area (17.60 percent), and Richmond County, Ga., in the Augusta-Richmond County metro area (16.97 percent).

Top 10 Millennial-Heavy Markets for Rental Returns

County Name   Metro Area   2015 3
Bedroom
Fair Market
Rent
  November
2014
Median
Home Price
  Annual Cash Flow for Cash Investor (after tax and insurance)   Annual Gross
Yield
  %
Millennials
of Total in 2013
  % Change in Millennials from 2007
to 2013
Baltimore City   Baltimore-Towson, MD   $1,574   $90,000   $17,637   20.99%   27.30%   11.28%
Richmond City   Richmond, VA   $1,306   $76,750   $14,605   20.42%   30.89%   31.62%
Philadelphia   Philadelphia-Camden-Wilmington, PA-NJ-DE-MD   $1,440   $92,000   $16,001   18.78%   27.21%   24.90%
Wyandotte   Kansas City, MO-KS   $1,221   $83,250   $13,495   17.60%   23.13%   8.47%
Richmond   Augusta-Richmond County, GA-SC   $990   $70,000   $10,907   16.97%   25.31%   6.91%
Yuma   Yuma, AZ   $1,258   $109,950   $13,568   13.73%   22.11%   8.76%
Jackson   Kansas City, MO-KS   $1,221   $109,450   $13,131   13.39%   22.87%   14.20%
Cumberland   Fayetteville, NC   $1,035   $94,000   $11,113   13.21%   27.11%   20.77%
Duval   Jacksonville, FL   $1,228   $112,000   $13,179   13.16%   24.19%   19.18%
Sumter   Sumter, SC   $812   $77,000   $8,674   12.65%   22.38%   9.24%

Best markets for renting to Gen Xers
There were 20 counties among those analyzed where the Generation X share of the population was above the national average of 16 percent, where the Generation X population increased at least 5 percent between 2007 and 2013, and where potential annual rental returns on residential properties were 9 percent or higher.

"Ohio housing is affordable, attracting many different income and age demographics to the state," said Michael Mahon, executive vice president at HER Realtors, covering the Ohio housing markets of Cincinnati, Dayton and Columbus, where Franklin County ranked among the 50 best for renting to Millennials, and Licking County ranked among the 20 best for renting to Gen Xers as well as among the 40 best for renting to Baby Boomers. "The stability of prices within the Ohio markets over recent years has contributed to an increasing demand for housing along with job and population growth throughout many of Ohio's local markets. With many developers still in recovery from our nation's economic crisis, new construction projects have been underwhelming in meeting Ohio's housing demand. As demand continues to increase and supply continues at conservative levels, anticipation for 2015 is for continued increases in rental returns throughout the state."

Generation X-heavy markets with the highest annual rental returns were counties in the Atlanta, Chicago, Jacksonville, Fla., Little Rock, Ark., and Orlando metro areas.

Top 10 Generation X-Heavy Markets for Rental Returns

County Name   Metro Area   2015 3
Bedroom
Fair Market
Rent
  November
2014
Median
Home Price
  Annual Cash
Flow for Cash
Investor (after
tax and insurance)
  Annual
Gross
Yield
  %
Generation
Xers of
Total in
2013
  % Change
in Generation
Xers from
2007 to 2013
Douglas   Atlanta-Sandy Springs-Marietta, GA   $1,213   $100,000   $13,166   14.56%   18.86%   10.28%
Kendall   Chicago-Naperville-Joliet, IL-IN-WI   $1,726   $163,000   $18,446   12.71%   19.49%   25.41%
Henry   Atlanta-Sandy Springs-Marietta, GA   $1,213   $118,000   $12,916   12.34%   19.05%   8.57%
Clay   Jacksonville, FL   $1,228   $124,000   $13,012   11.88%   16.78%   5.14%
Paulding   Atlanta-Sandy Springs-Marietta, GA   $1,213   $126,750   $12,794   11.48%   19.85%   7.55%
Saline   Little Rock-North Little Rock-Conway, AR   $1,040   $108,950   $10,966   11.45%   16.14%   11.49%
Osceola   Orlando-Kissimmee, FL   $1,330   $140,000   $14,014   11.40%   16.95%   8.35%
Johnston   Raleigh-Cary, NC   $1,189   $127,750   $12,492   11.17%   18.71%   8.17%
Cabarrus   Charlotte-Gastonia-Concord, NC-SC   $1,120   $127,750   $11,664   10.52%   18.45%   17.05%
Clay   Kansas City, MO-KS   $1,221   $140,000   $12,706   10.47%   16.76%   5.67%

Best markets for renting to Baby Boomers
There were 40 markets among those analyzed where the Baby Boomer share of the population was above the national average of 25 percent, where the Baby Boomer population increased at least 5 percent between 2007 and 2013, and where potential annual rental returns on residential properties were 9 percent or higher.

Baby Boomer bastions with the highest annual rental returns were counties in the Tampa, Ocala, Fla., East Stroudsburg, Penn., Homosassa Springs and Binghamton, N.Y. metro areas.

Top 10 Baby Boomer-Heavy Markets for Rental Returns

County Name   Metro Area   2015 3
Bedroom
Fair Market
Rent
  November
2014
Median
Home Price
  Annual Cash
Flow for Cash
Investor (after
tax and
insurance)
  Annual
Gross
Yield
  % Baby
 Boomers
of Total
in 2013
  % Change
in Baby
Boomers
from 2007
to 2013
Hernando   Tampa-St. Petersburg-Clearwater, FL   $1,280   $86,000   $14,165   17.86%   28.57%   31.45%
Pasco   Tampa-St. Petersburg-Clearwater, FL   $1,280   $86,000   $14,165   17.86%   27.01%   17.10%
Marion   Ocala, FL   $1,055   $75,000   $11,618   16.88%   28.22%   31.95%
Monroe   East Stroudsburg, PA   $1,322   $100,000   $14,474   15.86%   28.80%   7.89%
Citrus   Homosassa Springs, FL   $1,020   $80,000   $11,128   15.30%   32.14%   35.64%
Broome   Binghamton, NY   $1,058   $96,888   $11,349   13.10%   26.42%   5.75%
Lackawanna   Scranton--Wilkes-Barre, PA   $933   $86,920   $9,988   12.88%   27.02%   5.81%
Saint Lucie   Port St. Lucie, FL   $1,291   $125,000   $13,755   12.39%   26.58%   29.39%
Volusia   Deltona-Daytona Beach-Ormond Beach, FL   $1,229   $120,000   $13,080   12.29%   29.14%   17.25%
Grayson   Sherman-Denison, TX   $1,113   $109,950   $11,828   12.15%   26.46%   7.47%

Markets with biggest rent increases in Texas, Colorado and North Carolina
Among all counties analyzed with rental data available in both 2014 and 2015, the average fair market rent for a three-bedroom property was $1,255 for 2015, up 2 percent from an average of $1,230 for fair market rents in 2014.

Fair market rents on three-bedroom properties increased 10 percent or more from 2014 to 2015 in 35 counties with a combined population of 16.3 million. The biggest percentage increases were counties in Midland, Texas (up 24 percent), Denver, Colo., (up 20 percent), Asheville, N.C., (up 19 percent), Roseburg, Ore., (up 18 percent), and Seaford, Del., (up 18 percent). Other markets with rent increases of 10 percent or more included Chicago, Santa Barbara, Calif., Shreveport, La., Green Bay, Wis., and Milwaukee.

35 Markets with Rent Increases of 10 Percent or More

County Name   Metro Area   2014 3
Bedroom
Fair Market
Rent
  2015 3
Bedroom
Fair Market
Rent
  2014 to 2015
Pct Change
in Rents
Midland   Midland, TX   $1,164   $1,445   24.14%
Adams   Denver-Aurora, CO   $1,409   $1,696   20.37%
Arapahoe   Denver-Aurora, CO   $1,409   $1,696   20.37%
Jefferson   Denver-Aurora, CO   $1,409   $1,696   20.37%
Denver   Denver-Aurora, CO   $1,409   $1,696   20.37%
Douglas   Denver-Aurora, CO   $1,409   $1,696   20.37%
Henderson   Asheville, NC   $922   $1,100   19.31%
Buncombe   Asheville, NC   $922   $1,100   19.31%
Douglas   Roseburg, OR   $964   $1,142   18.46%
Sussex   Seaford, DE   $1,138   $1,347   18.37%
Kendall   Chicago-Naperville-Joliet, IL-IN-WI   $1,472   $1,726   17.26%
Franklin   Chambersburg, PA   $992   $1,153   16.23%
Santa Barbara   Santa Barbara-Santa Maria-Goleta, CA   $1,700   $1,951   14.76%
Lebanon   Lebanon, PA   $916   $1,044   13.97%
Linn   Cedar Rapids, IA   $887   $1,009   13.75%
Washington   Johnson City, TN   $883   $997   12.91%
Tom Green   San Angelo, TX   $1,013   $1,139   12.44%
Madera   Madera, CA   $1,140   $1,280   12.28%
Mchenry   Chicago-Naperville-Joliet, IL-IN-WI   $1,248   $1,393   11.62%
Kane   Chicago-Naperville-Joliet, IL-IN-WI   $1,248   $1,393   11.62%
Will   Chicago-Naperville-Joliet, IL-IN-WI   $1,248   $1,393   11.62%
Cook   Chicago-Naperville-Joliet, IL-IN-WI   $1,248   $1,393   11.62%
Lake   Chicago-Naperville-Joliet, IL-IN-WI   $1,248   $1,393   11.62%
Du Page   Chicago-Naperville-Joliet, IL-IN-WI   $1,248   $1,393   11.62%
Caddo   Shreveport-Bossier City, LA   $943   $1,049   11.24%
Bossier   Shreveport-Bossier City, LA   $943   $1,049   11.24%
Taylor   Abilene, TX   $1,000   $1,111   11.10%
Montgomery   Montgomery, AL   $976   $1,084   11.07%
Weld   Greeley, CO   $1,040   $1,153   10.87%
Brown   Green Bay, WI   $973   $1,077   10.69%
Muskegon   Muskegon-Norton Shores, MI   $870   $961   10.46%
Milwaukee   Milwaukee-Waukesha-West Allis, WI   $1,036   $1,143   10.33%
Waukesha   Milwaukee-Waukesha-West Allis, WI   $1,036   $1,143   10.33%
Sumter   The Villages, FL   $1,051   $1,158   10.18%
Benton   Kennewick-Richland-Pasco, WA   $1,007   $1,108   10.03%

Safe haven rental markets in Virginia, Ohio, Michigan, Pennsylvania and North Carolina
Among the 516 counties, 70 matched the criteria for safe haven rental markets, with unemployment rates below the national average of 5.6 percent and with annual rental returns of 10 percent or higher. Markets with the highest rental returns among these safe haven residential rental markets were Richmond City, Va., (20.42 percent annual gross yield), Trumbull County, Ohio in the Youngstown-Warren-Boardman metro area (15.52 percent), Muskegon County, Mich., in the Muskegon-Norton Shores metro area (15.34 percent), Fayette County, Penn., in the Pittsburgh metro area (14.99 percent), and Bay County, Mich., in the Bay City metro area (14.78 percent).

Top 10 Safe Haven Residential Rental Markets

County Name   Metro Area 2015 3
Bedroom
Fair Market
Rent
  November
2014
Median
Home Price
  Annual Cash
Flow for
Cash Investor
(after tax and
insurance)
  Annual
Gross
Yield
Richmond City   Richmond, VA $1,306   $76,750   $14,605   20.42%
Trumbull   Youngstown-Warren-Boardman, OH-PA $866   $66,950   $9,461   15.52%
Muskegon   Muskegon-Norton Shores, MI $961   $75,200   $10,487   15.34%
Fayette   Pittsburgh, PA $987   $79,000   $10,746   14.99%
Bay   Bay City, MI $936   $75,979   $10,176   14.78%
Saginaw   Saginaw-Saginaw Township North, MI $931   $77,000   $10,102   14.51%
Clark   Springfield, OH $896   $77,000   $9,682   13.96%
Gaston   Charlotte-Gastonia-Concord, NC-SC $1,120   $97,000   $12,092   13.86%
Lucas   Toledo, OH $916   $82,000   $9,852   13.40%
Broward   Miami-Fort Lauderdale-Pompano Beach, FL $1,801   $165,000   $19,319   13.10%

Methodology
For this report, RealtyTrac looked at all U.S. counties with a population of 100,000 or more and with sufficient home price and rental rate data. Rental returns were calculated using annual gross rental yields: the 2015 average fair market rent of three-bedroom homes in each county from the U.S. Department of Housing and Urban Development (HUD), annualized, and divided by the median sales price of residential properties in each county.

RealtyTrac also incorporated unemployment rates from the Bureau of Labor Statistics and demographic data from the U.S. Census into the report.

The millennial generation was defined as someone who was born between the years 1977 to 1992. Generation X was defined as someone who was born between the years 1965 to 1976. The baby boomer generation was defined as someone who was born between the years 1945 to 1964.

Estimated home payment amount for leveraged investor was made assuming a 25 percent down payment, an interest rate of 4.0 percent on a 30-year fixed loan, and property tax and insurance totaling 1.39 percent of the total median sales price. Estimated home payment amount for cash investor was made assuming only 1.39 percent of the median sales price to be paid for both property tax and insurance.

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