Investors in single-family rental properties are raking in high returns in a certain geographic area of the Southeast. According to the first-quarter numbers from ATTOM Data Solutions, Clayton, Georgia, is still topping the list for highest ROI in the country. What’s going on down South, and where else are investors reaping big profits this year?
Where Are Investors Reaping Big Profits This Year?
Last week, ATTOM Data Solutions, which is formerly RealtyTrac, released its first-quarter 2017 Single Family Rental Market report. The data giant analyzed returns on single-family rentals in a total of 375 U.S. counties and more than 6,000 zip codes.
At the top of the list for highest gross yields was Clayton County, which has held that spot for more than a year at this point. Investors in single-family rental properties in that county, which is a suburb of Atlanta, are hauling in 23.7% annual gross rental yields.
This is particularly interesting given that Clayton County has had a pretty rough time of it over the past few years. The county school system actually lost its state accreditation back in 2008, then found itself in the spotlight again in 2013 as part of a huge standardized test cheating scandal that extended all over the Atlanta area.
However, since 2013, the school system has regained its accreditation and the schools have been awarded recognition for “commitment to excellence in education” on multiple occasions. Not surprisingly, home values in the area – and rental rates – have been climbing along with the positive progress.
In fact, if you bought back between 2008 and 2013, you just might have snagged yourself a real bargain!
In 2013, median home values hovered around $50,000. Today, they’re nearly twice that. Monthly rents are hovering just below $900 a month, compared to a little more than $800 a month this time last year.
Clayton County, Georgia, wasn’t the only Georgia county on the top-yields list, either. Bibb County and the Macon metro area, both in Georgia, had gross annual yields of 23.5 percent.
ATTOM rounded out its top five cities with the highest ROI from rental property with Baltimore City, Maryland; Monroe County, Pennsylvania; and Saginaw County, Michigan, all of which posted yields around 20 percent.
Daren Blomquist, senior vice president at ATTOM Data Solutions, said of the report’s results: “Good returns on single-family rentals are hard to come by in high-priced coastal markets and in some other housing hot spots such as Denver, parts of Dallas, Austin, and Nashville.”
However, he predicted, “Solid returns…will continue to be available in many parts of the Southeast, Rust Belt, and Midwest for investors purchasing in 2017.”
Blomquist said that he expects these single-family rentals to “continue to yield strong returns” thanks to low volumes of rent-ready housing and low homeownership rates that will likely continue in 2017. In fact, 86 percent of the markets surveyed in the study showed average rent increases and wages were growing right along with those rents.
Blomquist called it “a recipe for sustainable growth in the rental market.”
Not every market posted positive returns. In fact, there were a few surprising areas that showed declining gross annual rental yields.
Areas With Declining Gross Annual Rentals
Los Angeles County, California; Cook County, Illinois (which is near Chicago), and Maricopa County, Arizona all posted falling returns in the first quarter of 2017. This may mean that these markets hit their affordability max as home prices rise but rents don’t, compressing the rental yields. This doesn’t necessarily mean declines will continue.
Windermere Real Estate chief economist Matthew Gardner said that he expects single-family home rental rates in areas like Los Angeles and Chicago to continue to show “modest increases” over 2017, but he did not predict big numbers. He recommended landlords be alert to the potential for a shift in strategy, such as adjusting rents, “in order to keep their properties occupied.”
This has been the 2nd longest economic expansion since World World II. And expansions always end and turn into recessions. Most economists would say we are in the 9th inning in some bubble markets, like the San Francisco Bay Area, Los Angeles, and NYC. Portland, Seattle, Miami and Denver would also be on that list.
The best way to prepare for downturns is to stay ahead of the curve. Prepare for the possibility of a downturn that could potentially lead to a reduction in home prices and rents.
Could you sustain a 10 or 20% drop in rental income? If not, this may be an excellent time to sell your property while it’s at the top of the market. Then you can trade your high priced, low cash flow properties for low-priced, high cash flow properties in markets that are not in the 9th inning.
If we did have a recession around the corner, high cash flow areas won’t be so affected by a 10-20% reduction in rents. And in some areas, rents might even increase.
Interested in purchasing R.E.A.L. turn-key property in Atlanta, Georgia this year? Join Real Wealth Network & book a Strategy Session here.
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