With the continuing rise in home prices nationwide, there are still plenty of opportunities in the single-family rental (SFR) market for the shrewd investor. According to HouseCanary’s Q4 2017 Rental Investment Index, some of the best hidden gems can be found spread throughout the American Southwest … if you know where to find them.
HouseCanary’s Rental Investment Index “helps single-family rental home investors, lenders, and renters benchmark the health of the single-family for-lease market.” The Index computes Effective Gross Yield (EGY) for 3 million census blocks in the U.S., breaking things down by national, state, and zip code levels. HouseCanary explains that EGY is “the current fair market annualized rent minus estimated property tax, divided by the current fair market home value.” For Q4 2017, the nationwide EGY for single-family rentals was 7.3 percent.
Major cities and metros throughout the U.S. may have demonstrated below-average EGYs in Q4, HouseCanary points out that there are still prime SFR opportunities offering above-average rental yields for those willing to put in the work to find them. HouseCanary’s latest Rental Investment Index showcases the Southwestern region to demonstrate this claim.
According to the Index, Phoenix, Arizona, had an average EGY of 6 percent in Q4 2017. However, certain areas within and around Phoenix were turning up average EGYs of more than twice that. The story is similar in other Southwestern metros such as Albuquerque, Santa Fe, Tuscon, and El Paso—average or below-average EGYs speckled with blocks or neighborhoods showing stronger rental yields.
"No matter how hot or cold a given market, there are still opportunities for investors to make substantive returns," said Alex Villacorta, HouseCanary's EVP of Analytics. "Small local investors have known for years that successful rental investments require a nuanced approach to acquisition. Our latest data show that from Nevada to Texas, metros in the Southwest—like Phoenix and Las Vegas—have certain hyper-local areas where rental investors can find homes that will generate higher-than-average rental yields for them, even where home prices continue to increase."
HouseCanary’s Rental Index also broke down the Top 50 Metropolitan Statistical Areas (MSAs) by EGY for Q4. The top 10 include:
- Kansas City, Missouri-Kansas—14.1 percent
- Pittsburgh, Pennsylvania—14.0 percent
- Memphis, Tennessee-Mississippi-Arkansas—13.3 percent
- Birmingham-Hoover, Alabama—12.3 percent
- Buffalo-Cheektowaga-Niagara Falls, New York—11.9 percent
- Cleveland-Elyria, Ohio—11.0 percent
- Indianapolis-Carmel-Anderson, Indiana—10.9 percent
- Rochester, New York—10.7 percent
- St. Louis, Missouri-Illinois—10.7 percent
- Oklahoma City, Oklahoma—10.1 percent
You can see the rest of HouseCanary’s Rental Investment Index data by clicking here.
For more insights into the state of the single-family rental market, be sure to register for the 2018 Single-Family Rental Summit, scheduled for March 19-21 at the Renaissance Nashville Hotel in Nashville, Tennessee. The event will feature top subject matter experts and skilled SFR practitioners leading discussion panels and training sessions that will answer questions and offer viable solutions related to property acquisition and management, financing, strategies for small, mid-cap, and large investors, and new developments related to technology and professional services. You can find out all the details by clicking here.