Economics is based on supply and demand in which the interaction of the two determines price. For landlords of residential rental properties, supply and demand continue to work in their favor. At least for now.
Since the burst of the housing bubble, homeownership rates have declined from almost 70 percent at the peak to 64 percent today. The U.S. has more jobs than any time in history at 139.435 million — or 1.07 million more than the pre-recession peak in reached in January 2008. In addition, the population (U.S. Census Bureau estimates) has increased from 304.2 million in 2008 to 318.6 million today. All of these factors are increasing demand.
RealtyTrac reported that gross rental rates (with no expenses deducted nor any reduction for vacancy rates) for the 586 counties followed equated to average annual return of 9.06 percent in Q3 of 2014, down slightly from 9.65 percent a year ago. These counties make up 71 percent of the total U.S. population. This analysis was based on typical prices and fair market rents for three bedroom homes.
The pendulum is slowly heading more in favor of tenants today, on average. For the top 10 counties, however, that is not the case as average annual gross rents as a percentage of value are more than double the U.S. Average at 23.3 percent.
So what are the counties in the U.S. with the greatest gross rental yields for landlords? Based on the RealtyTrac analysis, as reported in USA Today, the following are the top 10 counties for residential rental markets:
From an economic perspective, a true residential investment property needs to rent for at least 1 percent of its market value per month or 12 percent per year on an annualized gross rent basis. Assuming a 5 percent cost of capital, 1 to 2 percent for taxes, 0.5 to 1 percent for insurance, an allowance for vacancy and collection losses, and management and maintenance fees, the 12 percent annualized rent does not make all that outstanding of a return. The 586 county average of 9.06 percent gross annualized rents says that many investors in residential rental properties are banking on rising property values and rents to generate an acceptable return. RealtyTrac reported that median prices in these 586 counties rose 7 percent in the year ending Q3 2014.
To read the entire USA Today article click http://www.usatoday.com/story/money/personalfinance/2014/10/12/wallst-cheat-sheet-rental-markets/17056253/
To access the RealtyTrac report with added details click http://www.realtytrac.com/content/foreclosure-market-report/q3-2014-residential-rental-market-report-8152
As with all investments, there is a risk-return trade off, with higher yields expected in the more risky markets.
Supply and demand still rule.
Ted