IRVINE, CA—The market dynamics governing apartments may not apply in the separate but related sector of single-family rentals. However, ATTOM Data Solutions says that the strong fundamentals of the SFR market warrant investments in the sector, and the firm has ranked the best US markets for doing so.
“While 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 and parts of Dallas, Austin and Nashville, solid returns on single-family rentals will continue to be available in many parts of the Southeast, Rust Belt and Midwest for investors purchasing in 2017,” says Daren Blomquist, SVP at ATTOM.
He adds that SFRs “should continue to yield strong returns in many parts of the country going forward, given the market undercurrents of low rent-ready housing inventory and low homeownership rates.” There's also the shortage of for-sale housing to consider: Trulia reported Wednesday that the inventory of homes on the market dropped for the eight consecutive quarter in the first three months of this year, hitting a new record low.
“Average fair market rents increased in 2017 in 86% of the markets we analyzed even while average wage growth outpaced rent growth in 67% of markets—a recipe for sustainable growth in the rental market,” Blomquist says. ATTOM reports that the average annual gross rental yield—i.e. annualized gross rent income divided by median purchase price of single family homes—among the 375 counties it analyzed was 9% this year, down slightly from an average of 9.1% the year prior. Rental yields decreased year over year in 57% of the markets studied by ATTOM.
Counties with the highest annual gross rental yields were Clayton County, GA, in the Atlanta metro area (23.7%); Baltimore City, MD (23.6%); Bibb County, GA, in the Macon metro area (23.5%); Monroe County, PA, in the East Stroudsburg metro area (20.6%); and Saginaw County, MI (18.8%). Among counties of one million or more, those with the highest gross rental yields were Wayne County, MI (17.3%); Cuyahoga County, OH (13.2%); Allegheny County, PA (10.6%); Philadelphia County, PA (10.1%); and Franklin County, OH (9.9%).
At the other end of the spectrum, the counties with the lowest annual gross rental yields were Arlington County, VA (3.4%); Williamson County, TN (3.9%); Santa Cruz County, CA (4.1%); Norfolk County, MA (4.2%); and Santa Clara County, CA (4.2%). Along with Santa Clara County, the lowest gross annual rental yields for counties with a population of at least one million were in Kings County (Brooklyn), NY (4.4%); ATTOM's home county of Orange County, CA and Fairfax County, VA (both with 4.6%); and Queens County, NY (4.7%).
Recent reports from analysts on the institutional side of SFR ownership highlight some key takeaways for would-be investors. Based in part on a meeting with Progress Residential, which controls about 20,000 SFR units, analysts at Keefe, Bruyette & Woods wrote earlier this week that demand in the sector appears solid.
“Same-store NOI growth for the public single-family rental sector totaled approximately 10% in 2016 and we estimate target returns in the low- to mid-teens (including leverage and HPA),” according to KBW analysts. Green Street Advisors cites ongoing consolidation of ownership, given the merger of Starwood Waypoint Residential Trust and Colony American Homes that closed at the beginning of last year, the subsequent combination of American Homes 4 Rent and American Residential and, last month, the announcement by SilverBay Realty Trust that it would be sold to Tricon Capital for $1.4 billion
IRVINE, CA—The market dynamics governing apartments may not apply in the separate but related sector of single-family rentals. However, ATTOM Data Solutions says that the strong fundamentals of the SFR market warrant investments in the sector, and the firm has ranked the best US markets for doing so.
“While 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 and parts of Dallas, Austin and Nashville, solid returns on single-family rentals will continue to be available in many parts of the Southeast, Rust Belt and Midwest for investors purchasing in 2017,” says Daren Blomquist, SVP at ATTOM.
He adds that SFRs “should continue to yield strong returns in many parts of the country going forward, given the market undercurrents of low rent-ready housing inventory and low homeownership rates.” There's also the shortage of for-sale housing to consider: Trulia reported Wednesday that the inventory of homes on the market dropped for the eight consecutive quarter in the first three months of this year, hitting a new record low.
“Average fair market rents increased in 2017 in 86% of the markets we analyzed even while average wage growth outpaced rent growth in 67% of markets—a recipe for sustainable growth in the rental market,” Blomquist says. ATTOM reports that the average annual gross rental yield—i.e. annualized gross rent income divided by median purchase price of single family homes—among the 375 counties it analyzed was 9% this year, down slightly from an average of 9.1% the year prior. Rental yields decreased year over year in 57% of the markets studied by ATTOM.
Counties with the highest annual gross rental yields were Clayton County, GA, in the Atlanta metro area (23.7%); Baltimore City, MD (23.6%); Bibb County, GA, in the Macon metro area (23.5%); Monroe County, PA, in the East Stroudsburg metro area (20.6%); and Saginaw County, MI (18.8%). Among counties of one million or more, those with the highest gross rental yields were Wayne County, MI (17.3%); Cuyahoga County, OH (13.2%); Allegheny County, PA (10.6%); Philadelphia County, PA (10.1%); and Franklin County, OH (9.9%).
At the other end of the spectrum, the counties with the lowest annual gross rental yields were Arlington County, VA (3.4%); Williamson County, TN (3.9%); Santa Cruz County, CA (4.1%); Norfolk County, MA (4.2%); and Santa Clara County, CA (4.2%). Along with Santa Clara County, the lowest gross annual rental yields for counties with a population of at least one million were in Kings County (Brooklyn), NY (4.4%); ATTOM's home county of Orange County, CA and Fairfax County, VA (both with 4.6%); and Queens County, NY (4.7%).
Recent reports from analysts on the institutional side of SFR ownership highlight some key takeaways for would-be investors. Based in part on a meeting with Progress Residential, which controls about 20,000 SFR units, analysts at Keefe, Bruyette & Woods wrote earlier this week that demand in the sector appears solid.
“Same-store NOI growth for the public single-family rental sector totaled approximately 10% in 2016 and we estimate target returns in the low- to mid-teens (including leverage and HPA),” according to KBW analysts. Green Street Advisors cites ongoing consolidation of ownership, given the merger of Starwood Waypoint Residential Trust and Colony American Homes that closed at the beginning of last year, the subsequent combination of American Homes 4 Rent and American Residential and, last month, the announcement by SilverBay Realty Trust that it would be sold to Tricon Capital for $1.4 billion
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
