Here Are the Markets With the Highest Yields for SFR Acquisitions This Year

The Midwest leads the way for the top 50 SFR rental returns this year, with 25 markets, followed by the South and the Northeast.

A new report from ATTOM Data Solutions shows that Cleveland leads the way for the highest potential annual gross SFR yields in counties with more than 1 million residents this year, followed by Dallas, Fort Worth, Columbus and San Antonio.

The metros with the top rental returns for SFR housing overall span the gamut from Pottsville, Pa. (26.1%); Macon, Ga. (Bibb County, at 18.1%); Baltimore (16.2%); Ottawa, Ill. (La Salle County. At 14.1%) and Jamestown, N.Y. (Chautauqua County at 13.7%).  

The report analyzed SFR returns in 495 US counties with a population of at least 100,000 and using HUD rental data. The average annual gross rental yield among the 495 counties is 7.7% for 2021, down from an average of 8.4% in 2020, according to the report. And within that group, yield slumped in 87% of counties year-over-year. But investors should take heart, said Maksim Stavinsky, co-founder of Roc360, a FinTech platform that is parent to Roc Capital and Haus Lending, both companies specializing in loans to real-estate investors nationwide.

“Offsetting the declining yields are improved financing terms for such rental properties and portfolios,” Stavinsky said. “Across our platform, rates that we are quoting to borrowers have more than offset the waning cap rates on a year-over-year basis, with the highest-tier rental loan borrowers seeing terms in the low 4% range. This is happening despite a yield curve that has been steepening of late.”

But as home prices rise faster than rents in many areas, rents may be compressed. 

“The single-family home rental business is less profitable this year compared to last year across most of the country, with yields on the average deals decreasing. That’s happening as home prices on properties that investors are paying for, in most areas, are rising considerably faster than rents, which is cutting into their profit margins,” said Todd Teta, chief product officer at ATTOM Data Solutions. “Nevertheless, returns on single-family rentals still generally remain strong and there are pockets, especially in the Midwest, where yields top 10%. There also are some signs that things could improve this year given that home prices are increasing faster than rents.”

Counties with a population of at least 1 million that showed the biggest decrease in returns since 2020 include Miami-Dade County, FL (down 19.9%); Oakland County, MI, in the Detroit metro area (down 18.6%); King County (Seattle) (down 17.4%); Palm Beach County (down 14.2%) and Fulton County (Atlanta) (down 13.3%).

Counties with the lowest potential annual gross rental yields for 2021 are Williamson County, TN, in the Nashville metro area (3.7%); Santa Clara County, in the San Jose metro area (3.8%); San Mateo County (3.8%); San Francisco County (3.9%) and Maui County, HI (3.9%). The majority of counties with the lowest rental returns were in markets across the West.