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CoreLogic: Best Markets for Single-Family Rental Investments

April 12, 2012

CoreLogic: Best Markets for Single-Family Rental Investments

04/11/2012 By: Esther Cho

Single-family rental investing is a $3 trillion market, according to CoreLogic’s MarketPulse report, which further stated that the single-family rental market accounts for $21 million rental units, or 52 percent of the residential rental market.

The report, authored by Sam Khater, said that unlike multifamily rentals, single-family rents increased during the recession.

With reports showing rental prices have gone up and home prices have decreased, it’s no surprise that large investors have shown interest in buying up single-family homes at a discount to convert them to rental units.

Also, according to the report, during the last five years, foreclosures have turned 3 million former homeowners into potential renters.

Though, in terms of capitalization rates, which is a metric used to determine the profitability of an investment property, certain markets are much more attractive than others when it comes to profitability of an investment home.

Capitalization rates are found by taking the expense adjusted annual cash flow from renting a property relative to the acquisition price.

Based on the 26 major markets CoreLogic assessed, the markets that yield the highest single-family rental cap rates were generally in Florida or the Midwest. West Palm Beach had the highest rate at 12.4 percent, followed by Cleveland (12.3 percent), Fort Lauderdale (12 percent), Chicago (11.6 percent), and Las Vegas (11.4 percent).

The common denominator for areas with lower cap rates was lower than average prices. Honolulu at 5.4 percent had the lowest cap rate, followed by Raleigh (7.3 percent), and Austin (7.7 percent). Among the larger markets, Miami had the lowest cap rate at 7.7 percent, which is partly due to improved home prices.

As of January 2012, cap rates for the single-family market averaged 8.6 percent, according to CoreLogic.


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