In many areas housing prices are rising and that has some investors thinking about if and where they should buy their next rental.
Many sellers became "accidental landlords" after realizing that they couldn’t sell their home for the price they wanted. Instead, they kept the home and found they were now in the rental business. Some liked it and decided to make this a second stream of income. But making an income on rental properties means the investment must offer not only good appreciation on the property but also a steady and lucrative rental income for the long haul. Without the rental return, the property can quickly become a major drain on the bank account.
According to CoreLogic, home prices increased, nationwide, by 12.2 percent in February from over a year ago and in some markets like Riverside, California, and Atlanta, Georgia, the gains were much higher: 22 percent and 17 percent, respectively.
But there are other hot investor markets. According to RealtyTrac.com the top rental return markets (see list below), start off with Detroit ranked number one for rental returns thanks to its low-priced homes. A median home in Detroit is slightly under $45,000, giving investors a 30 percent annual gross yield, according to the report. Compare that to the national median home price of $189,000 and you can see why investors are heading to Detroit.
Clayton County, Georgia, Atlanta, ranked second. This city has a lot of foreclosures on the market and the median home price is about $50,000, giving investors a 28 percent annual return. Tha, t with a strong rental demand and investors have a formula for success.
To determine the rental returns, RealtyTrac used the 2014 fair market rent for a three-bedroom home and multiplied that figure by 12 (months) and then divided that 12-month total by the median sales price of residential properties in the county. The company limited the list to those counties that have a population of at least 50,000-plus. A total of 1586 counties had sufficient data for the analysis.
Cash-flow properties help investors build long-term wealth. RealtyTrack reports that "good cash-flowing rentals can be found in many U.S. markets, but rapidly appreciating home prices are making it more difficult."
The top counties and their metro markets for best rental returns are:
- Wayne County, Michigan - Detroit, Warren, Livonia
- Clayton County, Georgia - Atlanta, Sandy Springs, Marietta
- Washington County, Mississippi - Greenville
- Bibb County, Georgia - Macon
- Baltimore City County, Maryland - Baltimore,Towson
- Wyandotte County, Kansas - Kansas City, MO-KS
- Putnam County, Florida, - Palatka
- Fayette County, Pennsylvania - Pittsburgh
- Hernando County, Florida - Tampa, St Petersburg, Clearwater
- Richmond County, Georgia - Augusta, Richmond County
- Mobile County, Alabama - Mobile
- Highlands County, Florida - Sebring
- Tompkins County, New York - Ithaca
- Winnebago County, Illinois - Rockford
- Sumter County, South Carolina - Sumter
- Saginaw County, Michigan - Saginaw, Saginaw Township
- Oneida County, New York - Utica, Rome
- Onondaga County, New York - Syracuse
To view the median sales prices, average fair market rent, and annual gross yield as well as the bottom markets, view the Best & Worst Markets for Rental Returns: Heat Map report from RealtyTrac.com.