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Where Investors Can Get the Most and Least Return for SFR Properties

Two-Story-HouseSingle-family rental investors saw have seen major growth over the last year in terms of income and appreciation in housing markets across the U.S.

Investors that are looking to make the most of their acquisitions need to be wary of cap rates on properties, or the relationship between an investment home's net operating income (rents minus expenses) and the market value of the property.

“Other asset classes underperformed in 2015, while single-family rental investors saw healthy returns in terms of income and appreciation in markets across the country,” said Steve Hovland, Manager, Research Services at HomeUnion. “Favorable supply and demand fundamentals and shifting views about renting among millennials and seniors, created increased occupancy rates, which resulted in higher rent prices.”

The single-family rental market gained traction as a viable asset class with phenomenal growth in 2015. The homeownership rate fell to its lowest level in nearly five decades during the summer as more and more families and individuals chose to rent.

“The underlying growth in the single-family residential asset class was an increase in renters, a decrease in house prices, a decrease in credit availability, and all of that led to opportunities for institutions,” said Brian Grow, Managing Director, RMBS with Morningstar Credit Ratings, which reports monthly on SFR securitizations. “They could go into areas and build technology to find undervalued homes. A lot of the renters that are filling these properties owned by single-borrower issuers (institutional investors) are borrowers who probably don’t fit the profile of someone who would take out a mortgage in this new environment or alternatively. They don’t want a mortgage because something happened when either they or someone they know were looking for a mortgage. That led to an increase in rentership and an increase in opportunities.”

HomeUnion, an online real estate investment management firm enabling value investing in single-family rental properties, identified the best and worst housing markets in the U.S. for single-family rental investors in terms of cap rates. According to the study, Memphis is the most favorable market for single-family rental investors with a cap rate of 7.3 percent, while San Francisco is the least favored market with a cap rate of 2.7 percent.


“With continued turmoil in the securities markets, individual investors are increasingly looking to an alternative to low-yield bonds and risky stocks,” said Don Ganguly, CEO of HomeUnion. “The SFR market is not correlated to the securities market, and with the right research, investors can find high-yield investments in markets anchored by solid, diverse economies and favorable demographics.”

HomeUnion's Top 10 SFR Investment Markets With the Highest Cap Rates Are:

  1. Memphis 7.3 percent
  2. Oklahoma City 6.9 percent
  3. Pittsburgh 6.4 percent
  4. Cincinnati 6.4 percent
  5. Houston 6.1 percent
  6. Indy 6.0 percent
  7. Cleveland 5.9 percent
  8. Baltimore 5.9 percent
  9. Milwaukee 5.9 percent
  10. Tampa 5.9 percent

HomeUnion's Bottom 10 SFR Investment Markets With the Lowest Cap Rates Are:

  1. San Francisco 2.7 percent
  2. San Jose 2.7 percent
  3. Orange County, California 3.0 percent
  4. Los Angeles 3.2 percent
  5. New York, New York 3.5 percent
  6. Seattle 3.5 percent
  7. Oakland 3.5 percent
  8. San Diego 3.6 percent
  9. Sacramento 3.6 percent
  10. Portland 3.9 percent

About Author: Staff Writer


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