When considering investing in rental properties there are four market factors to consider: job growth, population growth, affordability, and, of course, investment returns. In this article, we’ve tapped into the latest reports from ATTOM, the real estate data company, to examine the top 10 rental markets from an investment return perspective. We also look at the most affordable rental markets for 2022.
Rental Market Returns
In 87% of the 495 counties covered by ATTOM’s 2021 rental market returns report, single-family home prices are rising faster than rents. That brought down the average annual gross rental return to 7.7% from an average of 8.4% in 2020. As home prices continue to rise across the US, they become less affordable, which increases the demand for rental homes and puts upward pressure on rental prices.
They also identified 61 counties where the potential annual gross rental yields are 10% and above. This stems in part from growth in wages in those counties. On the downside, they also identified counties with the lowest potential rental yields. This included Williamson County in the Nashville metro area at 3.7%, Santa Clara County in the San Jose metro area at 3.8%, and San Francisco County at 3.9%.
Top 10 Markets with Greatest Annual Increase in Rental Returns
On the plus side, here are the top 10 markets with the greatest annual increase in rental returns for 2021.
- Calcasieu County, LA, 29.7% increase from 2020.
- Erie County, PA, 13.4% increase.
- Licking County, OH, 13.3% increase.
- Delaware County, IN, 12.7% increase.
- Tazewell County, OH, 12.2% increase.
- Lorain County, OH, 12% increase.
- Wichita County, TX, 10.9% increase.
- Clark County, IN, 7.4% increase.
- Bibb County, GA, 5.8% increase.
- Miami County, OH, 4.2% increase.
Note that all 10 counties experienced annual gross rental yields of 10% or greater, with Bibb County, GA, at an amazing 18%.
Most Affordable Markets for Renting
As we noted at the top, affordability is a big key for investing in rental properties. ATTOM’s 2022 report on rental affordability notes that 88% of counties had rising median home prices that increased more than average wages and rents. Even so, over half the counties (58%) report that homeownership is more affordable than rent.
Of course, the COVID-19 pandemic has significantly changed real estate markets around the country. Many who have been stuck at home for months, decided they needed a change from a small, cramped apartment to either a larger apartment or their first home. They’ve also thought long and hard about where they’re living. They are considering and acting upon the work-from-home option that frees up where they live.
That consequent movement has generated explosive growth in several real estate markets. Yet unless you were in at the beginning of the boom, they may not be the best for investment due to spiraling price increases. So, what are the most affordable rental markets?
Top 10 Markets Most Affordable for Renting in 2022
Using ATTOM’s recent report, here’s the top 10 list of the most affordable counties, with a population of at least one million, for renting a typical three-bedroom home.
- Allegheny County (Pittsburgh), PA, 23.7% of average local wages needed to rent.
- Cuyahoga County (Cleveland), OH, 27.7%.
- Fulton County (Atlanta), GA, 24.7%.
- Oakland County (outside Detroit), MI, 25.8%.
- Franklin County (Columbus), OH, 26.6%
- Santa Clara County, CA, 26.6%.
- Wayne County, MI, 27%.
- Mecklenburg County, NC, 27.2%.
- Philadelphia County, PA, 29.3%.
- Wake County, NC, 29.4%
Keys to a Strong Rental Market
We started by noting the big keys to any rental market are job growth, population growth, affordability, and investment returns. All those factors came together for our top 10 lists above.
Other items to look for include locations where you can find low-priced rental properties, rising wages, and a low cost of living including low property taxes. The big financial factors are rental yield or returns, which established the ranking in the first top 10, as well as property value appreciation. The latter helps your investment grow while the former provides steady cash flow.
We hope this brief snapshot of rental markets has helped you gain some perspective on the best markets for your investments. To learn more about obtaining funding for your rental property business through Sharestates, click here.