The evolution in housing since the bubble burst has been towards single family rentals. Many people that lost their homes in the downturn still prefer to live in single family properties rather than becoming apartment dwellers. Investors continue to scoop up the distressed, attractively-priced properties. The single family investment property has become a significant component of housing.
A recurring theme among single family investors is the high propensity to pay all cash when acquiring the property. In January 2016, for example, investors bought 17 percent of all existing home sales and paid all-cash 67 percent of the time according to the National Association of Realtors®.
Where are the best investment markets and the worst? To answer that, HomeUnion completed an analysis of 46 markets nationwide. They calculated the capitalization rate for the typical single family rental by subtracting operating expenses from gross annual income and then dividing by the property value. The lower the capitalization rate, the more that the investor pays for cash flow from the property.
So what markets have the greatest capitalization rates for single family investment properties according to HomeUnion? And the worst?
Note that this analysis does not directly consider property appreciation, but rather net cash flow from the property.
To read the HomeUnion study click https://www.homeunion.com/blog/homeunion-identifies-best-and-worst-markets-for-single-family-rental-investments/
In my economic forecast presentation nationwide, an often asked question is about investment housing. I always start out by answering first what I define as an investment. In my opinion, a true investment property needs to rent for at least 1 percent of the value of the property per month.
A challenge today for investors is the shrinking supply of distressed properties which may lead eventually to even lower capitalization rates.
Ted