How to find the best markets for single-family rental properties

After nearly three years and millions of property purchases, the nascent single-family rental industry is still a booming one.

In 2014, annualized rent in the U.S. grew 3.2% year-over-year, up from 2.8% growth in 2013, according to data from commercial real estate firm CoStar. Annualized rent is expected to increase 2.1% this year, even as many markets face an oversupply of rental units.

Rental housing demand is expected grow by nearly 6.6 million units through 2016, with about 4.2 million new renters attributing to the total, according to FirstService Residential Realty.

“There's a huge demand for investment properties,” said, Mark Mohl, senior account executive at B2R Finance, a firm that provides financing tailored to single-family rental property investors. “I am optimistic about the future prospects for this market.”

Single-family residential rental properties are expected to bring in an average return of 9% in 2015, but 20 individual markets in the United States show the promise of returns of more than 15%, according to a recent report from RealtyTrac. These markets have strong and growing populations of Millennials, Gen-Xers and Baby Boomers and have caught the eyes of single-family rental investors.

Markets with the highest potential rental returns in RealtyTrac’s report included: Clayton County, Georgia, in the Atlanta metro area (25.83%); Bibb County, Georgia, in the Macon metro area (22.33%); Baltimore City, Maryland, (20.99%); Richmond City, Virginia, (20.42%); and Wayne County, Michigan, in the Detroit metro area (19.34%).

Among the 516 counties RealtyTrac analyzed, just three cities were identified as both a top 20 market for rental returns and a top 10 safe haven market. Those markets include: Richmond County, Virginia; Trumbull County, Pennsylvania; and Muskegon County, Michigan.

With homeownership rates at their lowest level in 20 years, historically low levels of housing starts and relatively low home prices in many parts of the country, most U.S. markets still offer plenty of opportunity for single family rental investors employing a variety of investing strategies, according to RealtyTrac.

Brokers looking to add this product to their portfolio and help their investor clients receive competitive financing now have a viable option.

B2R Finance offers loans of up to 75% of home values for pools of leased properties.  The company’s minimum loan size is $300,000 and provides five- and 10-year terms with up to a 30-year amortization schedule. Financed properties need to be no less than 60% residential.

Mohl added that the company fills a void in the marketplace. "There's a huge demand for investment properties, and I am optimistic about the future prospects for this market."
 

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