While “diseased” seems to be the appropriate descriptor for just about anything you want to talk about in America right now, from the inner workings of its stock market to the mind of its president, the returns being generated by investment properties in the US remain the picture of health.
Proof can be found in a report released last week by Attom Data Solutions, which explores the sales, rent and wage trends impacting 389 US counties and ranks them in terms of their current annual gross rental yield. It’s vital information for investors hoping to crack the US market and take advantage of the low prices on offer in some of the report’s highest-ranked cities.
“The business of buying single-family homes for rent has lost a little steam this year across the United States as rents aren’t rising quite as fast as prices for investment rental properties in a majority of the country,” said Todd Teta, chief product officer at ATTOM Data Solutions, in a statement accompanying the report. “But from the national perspective, things are generally holding steady for landlords in the single-family home rental market.”
Top US rental markets
The report’s top 15 counties don’t leap out in terms of sexiness – Florida doesn’t show up until the 30s – but in terms of rental yield, there’s plenty to get mouths watering:
Rather than hunting out large populations of students, tech workers or tourists, investors in these locations are simply providing housing for families who cannot afford to buy. It’s the simplest of strategies, and in a country like the US, where 40 percent of the population has less than $400 put away for an emergency, it may be the soundest.
Helping each county’s case are median housing prices that would shock most Canadian investors. Of the top 15 markets, only one, Clayton County in Georgia, posted a median price of more than USD $125,000 in the first quarter of 2020. These are, of course, less than glamorous markets – Baltimore, Mobile, Toledo – but so were Windsor and Hamilton five years ago.
Because the report focuses on rental yield, many of the top locations were assisted in their ranking by falling home prices. Indeed, only nine of the top 15 saw their median home prices increase year-over-year in Q1; of those that experienced price gains, most saw growth of only a few thousand dollars. Positive outliers include Macon, Atlanta and Detroit, while home values in St. Louis and Baltimore took a more pronounced beating.
But many of the markets experiencing price regression are still seeing healthy rent appreciation. Rents for three-bedroom properties in Baltimore and Mobile increased three percent to respective averages of $1,926 and $1,245; those in Birmingham-Hoover leapt an impressive 13 percent to $1,404 a month.
If there’s a lesson to be gleaned from Attom’s figures, it’s a common one that bears repeating, particularly when an investor is considering spending money in an unfamiliar housing market: investing for cash flow/rental yield in communities where prices may fluctuate remains the wise move. Seemingly sure-fire investments, such as vacation properties in Orlando or millennial-friendly digs in Nashville, will always have more first-glance appeal, but they will also be under constant price pressure and can see their bread-and-butter tenants wiped-out by sector-wide layoffs or, as we’ve seen recently, the outbreak of a new virus. (Nashville barely broke Attom’s top 100. Orlando was ranked 123rd. Phoenix? 266.)
Clearly, it doesn’t take a genius to succeed in the US, in real estate or otherwise. But because the nation’s communities are so diverse in terms of size, industry and population trends, getting into the market, particularly in cities as beaten-up as Baltimore and Scranton, can feel like a risk. The numbers, however, don’t lie. With some on-the-ground expertise, there’s no reason Canadian investors with small nest-eggs won’t be able to put those numbers to work for themselves.
Americans will continue to struggle with their finances, either because of cruel healthcare or student loan costs, or because no one in the country can seem to agree that the low-wage workers who keep the economy running deserve a living wage. As much as we’d like to, Canadians can’t step in and solve the US’s many problems, but we can take advantage of their market.
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