Investors who buy homes to turn them into rentals expect that renting out a home will prove more lucrative than flipping over the long haul. What’s key is patience, and basing the original purchase on good information about the health of a particular real estate market.
Rental market intelligence provider RentRange recently released a report on the top 25 U.S. metropolitan statistical areas (MSAs); it looked at pure price appreciation in rents and in yields that can be expected from rental properties. This installment of the list examined increases in rental rate and yield between the third quarter of 2015 and the same quarter in 2014.
[Tweet “LA rental price increases were measured at 16.3 percent, and yields increased by 5.6 percent”]
California and Florida cities dominate the overall list, with a dozen spots between them. Those states also have cities that land most often in the top 10 for rental increases, with Los Angeles coming in sixth. LA’s rental price increases were measured at 16.3 percent, and yields increased by 5.6 percent.
“Rental prices were distressed (in California), and landlords were not necessarily getting market-rate rents,” said RentRange CEO Walter Charnoff. “The California market experienced a lot of distress, and is now coming back.”
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Midwestern cities Columbus, Ohio, Tulsa, Oklahoma and Kansas City, Missouri, while not glamorous or famous, produce solid, double-digit gains in both rental price appreciation and yield.
Even the top-rated metro in the survey, Cape Coral, Florida, showed a 23-percent rent price hike, but a 9.1-percent gain in yield.
“Home prices are going up,” said Charnoff, “so the yield is a less impressive number than the rent price increase.”
Chernoff said that his company’s data show that there is still great opportunity in real estate investing, but points out that to achieve desired yield on those investment results, investors should be well-informed before buying and rehabilitating investment property.
That’s why the rankings were put together — to show more of an apples-to-apples measure of which parts of the country will get investor results that they can at least live with.
The company gathers monthly rental data on approximately 250,000 single-family houses from a variety of sources, including multiple listing services, property managers, landlords and listing websites. Yields are derived from RentRange’s proprietary automated valuation model.
