Hot and Cold Markets: Capitalizing on Opportunities in the Single-Family Rental Space

The single family rental market remains an opportunity for investors seeking reliable cash flows, strong returns, and meaningful appreciation. Driven by New Year’s resolutions, the dream of a plush retirement, and/or an increasing demand for rentals, the keen real estate investor tracks the high—and low—preforming markets. Any responsible fix and flip investor will tell you market selection (location, location, location) is the key to building a sustainable investment portfolio.

HomeUnion, an online real estate investment management company, ranked the most and least favorable single-family rental markets measured by capitalization rate. “With continued turmoil in the securities markets, individual investors are increasingly looking to an alternative to low-yield bonds and risky stocks,” explained Don Ganguly, CEO of HomeUnion. “The SFR market is not directly correlated to the securities market, and with the right research, investors can find high-yield investments in markets anchored by solid, diverse economies and favorable demographics.”

The capitalization (or cap) rate is a financial metric used to gauge an assets performance and net initial yield. Simply stated, it can be thought of as an asset’s anticipated rate of return during the first year. It’s important to understand the difference between Cap Rates vs ROI. Cap rates reflect the relationship between an asset’s net operating income (rents less expenses) and the market value of the property. For example, an investment property valued at $100,000 that is rented for $1,500 per month ($18,000 annually) with $8,000 in annual expenses (net income being the difference; $10,000), would have a 10% capitalization rate (or 10 Cap).

According to HomeUnion, below is a list of the TOP 10 single-family rental investment markets: (MSA, Cap Rate)

1. Memphis, TN: 7.3%
2. Oklahoma City, OK: 6.9%
3. Pittsburgh, PA: 6.4%
4. Cincinnati, OH: 6.4%
5. Houston, TX: 6.1%
6. Indianapolis, IN: 6.0%
7. Cleveland, OH: 5.9%
8. Baltimore, MD: 5.9%
9. Milwaukee, WI: 5.9%
10. Tampa, FL: 5.9%

And, below is a list of the BOTTOM 10 single-family rental investment markets: (MSA, Cap Rate)

1. San Francisco, CA: 2.7%
2. San Jose, CA: 2.7%
3. Orange County, CA: 3.0%
4. Los Angeles, CA: 3.2%
5. New York, NY: 3.5%
6. Seattle, WA: 3.5%
7. Oakland, CA: 3.5%
8. San Diego, CA: 3.6%
9. Sacramento, CA: 3.6%
10. Portland, OR: 3.9%

Don’t be discouraged by the west coast! CoreVest Finance is a nation-wide direct lender that provides financing solutions to residential real estate investors looking for a investment property loan. We provide attractive long-term debt products for stabilized rental portfolios, as well as credit lines for new acquisitions. Strike while the markets are hot and high-preforming.

CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how CoreVest can help grow your rental and rehab business, please call 844.223.2231 or submit our contact form.