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The first quarter of 2016 once again did not fare well for San Francisco Bay Area rental property investors as yield returns compared with competitor counties in other parts of the U.S. were not great.  RealtyTrac looked at potential annual gross rental yields of single-family residential rentals in 448 counties in the U.S. where there was a minimum of 100,000 population.  The rankings were calculated by dividing the annualized monthly rents by the medium home prices.  The RealtyTrac study concluded that rents are rising faster than medium home prices in 45 percent of the markets which demonstrates strong demand in those markets.  Importantly, rental growth rates were outpaced by annual wage growth rates in 43 percent of the markets which logically will lead to increased rental returns in the near future.

AA AA Arrow UpLowest 8 Counties – Annual Gross Rental Yields; But What About Equity Gains?

Importantly, even though the San Francisco Bay Area counties (including Silicon Valley) did not fare well with this data point year-over-year equity gains in these counties outpaced their counterparts fairly easily across the U.S.  Most investors used both data points when deciding to purchase properties in technology rich San Francisco Bay Area.  In fact, most investors count on equity gains in Silicon Valley and other San Francisco Bay Area counties to outperform as compared to a majority of the U.S. counties – thus are willing to live with lower yields.  Five San Francisco Bay Area Counties are included in the eight (8) lowest gross rental yields as listed below:

  1. Arlington County, Virginia — Washington, D.C., metro area (3.3 percent)
  2. California Bay area counties of San Francisco (3.4 percent)
  3. San Mateo (3.6 percent)
  4. Marin (3.9 percent)
  5. Santa Cruz (4.0 percent)
  6. Santa Clara (4.0 percent)
  7. Williamson County — Nashville metro area (4.0 percent)
  8. Kings County (Brooklyn), New York (4.0 percent)

AA AA Rent YieldFive Counties Showed Highest Annual Gross Rental Yields

The RealtyTrac Study average gross rental yield was 9.4 percent in the 448 counties studied.  The counties with the highest yields were:

  1. Baltimore City, Maryland (28.5 percent)
  2. Clayton County, Georgia — Atlanta metro area (25.8 percent)
  3. Wayne County, Michigan — Detroit metro area (24.2 percent)
  4. Bay County, Michigan — the Bay City metro area (21.2 percent)
  5. Macon County, Georgia (20.6 percent)

These 17 Counties are Predicted to Have the Best Future Growth in 2016

Seventeen markets were identified by the RealtyTrac study as the areas with the most potential for future growth in single family rental returns; these counties saw average wages grow by at least 5 percent, outpacing annual rental rate growth – thus the predictive data.

The counties were as follows:

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The top five areas/counties are Genesee County, Michigan in the Flint metro area (predicted 15.3 percent annual gross rental yield and 5.0 percent annual wage growth); Camden County, New Jersey in the Philadelphia metro area (predicted 12.9 percent annual gross rental yield and 5.5 percent annual wage growth); Woodbury County, Iowa in the Sioux City metro area (predicted 11.4 percent annual gross rental yield and 11.3 percent annual wage growth); De Kalb County, Illinois in the Chicago metro area (predicted 11.3 percent annual gross rental yield and 8.9 percent annual wage growth); and Warren County, New Jersey in the Allentown, Pennsylvania metro area (predicted 10.8 percent annual gross rental yield and 6.0 percent annual wage growth).

Ohio seems to be growing with increasing jobs and immigrant placement, housing demand is predictably higher. Because available housing inventory and new construction inventory remain low, rental home pricing should continue to rise throughout 2016.

Single Family Rental Returns by Zip Code – the Best

RealtyTrac also analyzed 6,551 zip codes across the country with populations of 2,500 or more. The top zip codes for rental yield returns in 2016 to be 48505 in the Flint, Michigan metro area (150.2 percent); 21223 in the Baltimore, Maryland metro area (102.0 percent); 35208 in the Birmingham, Alabama metro area (89.7 percent); 21205 in the Baltimore, Maryland metro area (87.8 percent); and 48205 in the Detroit, Michigan metro area (87.1 percent).

Don’t Shoot the Messenger – the Worst

These are the predictive worst counties for rental yields.  The worst five zip codes with the lowest potential single family rental returns for 2016 were 34102 in The Naples, Florida metro area (0.5 percent); 33480 in the Miami, Florida metro area (0.6 percent); followed by three zip codes in the Los Angeles metro area: 90210 (0.9 percent), 90069 (1.0 percent), and 90402 (1.1 percent).

Investing in Rental Properties Requires a Complete Analysis of All Factors and Data

There are lies, damned lies, and then there are statistics.  Each real estate investor must look at all of their data points and risk appetite before deciding whether or not a certain county is a great place to invest for themselves.  The RealtyTrac Study takes into account a pinpointed look at rental property data, but other data points have been purposefully left out.  For a complete and detailed analysis of your market you should contact a real estate professional or professional property management company or manager who fully understands rental markets, yield, capitalization rates, value, equity and all of the concomitant data for your particular area of interest.

David Roberson
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