A combination of high demand, low inventories and rising property prices means that California is now home to seven of the top ten worst markets for investing in single-family rentals.
That’s the conclusion of the latest analysis by HomeUnion, an online residential real estate investment management company, which looked at first-year SFR returns, also known as “cap rates” in each market in the U.S. The cap rate of a property is defined as the relationship between its net operating income, rents less expenses, and its market value.
According to Steve Hovland, director of research services at HomeUnion, most SFR investors have seen very healthy returns on their investments nationwide, most especially in the Midwest and Southwest. He explained that SFRs have generally outperformed most other investment vehicles in the last year, particularly gold and bonds.
“As interest rates remain low after the June Brexit vote placed downward pressure on U.S. treasuries, bonds and other investments will continue to be low yielding assets,” Hovland said. “Investment real estate has proven to be a successful part of a diversified portfolio, and these markets offer the largest returns,” he said.
Here are the top 10 highest-yielding markets to invest in SFRs:
However, Hovland was quick to draw attention to the plight of California, a state which has been more burdened than most in a climate where many homeowners just aren’t that eager to sell.
"On the other hand, these [below] markets don’t offer such great returns,” Hovland said. “If an investor’s horizon is long term, these coastal markets might be worth exploring, but the ROI won’t be as immediate as it will in the Heartland.”
Here are the top 10 lowest-yielding markets to invest in SFRs:
There could be good news for Californian homebuyers though. Having struggled for the last two years with low inventories and rising demand, the California Association of Realtors recently reported that inventories rose slightly in June. Pending home sales also increased in the same month, the third straight month of increases, the CAR said.