2019 ROI First Quarter Edition 2019 - HIS Capital Group | Page 52

“Last year, at this time, investors were seeing returns drop in three-quarters of the counties that were analyzed. So far this year, those margins are up in six out of every 10 counties analyzed. But despite the generally rosier picture, profits vary widely and investing in the single-family home rental market is not always a great move. The typical bottom-line gain from county to county this year has ranged from as high as 29 percent to as little as 3 percent.” Counties in Baltimore, Macon, Vineland, Rockford, Detroit post highest rental returns Counties with the highest potential annual gross rental yields for 2019 were Baltimore City, Maryland (24.5 percent); Bibb County, Georgia in the Macon metro area (21.9 percent); Cumberland, New Jersey, in the Vineland-Bridgeton metro area (21.2 percent); Winnebago, Illinois, in the Rockford metro area (17.1 percent); and Wayne County, Michigan in the Detroit metro area (17.1 percent). Along with Wayne County, Michigan, the highest potential annual gross rental yields among counties with a population of at least 1 million were Cuyahoga County (Cleveland), Ohio (12.0 percent); Allegheny County, Pennsylvania (10.9 percent); Cook County (Chicago), Illinois (9.7 percent); and Philadelphia County, Pennsylvania (9.4 percent). Not surprisingly counties in San Francisco, San Jose and New York post lowest rental returns. Rents rising faster than wages in 55 percent of markets • The 98 SFR Growth markets included Wayne County (Detroit), Michigan; Cuyahoga County (Cleveland), Ohio; Allegheny County (Pittsburgh), Pennsylvania; Milwaukee County, Wisconsin and Marion County (Indianapolis), Indiana. Huge shifts are occurring in the rental market: Return to basics. Rental demand is shifting to a focus on affordability, with renters willing to sacrifice square footage, privacy, amenities, and commute time in return for lower rent. Suburban growth. Urban renters are moving, children in tow, to the suburbs to either purchase a home or rent in a good school district. Entrepreneurial capital. Capital is flooding into a brand- new asset class: newly built rental homes (build for rent, or BFR) with a variety of new designs appealing to a range of rental segments that have gone unserved. Trends now see the focus on suburban more than urban development this year. They also noted that designs and amenities need to change quickly: Urban: Lower the rents through fewer amenities and less private space, as today’s young renter is more likely to take on a roommate to save rent and less willing to pay a premium for great amenities. Rents rose faster than wages in 236 of the 432 counties analyzed (55 percent), including Los Angeles County, California; Harris County (Houston), Texas; Maricopa County (Phoenix), Arizona; San Diego County, California; and Orange County, California. Suburban: Shift back toward more affordable, family- oriented, value-oriented apartments that have plenty of square footage and new homes designed with renters in mind. Wages rose faster than rents in 196 of the 432 counties analyzed (45 percent), including Cook County (Chicago), Illinois; Kings County, New York; Queens County, New York; Clark County (Las Vegas), Nevada; and Tarrant County (Dallas- Fort Worth), Texas. Home price appreciation outpacing wage growth in 49 percent of markets Best SFR growth markets in Cleveland, Columbia, Pittsburgh, Rockford, Atlanta • The report identified 98 “SFR Growth” counties where average wages grew over the past year and with potential 2019 annual gross rental yields of 10 percent or higher. HOME AFFORDABILITY Median-Priced Homes Not Affordable for Average Wage Earners in 71 Percent of U.S. Housing Markets The 335 counties where a median-priced home in the first quarter was not affordable for average wage earners included Los Angeles County, California; Maricopa County (Phoenix), Arizona; San Diego County, California; Orange County, California; and Miami-Dade County, Florida. www.hiscaptialgroup.com 51