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October 31, 2014

5 Most Profitable Rental Markets

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5 Most Profitable Rental Markets

According to RealtyTrac, the top five most profitable markets for landlords to rent out single-family homes are:

  1. Memphis, Tenn.
  2. Saginaw, Mich.
  3. Toledo, Ohio
  4. Ocala, Fla.
  5. Las Vegas.  

The company ranked the cities by calculating cash purchase capitalization rates–or how much net cash flow an investor can wring out of a property each year after paying cash to purchase it.

According to RealtyTrac's Daren Blomquist, the formula helps individual investors who are buying one or a few homes at a time, rather than large institutional speculators who snap up hundreds of discounted homes in the same market all at once.  

"We created this [report] with our customers in mind–the mom-and-pop, individual investors," he notes.  "The folks I've talked to who are acquiring these in bulk or in larger quantities are saying that because foreclosures are starting to dry up, more and more they're buying homes of the MLS."  

While just a handful of areas traditionally favored by the large-scale rental investors also show up on RealtyTrac's top 20 list, the real surprise is the absence of any markets in California.  Blomquist explains that prices in the state have climbed so much, due to high investor interest in the past couple of years, that it is difficult to make a profit from renting homes there. 

Source: "Bang for the Buck: Where Investing in Rental Homes Is Most Profitable," Wall Street Journal (April 4, 2013)

© Copyright Information Inc. 2013

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