Today RealtyTrac released a new report that shows the best and worst rental markets in America by county.
Although there appears to be good and bad markets in all parts of the nation, perhaps unsurprisingly, the vast majority of the best markets appear to be concentrated throughout the Midwest, while the worst markets tend to focus on the East and West coastlines, with California leading the pack with 6 of the top 20 worst markets, followed by New York (with 4) and Virginia (with 3).
To determine the best and worst markets, RealtyTrac divided the average 12 month rental income by the median sales price for residential homes in that county. The results show the Annual Gross Yield, which can give an indication to real estate investors which markets will fare better for cash flow.
According to RealtyTrac:
To calculate the annual gross rental yields we used the median sales price for January 2014 except in states where the sales prices is not required to be disclosed on the sales deeds. In those non-disclosure states we used the median list price for January 2014. The rental rates we used were the average fair market rent on three-bedroom home for 2014 from the U.S. Department of Housing and Urban Development.
The #1 Best and #1 Worst US Rental Markets
According to RealtyTrac’s data, the #1 best US market for rental real estate in 2014 is Wayne County, Michigan – home to the often-infamous (especially on the BiggerPockets Podcast) Detroit. With a median sales price of just $44,900 and an average fair market rent of $1,124, Wayne County appears to provide an incredible return for rental property owners with an annual gross yield of 30% ( but see notes below under “Limitations and Commentary”).
The worst rental market in the US, according to RealtyTrac, is New York County, New York, with a median sales price of $887,000 and average monthly rent of $1,852 – an annual gross yield of just 3%.
Limitations and Commentary
The data released in this study is helpful in understanding the broad strokes of rental markets and the ratio disparity between rent and purchase price throughout the US. However, this data should obviously not be an investors primary source of information when choosing a location.
The data in these charts fails to show:
- Different rent-to-purchase price ratios within different locations in a county
- Appreciation potential
- Population growth/decline
- Age/condition of the properties
- Crime rates
- Vacancy rates
- Landlord vs. tenant friendly laws
- and probably a lot more.
These, and numerous other indicators, are incredibly important when looking at a real estate market and something all real estate investors should be aware of before making any purchase.
Data Source: RealtyTrac