With institutional investors playing a major role in the home-buying market as they snagged tens of thousands of homes in 2012, RealtyTrac set to work to determine which markets still offer the best opportunities for investors intending to purchase single-family homes to rent.
Topping the list of top 20 markets were Memphis, Tennessee; Saginaw, Michigan; Toledo, Ohio; Ocala, Florida; and Las Vegas, Nevada.
These markets ranked the highest for cash purchase capitalization rate—the percentage of the purchase price accrued in net annual income. RealtyTrac observed these rates for three-bedroom homes in markets with at least 200,000 residents.
“Buying single family homes as rentals that actually generate good monthly cash flow has become more difficult over the past
year as institutional investors crowded into the market,” said RealtyTrac VP, Daren Blomquist.
However, Blomquist insists “there are still opportunities for the more conservative, individual investor to buy rental homes that generate a healthy return on investment.”
The keys to success, according to Blomquist are “persistence and willingness to pass on bad deals.”
In Memphis, Tennessee, the median sales price for a three-bedroom home is $72,605, and investors can expect a cash purchase capitalization rate of 10.38 percent.
In Saginaw, Michigan, and Toledo, Ohio; median prices for three-bedroom homes fall in the $60,000 range and cash purchase capitalization rates are 10.32 percent and 10.26 percent, respectively.
Ocala, Florida’s median three-bedroom home price is a somewhat higher $75,357, while its cash purchase capitalization rate is a close 10.23 percent.
In Las Vegas, three-bedroom homes sell for a median price of $115,000, and the cash purchase capitalization rate is 9.86 percent.
Florida appeared on RealtyTrac’s top 20 list more than any other state, with eight of its markets making the cut.
A few markets from the Midwest and West made the list, while the Northeast had only one market make it on RealtyTrac’s list of top 20 markets for single-family rental investments – Syracuse, New York, which ranked 19 with a cash purchase capitalization rate of 8.46 percent.
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