SFR Return on Investment Drops as Home Prices Spike

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ATTOM Data Solutions, a real estate data company, released its new Single-Family Rental Market Report which shows that profit margins on three-bedroom single-family home rentals (SFR) have been declining on a year-over-year basis throughout 2022 across much of the U.S. Areas that previously saw lower yields were the most at risk of this recent phenomenon.

To complete this report, ATTOM used rental and purchase data from its platform and calculated it using annual gross rental yields. The company used data from 212 counties with a population of over 100,000 people for the report. The latest yields are based on annualized 2022 gross rent income divided by median purchase prices in the first quarter of 2022.

All-in-all, the report shows that gross rental yields before expenses on three-bedroom, single-family homes purchased by landlords this year are decreasing in 72% of the counties included in the report.

“Most declines are less than one percentage point from rental yields in 2021. But rental yields are dropping in about three-quarters of markets where median home prices exceeded $250,000 in the first quarter of 2022,” ATTOM said in the report. “The report further shows that those markets commonly have smaller profit margins, with yields that mostly fall below 7%.”

At the same time, gross returns are decreasing in at least 66% of markets where homes sell for less than $250,00 on average, which are mainly located in the Midwest and South. Despite the declines, returns remain above 8% in more than half of those counties.

The reason behind the declines is that landlords are buying property which is rising faster than rents. Median prices for three-bedroom houses increased at least 15% from 2021 to 2022 in half of the counties analyzed, while average rents went up by that much in only one-third of those markets.

“Investors who own single family rental properties have seen their margins compressed over the last year as home prices have risen faster than rental rates,” said Rick Sharga, EVP of Market Intelligence at ATTOM. “The good news for these property owners is that their yields should improve as annual rental rates increase, and they should also benefit from home price appreciation over time.”

Single-family rental yields top 7% in half of nation

Of the 212 counties monitored in the report during the first quarter of 2022, yields before expenses on a typical three-bedroom SFR are at least 7% in 98 (or 46%) of those counties. 

The top returns include Collier County, Florida (yield of 16%); Atlantic County, New Jersey (12.2%); Mercer County, New Jersey (11.6%); Indian River County, Florida (11%); and Charlotte County, Florida (10.7%). 

The smallest 2022 returns are in Santa Clara County, California (3.1%); San Mateo County, California (3.2%); Williamson County, Tennessee (3.9%); San Francisco County, California (3.9%); and Fayette County, Kentucky (3.9%).

Largest single-family rental returns in lowest-priced counties, smallest in most-expensive markets 

Yields on new three-bedroom, single-family home rentals exceed 8% in roughly six of every 10 counties where homes typically sold for less than $250,000 in the first quarter of 2022.  

These include Atlantic County, New Jersey (yield of 12.2%); Wayne County, Michigan (10.7%); Jefferson County, Texas (10.1%); Hamilton County, Ohio (9.8%); and Montgomery County, Alabama (9.7&). 

Click here to view ATTOM’s report in its entirety.