Why Buy A Rental?
Why buy a Rental? Lack of wage growth
Baby Boomers and Investors who are looking to increase their footprint in the single-family rental market should consider looking in one of the top 10 U.S. markets with the highest cap rate, according to data released by HomeUnion on Tuesday.
The cap rate on an Single Family Residence investment property is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.
The Single Family Residence market has gained major popularity as an asset class compared to stocks in the last two years or so. I blame this on the hedge fund perspective with funds such as Blackstone and others dumping millions into markets across the nation. The number of single-family renters boomed in 2015 due to a number of factors like a persistent lack of available housing inventory for sale, home price appreciation from market crash rebound and a lack of wage growth. Home ownership rate fell to a five-decade low in the second quarter of 2015 as more families transitioned to renting. Rent appreciation has made the Single Family Rental business more profitable for investors.
“Other asset classes under performed in 2015, while single-family rental investors saw healthy returns in terms of income and appreciation in markets across the country,” said Steve Hovland, Manager, Research Services at HomeUnion. “Favorable supply and demand fundamentals and shifting views about renting among millennials and seniors, created increased occupancy rates, which resulted in higher rent prices.”
“With continued turmoil in the securities markets, individual investors are increasingly looking to an alternative to low-yield bonds and risky stocks,” said Don Ganguly, CEO of HomeUnion. “The SFR market is not correlated to the securities market, and with the right research, investors can find high-yield investments in markets anchored by solid, diverse economies and favorable demographics.”
Using cap rate to rank the hottest and coldest markets in which to invest in Single Family Residence properties, HomeUnion determined that the market with the highest cap rate was Memphis Tennessee 7.3%, Oklahoma City Oklahoma 6.9%, Pittsburg Pennsylvania 6.4%, Cincinnati Ohio 6.4%, Houston Texas 6.1%, Indianapolis Indiana 6.0%, Cleveland Ohio 5.9%, Baltimore Maryland 5.9%, Milwaukee Wisconsin 5.9%, Tampa Florida 5.9%.