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Top Markets for Buying Rental Property in 2016

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  |  By Chris Shanahan, CISP®

We’re in the midst of the busiest time of the year for home sales, with many buyers preferring to purchase properties in the spring or early summer so they can be settled in their new homes by Labor Day.

That also means it's the time of year when real estate investors, like self-directed IRA owners, who are interested in buying rental property are keeping an eye on home price trends and potential markets they may want to explore to purchase a single family home for rent.

Real estate is one of the most popular assets held in self-directed IRAs, with many using their self-directed IRA funds to buy residential homes to hold as investment properties. Possible advantages of renting out a single family home include generating a steady stream of income and long-term price appreciation potential.

As for where to invest, potential investors looking for better balance between purchase price and rental demand now have other options beyond “hot” areas known for high rents. Earlier this year, RealtyTrac completed a study that ranked the best markets for purchasing residential rental properties in 2016. The report analyzed single family rental returns in 448 US counties, each with a population of at least 100,000 and sufficient rental and home price data. The report ranked the counties based on the potential annual gross rental yield — monthly rent, annualized, divided by median home price. [1]

Counties with highest single family rental returns

RealtyTrac found that the average annual gross rental yield among the 448 counties was 9.4%, down from an average of 9.5% in the first quarter of 2015.

Counties with the highest annual gross rental yields were:

  • Baltimore City, Maryland (28.5%)
  • Clayton County, Georgia (25.8%)
  • Wayne County, Michigan (24.2%)
  • Bay County, Michigan (21.2%)
  • Macon County, Georgia (20.6%)

Counties with the lowest annual gross rental yields were:

  • Arlington County, Virginia (3.3%)
  • San Francisco, California (3.4%)
  • San Mateo, California (3.6%),
  • Marin County, California (3.9%)
  • Santa Cruz, California (4.0%)
  • Santa Clara, California (4.0%)
  • Williamson County, Tennessee (4.0%)
  • Kings County (Brooklyn), New York (4.0%)

Best single family rental growth markets

The RealtyTrac report then identified the following 17 counties as the best markets for future growth in single family rental returns. In these counties, average weekly wages grew at least 5.0% annually and annual wage growth outpaced annual rental rate growth.

Here is the result of that ranking:

For investors who are comfortable choosing properties, finding the sweet spot between the purchase price of an investment property and the average rent you can charge could help boost the return on a real estate investment.

To learn more about investing in real estate using your self-directed IRA, please click here to download our real estate investing guide.

[1] Past performance is not indicative of future returns, nor does a past investment strategy indicate future profitability or performance levels. Potential investors should research and review the most current performance of this asset type.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.