Erie County ranked among the 25 best “overlooked” markets for owning a single-family home rental in the country, along with most upstate New York metro areas.
The ranking by two real estate research firms is based on how profitable a rental home can be as an investment.
The study by RealtyTrac and RentRange put Erie County 12th in the nation among the 25 “Hidden Gem Single Family Rental Markets” for property investors.
With a median market value in August of $110,000 for a three-bedroom home, and a median monthly rent of $904, that means the county has a “gross rental yield” – the expected return on investment on a rental property before taxes, maintenance fees and other costs – of 9.9 percent.
By comparison, the highest-ranked market on the list – Wichita County, Texas – had a yield of 13.4 percent.
The large national private equity firms and other institutional investors – such as the New York-based Blackstone Group – that have been swooping into some markets to capitalize on the housing recovery have ignored Western New York and similar markets where values didn’t fall as much in the recession and aren’t rising as much now.
Indeed, counties across upstate New York, as well as in Texas, Oklahoma, Tennessee and Florida, topped the list. Onondaga County, home to Syracuse, was ranked third nationwide, with a 10.9 percent yield. Tompkins County, where Ithaca is located, was fifth, at 10.7 percent, while Rochester’s Monroe County was seventh, at 10.3 percent. Schenectady County was just ahead of Erie, at 10 percent.
Erie County was tied with Jefferson County, La., on the rental yield. But the market value and median rents are much higher in Jefferson County, at $153,000 and $1,260, respectively. Also, while Erie County had absolutely no purchases by large institutional investors, 3 percent of Jefferson County’s sales were by large national investors, and the unemployment rate at the time of the survey was slightly higher in Erie County, at 7.4 percent.
Gross rental yield allows comparisons of rental properties and markets across geographies. It’s calculated by dividing the gross annual rental income by the purchase price or market value. That equalizes significant pricing differences from one part of the country to another and allows investors to find markets with the best deals and potential opportunities.
“Real estate investment opportunities vary greatly market by market,” said Wally Charnoff, CEO of RentRange.
The report was compiled by Irvine, Calif.-based RealtyTrac, a housing data research firm known for its monthly and quarterly reports on foreclosures, and Westminster, Colo.-based RentRange, which provides residential rental market data to the financial services and real estate industries.
The 25 markets were all counties where institutional investor purchases represented 5 percent or less of all sales in May, June and July, and where the unemployment rate was 7.5 percent or lower.
“Buying single-family homes as rentals still yields solid returns in many markets across the nation, but it is difficult for individual investors and even small- to medium-size institutional investors to find reasonably priced inventory in markets dominated by the 800-pound gorillas in the single-family rental space,” said Daren Blomquist, vice president at RealtyTrac. “With this analysis, we’ve identified the top overlooked markets where single-family rentals still make good financial sense but where there is little to no competition from the big players.”
By contrast, larger investors were responsible for more than 5 percent of the market in one out of every five counties for the three months through July. That heavy buying, which sellers are well aware of, drives prices up, “leaving small investors and owner-occupiers feeling left out in the cold,” said RealtyTrac Chief Economist Jake Adger.
“These levels of institutional investor buying will ultimately drive prices up and rental yields down,” Adger said.
Atlanta-area counties dominated the list of Top 25 “investor-saturated” single-family rental markets, where purchases of homes by institutional firms comprise as much as half of all residential transactions. The first six counties on that list were all in the Atlanta metro area.