Becoming a real estate investor is suddenly hot, thanks in part to those legions of HGTV-aholics inspired after binge-watching episodes of shows like "Fixer Upper" and "Flip or Flop." But if they're planning to purchase an investment property to rent out, even the most devoted of fans still need to figure out which parts of the country offer the best buys.
It turns out aspiring real estate moguls should head south, according to a new report by ATTOM Data, a real estate data firm. Three-bedroom, single-family house rentals in Clayton County, GA, home to Atlanta, earned the highest returns so far in 2017, at about 23.7%, ATTOM found. That's quite a profit, as rental properties across the nation have generated an average 9% in profits.
The parent company of RealtyTrac looked at the largest 375 counties with 200 million residents or more and then used U.S. Department of Housing and Urban Development and home sales deed data to come up with the top cities. The firm looked only at three-bedroom, single-family houses for the analysis.
Rounding out the rest of the top five counties in which to buy an investment property were Baltimore County, MD, which delivers an average 23.6%; Bibb County, GA, which includes Macon, at 23.5%; Monroe County, PA, which includes East Stroudsburg, at 20.6%; and Saginaw County, MI, at 18.8%, according to the report.
For investors trying to get in on the ground floor, the fastest-growing rental growth was in struggling, former industrial metros like Youngstown, OH; Ogdensburg, NY; Augusta, GA; Binghamton, NY; and Toledo, OH. Returns ranged from an average 17.2% in Youngstown to 14.5% in Toledo, according to the report.
"Trumbull County in the Youngstown metro tops the list of best single-family rental growth opportunity markets because of a combination of rising wage growth and low home prices," Blomquist tells realtor.com®. "The low home prices represent a low barrier to entry and high rental returns for rental property investors, while the rising wages represent a foundation for raising rents in the future, providing even better returns."
On the other end of the spectrum, the worst rental returns were in Arlington County, VA, in the Washington, DC, area, at 3.4%; Williamson County, TN, which includes Nashville, at 3.9%; Santa Cruz County, CA, at 4.1%; Norfolk County, MA, which includes Boston, at 4.2%; and Santa Clara County, CA, in Silicon Valley, at 4.2%, according to the report.
Even in high-growth areas, the decision to buy an investment property shouldn't be taken lightly.
Buying a rental home is expensive—as are the property taxes, insurance premiums, and maintenance costs that come with it. And there's no guarantee prices will rise, even in cheaper, growing markets such as Youngstown.
"They are still not proven economic powerhouses like Los Angeles County or San Francisco County," Blomquist says. "If the nascent growth in the economy we're seeing now fizzles, investors could quickly find weakening demand [for their homes]."
In addition, these markets on the mend often have a lot of fixer-upper homes which need substantial work, adding to their total cost, he says.
Plus, many investors don't live near the areas where they're buying. Since it's tough to manage a rental property remotely and make all those repairs, investors often hire a property manager, which cuts into profits.
"To find good rental returns, investors will need to purchase properties farther away from where they live," Blomquist says. "This makes it tougher to truly evaluate the value of the property and quality of the neighborhood it’s in when purchasing."