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4 Powerhouses Slug It Out for Real Estate Investing Dominance

In honor of the baseball playoffs happening across the country, HomeUnion has ranked the four remaining “teams,” or markets, for single-family rental (SFR) investors. We analyzed each team – Houston, Chicago, New York and Los Angeles – based on first-year returns to help people interested in real estate investing in the markets featured in the Fall Classic.

Like the professional baseball team located in the nation’s fifth-largest metro area, Houston appears a bit underrated compared to its opponents. With the highest cap rate – or best returns – of all four teams at an average of 7 percent, the metro’s investment housing market also features the lowest median entry price: $166,400.

While rental rates grew a modest 0.4 percent year-over-year since the end of July in Houston, employment growth is the strongest of all four teams – at 2.1 percent. Keeping the bases loaded – or maintaining high occupancy levels – has been a struggle for the Texas metro, however; occupancy hovers near 90 percent. Following the impact of Hurricane Harvey, short-term occupancy rates are expected to increase significantly.

Chicago is the next best performer on our list of top SFR teams, with an average cap rate of 5.1 percent metrowide. Although the median investment housing in Chicago is priced at $235,000, landlords stand to benefit from steadily rising rents. Year-over-year, SFR rents jumped 5.4 percent in July to $1,653 per month.

“Below average employment growth of 1.1 percent in the Windy City is a number investors might want to keep an eye on when seeking short- to mid-term returns,” says Steve Hovland, director of research for HomeUnion. Nonetheless, Chicago is currently doing a better job of keeping runners, i.e., renters, on base than its Lone Star State competitor. Occupancy currently stands at 92.7 percent in this Midwest metro.

A perennial fan favorite, the New York City metro area comes in third on our list because of the prospect for nominal real estate returns and high median investment prices. Cap rates in the greater metro area (including the five boroughs and suburban New York, Connecticut and New Jersey) average 4 percent and the median investment price of $410,000 is more than double the national average. Rental increases have slowed somewhat from their previous highs, growing 3.4 percent year-over-year in July. New York has no issues keeping the bases loaded with an above-average occupancy rate of 95.5 percent.

Investors with big bats can swing for the fences in the metro Los Angeles area, but chances are they’ll wait a long time to see high returns on their single-family rental investment. Cap rates are the lowest among the four teams at 3.3 percent, while median investment prices exceed $600,000. “Rental properties in most of LA County just aren’t panning out for investors right now seeking immediate or short-term yields,” remarks Hovland.

However, he notes that rental rates remain healthy in the market, growing 3.7 percent year-over-year in July 2017 to $2,270. With an occupancy rate o 96.3 percent, LA’s OPB (on base percentage) beats all of its opponents.

Below is a ranking of the four remaining playoff teams:

Metro Area  SF Rent 2Q 2017 YOY Rent Change  Median Investment Sales Price 2Q 2017 Average Cap Rate  Vacancy Rate  Employment Growth 
1) Houston $1,612 0.4% $166,400 7.0% 9.9% 2.1%
2) Chicago $1,653 5.4% $235,000 5.1% 7.3% 1.1%
3) New York, N.Y. $2,270 3.4% $410,000 4.0% 4.5% 1.2%
4) Los Angeles $2,767 3.7% $602,000 3.3% 3.2% 1.6%

For even better returns than these powerhouse teams can offer, check out the power sluggers on HomeUnion’s investment platform. Your next Moneyball team awaits!

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