Best and Worst Markets for Buying Rentals in Q3 2014: Heat Map

RealtyTrac released a report earlier this week ranking the best — and worst — markets for buying rental property in the third quarter of 2014, which found that while solid returns can still be realized by rental property, rental properties purchased in the third quarter of this year on average will generate less cash flow than rental properties that were purchased last year, thanks primarily to sharp increases in home prices over the past year.

We’ve created a heat map that shows visually the parts of the country where buying residential properties as rentals will still generate solid returns and which will not. In the map below, bright green represents annual gross rental yields of 14 percent or higher, light green represents yields of 10 percent to 14 percent, yellow represents yields between 7.5 percent and 10 percent, orange represents yields between 5.5 percent and 7.5 percent, and red represents yields below 5.5 percent.

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The RealtyTrac report identified two types of residential rental markets that will each appeal to investors with specific strategies: safe haven rental markets where annual gross rental yields are above 10 percent but where unemployment rates and rental vacancy rates are below the national average; and high risk, high yield rental markets where annual gross rental yields are above 14 percent but unemployment rates and rental vacancy rates are above the national average.

Safe Haven Rental Markets
The Safe Haven rental markets will likely appeal to the more risk averse and probably more novice investor who doesn’t have time to be dealing more often with a vacant property or unpaid rent. Below is a slideshow of some of the properties on RealtyTrac in these markets. To view the full details on these properties, copy the shortened hyperlink at the end of the property description and paste that into a new browser window.

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