Whether you’re a fix-and-flip, buy-and-rent, or wholesale investor, the old adage is true when it comes to real estate: the three most important things are “location, location, location.”
For many investors, especially those just starting out, there’s a strong preference toward buying properties near where they live. In fact, the majority of investors probably purchase properties within a two or three hour drive from their home. But in today’s market, with historically low levels of inventory and unprecedented demand from prospective homeowners, some markets simply don’t have anything available for sale. And since high demand and low supply generally drives prices up – and this has absolutely been true in the 2021 housing market – some investors just can’t afford to buy properties in their hometown.
So, for investors looking to venture forth beyond their backyards in search of the ultimate investment opportunities, where are the ideal locations to invest in real estate?
RealtyTrac’s parent company ATTOM Data Solutions just released two reports that identify some of the best markets in the country for real estate investors.
Best Single Family Rental Markets
For single family rental investors, ATTOM’s 2021 U.S. Single Family Rental Report analyzed data from 495 U.S. counties, showing that the average annual gross rental yield so far 2021 is 7.7 percent, down from an average of 8.4 percent in 2020.
The report also noted that the potential annual gross rental yields for 2021 decreased compared to 2020 in 86.9 percent of the counties included in the analysis. But the news is not glum everywhere. There are a number of markets with high rates of return, and more than a few where demographic and economic trends suggest future growth.
The 2021 market report noted that among the top 50 highest rental returns for counties analyzed in 2021, 25 are in the Midwest, 15 are in the South and 10 are in the Northeast. According to the report, counties with the highest potential annual gross rental yields for 2021 include Schuylkill County, PA, in the Pottsville metro area (26.1 percent); Bibb County, GA, in the Macon metro area (18.1 percent); Baltimore City/County, MD (16.2 percent); La Salle County, IL, in the Ottawa metro area (14.1 percent) and Chautauqua County, NY, in the Jamestown metro area (13.7 percent).
The report also identified 61 “SFR Growth” counties where average wages grew over the past year and the potential 2021 annual gross rental yields are 10 percent or higher. These 61 SFR Growth markets include Milwaukee County, WI; Shelby County (Memphis), TN; Monroe County (Rochester), NY; Jefferson County (Birmingham), AL; and Baltimore City/County, MD.
ATTOM also ranked the top 10 “SFR Growth” counties with the greatest annual increases in rental returns, among those counties where average wages grew over the past year and the potential 2021 annual gross rental yields were above 10 percent. Those counties include Calcasieu County, LA (29.7 percent increase from 2020); Erie County, PA (13.4 percent increase); Licking County, OH (13.3 percent increase); Delaware County, IN (12.7 percent increase); Tazewell County, IL (12.2 percent increase); Lorain County, OH (12.0 percent increase); Wichita County, TX (10.9 percent increase); Clark County, IN (7.4 percent increase); Bibb County, GA (5.8 percent increase); and Miami County, OH (4.2 percent increase).
ATTOM’s 2021 SFR market report noted that with home prices rising faster than rents in most of the country, home ownership may become even less affordable, placing upward pressure on rents.
According to the analysis, single-family home prices are rising faster than rents in 86.9 percent of the counties analyzed, including Los Angeles County, CA; Cook County (Chicago), IL; Harris County (Houston), TX; Maricopa County (Phoenix), AZ and San Diego County, CA.
The report also noted that rents rose faster than single-family home prices in 13.1 percent of the counties analyzed, including Duval County (Jacksonville), FL; San Francisco County, CA; San Mateo County, CA, in the San Francisco metro area; Fort Bend County, TX, in the Houston metro area and Kane County, IL, in the Chicago metro area.
Best Markets for Fix-and-Flip Investors
ATTOM also recently released its 2020 Year-End U.S. Home Flipping Report, which revealed that both home flipping sales and home flipping profit margins declined across the U.S. in 2020, with just 241,630 single family homes and condos flipped. That number was down 13.1 percent from 2019 to the lowest point since 2016.
ATTOM’s reported that the number of homes flipped in 2020 represented 5.9 percent of all home sales in the nation during the year, down from 6.3 percent in 2019. Those declines marked the first time since 2014 that both the number of homes flipped and flips as a percent of all home sales decreased annually.
The year-end analysis also showed that while home flipping activity declined, gross profits rose, but profit margins declined, marking the third straight year of declining ROI for investors.
The report noted that flips in 2020 generated an average gross profit of $66,300 nationwide, up 6.6 percent from $62,188 in 2019 to its highest point since at least 2005. But that profit of $66,300 translated into just a 40.5 percent ROI compared to the original acquisition price, down from 41.5 percent in 2019 and from 46.4 percent in 2018.
The 2020 year-end home flipping analysis stated that among the 6,806 U.S. zip codes included in the analysis, there were 10 with a population of 5,000 or more and at least 10 home flips in 2020 where flips accounted for at least 25 percent of all home sales last year – all in the Midwest and Southeast. Those zip codes were 38116 in Shelby County (Memphis), TN (31.5 percent); 45207 in Hamilton County (Cincinnati), OH (29.8 percent); 38127 in Shelby County (Memphis), TN (28 percent); 38115 in Shelby County (Memphis), TN (27.8 percent) and 38128 in Shelby County (Memphis), TN (27.5 percent).
Among U.S. zip codes with a population of 5,000 or more and at least 10 flips in 2020, the top 10 zips with the most flips included: 38127 – Memphis, TN (244 homes flipped in 2020); 85142 – Queen Creek, AZ (209 homes flipped); 34668 – Port Richey, FL (200 homes flipped); 37042 – Clarksville, TN (196 homes flipped); 85138 – Maricopa, AZ (194 homes flipped); 85351 – Sun City, AZ (190 homes flipped); 85032 – Phoenix, AZ (186 homes flipped); 08757 – Toms River, NJ (184 homes flipped); 28269 – Charlotte, NC (182 homes flipped); and 38128 – Memphis, TN (167 homes flipped).
The typical gross profits in those top 10 zips with the most homes flipped in 2020 were: 38127 – Memphis, TN ($50,200); 85142 – Queen Creek, AZ ($37,001); 34668 – Port Richey, FL ($53,250); 37042 – Clarksville, TN ($53,700); 85138 – Maricopa, AZ ($27,250); 85351 – Sun City, AZ ($53,875); 85032 – Phoenix, AZ ($81,300); 08757 – Toms River, NJ ($112,250); 28269 – Charlotte, NC ($24,000); and 38128 – Memphis, TN ($49,900).
Opportunities Are Everywhere – if You Know Where to Look
While many of the markets ATTOM rates as being the best for fix-and-flip or buy-and-rent investors are located in the Midwestern and Southeastern states, there are also opportunities noted in the Northeastern, Southern, and even Western states. Most seasoned investors believe there are opportunities in virtually every market, for investors who are willing to do their homework and get to learn how to best navigate local market trends.
For investors looking for off-market and below-market opportunities, properties in various stages of foreclosure are often a good place to begin their search. And no one has a broader, more comprehensive national database of foreclosure properties than RealtyTrac.