Canary Rental Index Shows Where Rental Investors Can Secure Double-Digit Returns

Where there’s smoke, there’s fire. So where home prices are rising, there must be great opportunities for rental investors to make money. Right?

Not necessarily. Even though the real estate market has seen widespread recovery from the Great Recession, surpassing pre-recession price peaks in some parts of the country, not every county or neighborhood has fully recovered from the housing bubble-and-bust experience in the late ’00s. In those areas that have recovered, using price growth as a jumping-off point to make an investment decision still might not work to an investor’s advantage.

HouseCanary’s quarterly Canary Rental Index (CRI) explores rent return across the country; we examine how rental yield varies from state to state by pinpointing the effective gross yield (EGY) that investors can expect on average in any given state. The EGY calculation includes rental expenses (like the price of the home and state and local tax levies), then determines what kind of return on investment a rental investor can expect given the local fair-market rental value of homes.

In our most recent CRI, we see that EGY across the country is hovering at 7.7%. Rental investors can therefore expect a return on their investment of around 7.7%. That’s a solid return, but as we can see when we dive into the Mountain West region of the country, returns tend to be higher when prices are relatively low (though not always), and there are ripple effects spreading to nearby markets from hot real estate market centers exploding with buyer interest (like Denver).

To determine the best place to park your rental investment dollars, it makes sense to look at year-over-year and historic price growth, gross yield, and EGY, and then target the ZIP codes and neighborhoods that are most likely to generate the highest return for your investment. The CRI provides a bird’s-eye view; to get deeper neighborhood-level and block-level data that can inform your investment decision, contact HouseCanary and learn more about our rich real estate datasets and cutting-edge data science, which help investors at all levels determine their next move.

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