HouseCanary Rental Investment Index reveals the best markets

Phoenix’s landscape shows opportunities for investors.

Buy-and-hold investors who are interested in purchasing some new properties to rent already know that some parts of the country will yield better rental profits than others. The quarterly HouseCanary Rental Investment (HCRI) Index shows where investors can find the best deals when they’re shopping around.

In the fourth quarter (Q4) of 2017, the national Effective Gross Yield (EGY) — a measurement of potential rental profit that incorporates property tax rates and local fair-market prices for both rent and home sales price — was 7.3 percent. 

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Of the 50 metropolitan statistical areas (MSAs) included in the index, fewer showed double-digit EGY than in Q3, and the top 10 markets in the country for rental investment also shifted places in the ranking from Q3. 

Kansas City reported the highest EGY in Q4, 14.1 percent, two percentage points higher than Q3’s high of 13.9 percent (held by Rochester, New York, last quarter). Pittsburgh, Pennsylvania, also topped last quarter’s top EGY with a 14.0 percent yield in Q4, but then the spread begins to broaden compared to last quarter; only one market showed an EGY between 13 and 14 percent (Memphis, with 13.3 percent EGY) and only one market showed an EGY between 12 and 13 percent (Birmingham-Hoover, Alabama, with 12.3 percent EGY). 

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The bottom 10 markets remained relatively unchanged, with the California markets of San Jose, San Francisco, San Diego, and Los Angeles showing the lowest EGY of the 50 MSAs, while Las Vegas replaced New York in the bottom five from Q3.

That’s not the end of the story for investors ready to buy, however. Even markets with below-average yield — like Phoenix — show pockets of opportunity on certain blocks that defy the local EGY and report higher potential returns. 

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Investors in Phoenix can find opportunities if they know where to look.

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