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Profit margins on three-bedroom, single-family home rentals have declined annually across most of the country despite the sector’s strong activity. Analysts are pointing to the purchase prices paid by investors.
Average gross rental yields before expenses on three-bedroom single-family homes purchased by property owners this year fell in 72% of the counties tracked recently by ATTOM Data Solutions, a real estate data firm. Most declines are less than one percentage point from the rental yields recorded in 2021.
Gross returns are decreasing in two-thirds of markets where homes typically sell for less than $250,000, located mainly in the Midwest and South. Still, despite the declines, returns remain above 8% in more than half of those counties.
The decreases result as property owners pay more for properties. Median prices for three-bedroom houses rose at least 15% from 2021 to 2022 in half of the counties analyzed, while average rents rose by that much in only one-third of those markets.
“Investors who own single-family rental properties have seen their margins compressed over the last year as home prices have risen faster than rental rates,” explains Rick Sharga, executive vice president of market intelligence at ATTOM. “The good news for these property owners is that their yields should improve as annual rental rates increase, and they should also benefit from home price appreciation over time.”