Washington, Sullivan counties showing more rental market muscle


By DON FENLEY

Washington and Sullivan counties are heading into 2015 with a bulked up status as state markets for buying residential properties.

Neither were in the top ranks of the best national markets in  RealtyTrac’s Q1 2015 Residential Property Rental Report, but a drill down to the state level shows some interesting data points. The report also looks at which markets are seeing the biggest increases in rental rates in 2015 compared to 2014, and provides rankings of the best safe haven residential rental markets, along with the best markets for renting to Millennials, best markets for renting to Generation Xers, and best markets for renting to Baby Boomers.

When it comes to the bottom line Washington County has the second best annual rental property gross yield in Tennessee – 10.03%. Yields in Sullivan County were fourth highest – 9.2%- among the 12 state counties in the report. Memphis tops the Tennessee yields drill down at 11.16%.

“With homeownership rates at their lowest level in 20 years, historically low levels of housing starts and relatively low home prices in many parts of the country, there is still plenty of opportunity in the U.S. housing market for single family rental investors employing a variety of investing strategies,” said Daren Blomquist, vice president at RealtyTrac. Tri-Cities new residential permits were down 18.4% in 2014 and a performing at less than half of the pre-recession norms.  “Whether focusing on markets where homeownership-shy Millennials are migrating, markets where recovering Gen X homeowners-turned-renters are prevalent, or markets Baby Boomers are testing for retirement, investors can find good options with solid potential rental returns.

“There are certainly markets where buying single family rentals no longer makes sense because of rapidly rising prices over the past few years,” Blomquist added. “Savvy single family rental investors will tread cautiously in such markets despite the siren song of strong home price appreciation.”  His assessment could have been focused on the Tri-Cities market where a family with the median household income can buy a median priced home for less than it costs to rent in many cases.

For the report, RealtyTrac analyzed median sales prices for single family homes and condos and average fair market rents for three bedroom properties, along with unemployment rates and demographic trends in 516 U.S. counties with a combined population of 236 million people — 76 percent of the total U.S. population. (See full methodology below.)

The 516-county analysis found an average potential return on residential rental properties of 9.04 percent in the first quarter of 2015, down slightly from an average potential annual return of 9.06 percent for residential rentals purchased in the third quarter of 2014.

Best market to rent to Millennials

Among the 516 counties analyzed there were 50 where the millennial share of the population was above the national average of 22 percent, where the millennial population increased at least 5 percent between 2007 and 2013, and where potential annual rental returns on residential properties were 9 percent or higher.

Here’s how the Millennial share of the total population and 2007-2013 increase looks like locally”

  • Millennials in Washington County accounted for 21.9% of the total population and 17.4% in Sullivan County. Washington County’s portion is at the bottom end of the best range for the state while Sullivan County is next to last.
  • When looking at the change 2007-2013 change the local counties were not at the bottom of the list, but not far from it. Washington County shows a 3.37% gain in Millennials during the study period while Sullivan county’s portion was down 2.25%. Montgomery County had the best state change at 46.34% followed Davidson with a 37.12 increase.

Best markets to rent to Gen Xers

There were 20 counties among those analyzed where the Generation X share of the population was above the national average of 16 percent, where the Generation X population increased at least 5 percent between 2007 and 2013, and where potential annual rental returns on residential properties were 9 percent or higher.

Only five Tennessee counties in the report matched the national GenX average. Both of the Tri-Cities counties were just under the benchmark:

  • Washington County has 15.55% and a 0.35% increase.
  • Sullivan County’s portion is 15.87% and the 2007-2013 change is 3.7%.

Best markets for renting to Baby Boomers

There were 40 markets among those analyzed where the Baby Boomer share of the population was above the national average of 25 percent, where the Baby Boomer population increased at least 5 percent between 2007 and 2013, and where potential annual rental returns on residential properties were 9 percent or higher.

Sullivan County has the largest portion of Baby Boomers among the Tennessee cities in the study, but not the highest increase in the Tri-Cities. The increase in Washington County was the second highest in the state.

  • Sullivan County – 28.47% of population, 2.89% increase.
  • Washington County – 25.65% of population, 11.29% increase

Market with biggest rent increases in Texas, Washington Co. ranks 15th

Among all counties analyzed with rental data available in both 2014 and 2015, the average fair market rent for a three-bedroom property was $1,255 for 2015, up 2 percent from an average of $1,230 for fair market rents in 2014.

Fair-market rents on three-bedroom properties increased 10 percent or more from 2014 to 2015 in 35 counties. The biggest percentage increases was Midland, Texas, up 24%. Washington County is ranked 16th in the nation on the list of those with the largest increases, up 12.91%.

Other key data from the report for Washington and Sullivan counties include:

Monthly house payment for leveraged investor:

– Washington Co., $488.

– Sullivan Co., $616.

Monthly house payment for cash investor:

– Sullivan Co., $119.

– Washington Co, $151.

Cash downpayment for leveraged investor:

– Sullivan Co., $25,750.

– Washington Co., $32,500.

Cash downpayment for cash investor:

– Sullivan Co., $103,000.

– Washington Co., $130,000.

Annual cash flow for leveraged investor:

– Sullivan Co., $4,475

– Washington Co., $4,571.

Annual cash flow for cash investors:

– Sullivan Co., $8,900

– Washington Co., $10,157.

2014 3-bedroom monthly rent compared to 2015 rent and % change.

– Sullivan Co., $807, $871, up 6.69%.

– Washington Co. $883, $997, up 12.91%.

For this report, RealtyTrac looked at all U.S. counties with a population of 100,000 or more and with sufficient home price and rental rate data. Rental returns were calculated using annual gross rental yields:  the 2015 average fair market rent of three-bedroom homes in each county from the U.S. Department of Housing and Urban Development (HUD), annualized, and divided by the median sales price of residential properties in each county.

The millennial generation was defined as someone who was born between the years 1977 to 1992. The Generation X was defined as someone who was born between the years 1965 to 1976. The baby boomer generation was defined as someone who was born between the years 1945 to 1964.

Estimated home payment amount for leveraged investor was made assuming a 25 percent down payment, an interest rate of 4% on a 30-year fixed loan, and property tax and insurance totaling 1.39% of the total median sales price. Estimated home payment amount for cash investor was made assuming only 1.39% of the median sales price to be paid for both property tax and insurance.

 

 

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