Skip California and head to Florida — that is, if you want to buy a single-family home and rent it out for profit.
According to a study released Thursday by RealtyTrac, if you want to make hefty profits in the rental market, you’d better steer clear of buying properties in certain areas of the country. Of the 10 counties with the worst rental returns, five were in California and three in New York.
Markets like New York City and San Francisco
tended to have annual gross rental yields below 4% on single-family
homes. One of the reasons: Markets like these tend to have high home
prices currently, which makes it hard to get enough money in rent to
cover the mortgage, says Daren Blomquist, the vice president of
RealtyTrac.
10 rental markets with the worst returns
| County | Nearby metro area | Annual gross rental yield |
| New York | New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa. | 2.4% |
| San Francisco | San Francisco-Oakland-Fremont, Calif. | 3.16% |
| Kings | New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa. | 3.64% |
| Williamson | Nashville-Davidson--Murfreesboro--Franklin, Tenn. | 3.73% |
| Marin | San Francisco-Oakland-Fremont, Calif. | 3.75% |
| Westchester | New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa. | 3.8% |
| Eagle | Edwards, Colo. | 3.8% |
| Santa Clara | San Jose-Sunnyvale-Santa Clara, Calif. | 3.88% |
| San Mateo | San Francisco-Oakland-Fremont, Calif. | 3.94% |
| Santa Cruz | Santa Cruz-Watsonville, Calif. | 4.12% |
| Source: RealtyTrac |
Meanwhile a number of markets in Florida and Georgia have high gross annual rental yields at 20% and above. In many of these markets, you’ll find “the perfect storm for buying rental property,” says Blomquist, as home prices are still recovering in the area (which means you can still buy real estate cheaply), and there’s strong rental demand, as many people who were foreclosed upon are now renting themselves and retirees are flocking to these areas (many of whom rent before buying).
10 rental markets with the best returns
| County | Nearby metro area | Annual gross rental yield |
| Edgecombe | Rocky Mount, N.C. | 41.57% |
| Clayton | Atlanta-Sandy Springs-Marietta, Ga. | 26.88% |
| Duplin | Near Fayetteville, N.C., though not in city limits | 24.4% |
| Howard | Kokomo, Ind. | 24% |
| Putnam | Palatka, Fla. | 22.63% |
| Spalding | Atlanta-Sandy Springs-Marietta, Ga. | 20.35% |
| Wayne | Detroit-Warren-Livonia, Mich. | 19.88% |
| Columbia | Lake City, Fla. | 18.42% |
| Pasco | Tampa-St. Petersburg-Clearwater, Fla. | 17.3% |
| Hernando | Tampa-St. Petersburg-Clearwater, Fla. | 17.29% |
| Source: RealtyTrac |
The study analyzed median sales prices for residential properties and average fair market rents for three bedroom properties in 586 U.S. counties, which together house 71% of the total U.S. population.
Bottom line: Thanks, in part, to the fact that housing is very pricey (and possibly overvalued) in some markets, aspiring landlords now have to be “more selective to find the good markets to buy in,” says Blomquist. Furthermore, he notes that “things change quickly,” so the best markets to buy in now might not be in a year, as the housing market recovers or area rental demands change.
