Institutional Investors Are Buying Rentals In These 10 Markets

While the single-family residential (SFR) investment asset class remains largely held by small investors, often times owning a single rental property, institutional investors have also cashed in on the peaking rentership rates sweeping the nation. In doing so, this has helped bring validation to the SFR investment industry as a whole, spurring efficiencies within operations and services which ultimately benefits all residential property investors.

In this post, we took a look at where the big guys have deployed capital over the last two years. Everyday investors looking for strong opportunities can use this data to guide their own decisions when evaluating potential markets to invest or avoid. The top 10 metro areas institutional investors owning over 100 properties have invested in the most aggressively over the last two years are listed below, along with brief market snapshots of factors potentially driving the rental strength in these areas.

  1. Atlanta - Sandy Springs - Roswell, GA
    5,820 institutional investor purchases since July 2015
    As with most part of the country, Atlanta has seen steady appreciation in both home prices and rental rates. Over the past five years, the average 3-bedroom home price has increased 56% and rents 19%. Unemployment has also continued to drop over recent years, currently hovering around 5%. Coming in at #9 metropolitan statistical area (MSA) in the country, Atlanta continues to rapidly add new residents and create new jobs, adding over 140,000 jobs in 2015. Investors are attracted by Atlanta's relative affordability, available inventory and continued high rental demand.
  2. Miami - Fort Lauderdale - West Palm Beach, FL
    4,237 institutional investor purchases since July 2015
    The Miami metro is an investment hotspot with no signs of slowing anytime soon. The job market is thriving and new housing supply is being added in lieu of new rental demand. Unemployment has dropped to 5.2% as talent relocates to the area seeking jobs; resulting in appreciating home prices and rental rates, up 60% and 25% since 2011, respectively.
  3. Phoenix - Mesa - Scottsdale, AZ
    4,002 institutional investor purchases since July 2015
    Maybe most noteworthy is the substantial home price appreciation occurring in Phoenix. Over the past five years, the average home price for a 3-bedroom single-family residence has increased a whopping 104%! Rents have been heating up too, rising 26% since 2011. Over the past two years, large investors have accounted for 1.4% of all non-owner-occupied property purchases in the Arizona metro.
  4. Indianapolis - Carmel - Anderson, IN
    3,964 institutional investor purchases since July 2015
    Indianapolis rents are up nearly 35% and gross yields sit around 14.4%, a healthy return for most buy-and-hold rental property investors. The metro area has experienced strong job growth over the past year and has been adding inventory to meet the rising demand. Voted the top metro area for renters by Forbes in 2017, Indianapolis is an affordable market with a high quality of life for residents. It continues to be a strong rental market offering plentiful opportunity to residential property investors.
  5. Charlotte - Concord - Gastonia, NC-SC
    3,682 institutional investor purchases since July 2015
    Out-of-state investors have been flocking to Charlotte in recent years as strong job growth and an economic rebound in the housing market continue to elevate demand. The metro has experienced 22% rental appreciation over the past year, and with super-low vacancy rates, rental demand remains high. Baby boomers and millennials are leaning toward rentership allowing for investors to swoop in and purchase the available inventory. Unfortunately, the lack of new inventory is not enough to account for the new rental demand, resulting in continued rental rate increases.
  6. Dallas - Fort Worth - Arlington, TX
    3,481 institutional investor purchases since July 2015
    Crowned America’s best market for investors by BiggerPockets, yielding upward of 20% returns, Dallas continues to be a hot market for investors of any size. Over the last year, Dallas added 115,000 new jobs and issued 18,000 single-family residential permits to supplement the new demand. Rents in the Texas metro are up nearly 30% since 2011 and average 3-bedroom home prices have risen 31% resulting in stable gross yields. The relative affordability in Dallas continues to make it an attractive location for flippers and long-term investors alike. 
  7. Tampa - St. Petersburg - Clearwater, FL
    2,923 institutional investor purchases since July 2015
    Like much of Florida, Tampa remains an attractive market for out-of-state investors. The job market is red hot resulting in spiking rental rates. As the metro continues to add residents, it has found a healthy balance of adding new housing inventory to meet the rise in demand. Tampa is another Florida market that has captured the attention of investors looking to flip properties.
  8. Houston - The Woodlands - Sugar Land, TX
    2,364 institutional investor purchases since July 2015
    Houston has experienced significant growth, adding 56,000 new jobs over the past year. As with any market adding jobs, it has also added new residents in need of housing. Unlike many growing markets, Houston has issued single-family residential permits in place to compensate for the new demand. It’s seen moderate rental appreciation and remains a hot market for flippers.
  9. Memphis, TN-MS-AR
    2,145 institutional investor purchases since July 2015
    In recent years, Memphis has become a dominant rental market for out-of-state investors. Because of its high levels of distressed inventory, Memphis is an affordable market with potential for steep appreciation. According to Bloomberg, last year investor sales accounted for 51% of all home purchases. As the metro area continues to grow and investors rehab the housing stock, Memphis is projected to remain a strong contender for investors seeking lofty returns.
  10. Chicago - Naperville - Elgin, IL-IN-WI
    1,804 institutional investor purchases since July 2015
    Job growth has been a major driver of rental demand in the Chicago metro area over the past year.  As Chicago adds new residents, it has also added SFR building permits to meet the new demand. Investors are finding strong gross yields as rents increase and rental vacancy continues to drop.

Clearly demonstrated throughout each of the top ten market snapshots, job growth is usually the main driver of rental demand. When evaluating new markets to invest, looking for growing economies is a good way to help ensure optimized rents and low vacancy rates. Additional markets to watch that made the top 25 list include Nashville, Birmingham, Cincinnati, and Columbus.

Data provided by RentRange®, The Census Bureau, and The Bureau of Labor Statistics

BlogBrittany Nelson