The Real Deal Miami

West Palm Beach, Fort Lauderdale offer greatest returns for single-family home investors

April 11, 2012 03:00PM

Source: CoreLogic

Real estate investors seeking to rent out single-family homes would be wise to head to South Florida, a new MarketPulse report released today by CoreLogic shows.

Capitalization rates for single-family homes that are rented out averaged 12.4 percent in West Palm Beach, signifying the greatest returns among all the markets tracked by the analytics firm. Single-family homes rented out in Fort Lauderdale posted the third-best returns, offering investors a 12 percent cap rate, CoreLogic said.

The national average cap rate for single-family homes was 8.6 in January 2012, down from 8.8 percent a year before but up from 5 percent in 2006. Many of the other investor-friendly markets were in the Midwest, such as Cleveland (12.3 percent cap rate) and Chicago (11.6 percent).

Miami, on the other hand, actually posted a relatively meager cap rate of 7.7 percent, offering the worst returns among the nation’s largest markets.

The high cap rates are a result of strong demand among Americans for rental properties, even as housing affordability sits at its highest level in more than 20 years, according to the report.

Rental closings increased 11.5 percent year-over-year in 2011 and comprised 29 percent of all single-family closings. By comparison, rental closings represented just 11.3 percent of all closings in early 2006. Meanwhile, sales closings declined 9.8 percent between 2011 and 2010. In fact, rental demand is so strong that supply is now at its lowest level in the last five years even has the volme of rental increased 2.6 percent over the last year.