Mecklenburg Co. sees higher investor returns on rentals

Listen to this article

Investors in Mecklenburg County single-family rental properties are seeing higher returns on their properties. The average gross yield rose to 7.9 percent in the first quarter, up from 7.6 percent a year ago.

That’s according to a new report by RealtyTrac that ranks the best U.S. markets for purchasing rental properties. Mecklenburg County comes in 312th out of 448 counties for buying rental homes.

RealtyTrac calculated returns using the fair-market rent on a three-bedroom home, multiplying it by 12 months, and then dividing the total by the median sales price.

In Mecklenburg County, fair-market rents on three-bedroom homes rose 4.5 percent over the last year to $1,254 in the first quarter from $1,200 a year earlier. The median sales price rose less than 1 percent to $190,000 in the same period.

Meanwhile, the average U.S. return on investment declined to 9.4 percent from 9.5 percent a year earlier.

“Rapidly rising home prices and tepid wage growth have dampened single-family rental investment returns and growth potential in many markets, but there are still plenty of solid opportunities available for real estate investors willing to cast a wider net,” said RealtyTrac Senior Vice President Daren Blomquist.

Blomquist said rents are rising faster than median home prices in 45 percent of the markets analyzed, including in Mecklenburg County, which indicates continued strong demand for rentals.

J.C. Underwood, executive director of the Metrolina Real Estate Investors Association, said the Charlotte-area market is a good one for investment. He owns 15 rental properties, seven of which are single-family homes.

Underwood said he started raising rents last year by about 10 percent after keeping them steady during the recession.

He said he sees a lot of investors rehabbing and then renting out properties in NoDa and Plaza Midwood, as well as in the area around Johnson C. Smith University northwest of uptown.

“The depressed areas are coming back out,” he said.

Underwood said that despite the high asking prices for homes in Myers Park, that area also is seeing investor activity.

“It’s very expensive but you can also get more rent,” he said, with investors purchasing a home, razing it, and building two or three on the vacant plot.

In addition, Underwood said that institutional investor activity in the local market has settled down.

“A couple of years ago, they wiped the local investor out by buying everything at the courthouse steps,  snapping up foreclosures,”  he said. “Now, you don’t see as much of them.”

Institutional investors jumped into the local housing market several years ago, attracted by the area’s fast-growing demographics and relatively low home prices that translated into potential long-term gains from the rental market. Since then, however, the economy has been on the upswing, housing inventory has been at historic lows, and prices have steadily appreciated.

According to RealtyTrac, institutional investor transactions fell to 4.4 percent of all homes purchased in the region last year. That compares with 10.4 percent in 2014 and 12.1 percent in 2013.

RealtyTrac said some markets saw investment returns of more than 25 percent in the first quarter. Baltimore City County, Maryland, for example, had gross rental yields of 28.5 percent, while investors in the Atlanta suburb of Clayton County, Georgia, earned returns of 25.8 percent. Other counties with high yields include Wayne County, Michigan, which is in the Detroit metro area, and Macon County, Georgia.

Gaston and Cabarrus counties also had higher-than-average returns on investment, at 12.3 percent and 11.2 percent, respectively.

Nationally, the lowest returns were seen in markets where investors are subject to high median sales prices. Low returns were found in the Washington, D.C., metro of Arlington, Virginia, where the median sales price was $775,000 in the first quarter, and the San Francisco Bay area counties of San Francisco, San Mateo and Marin, where median sales prices were above $1 million.