As the rise in single-family rents slows and operating costs increase, Radar Logic stressed the need for institutional investors to focus on properties sold at steep discounts in order to yield a profit from rentals.
In a recent research report, Radar Logic noted data fromTrulia shows single-family rentals rose by just 0.1 year-over-year in March, while the National Association of Home Builders found builders are feeling the impact of rising costs, which suggests the cost for refurbishing and maintaining rental properties is also going up.
While institutional investors tend to pay less for single-family homes compared to individual homebuyers since they buy in bulk, the discounts offered for properties vary widely, depending on the market, Radar Logic explained.
In order to pinpoint markets where investors are bringing in the biggest discounts, Radar Logic tracked prices paid by large-scale investors in some 300 metro areas. The research firm then compared the median price per square foot paid by investors to all housing transactions. The analysis was limited to markets where investors have purchased at least 1,000 properties during a one-year period ending in January 2013.
Furthermore, RadarLogic says the ability to make a profit ultimately depends on appreciation in property values. Thus, the markets recommended for institutional investors are areas the firm believes are more likely to benefit from home price appreciation.
Concerning its list, however, the firm warned discounts vary within metro areas, depending on neighborhoods, and discounts also need to be weighed in with renovation costs when deciding where to invest.
Top metro areas for institutional investors
1. Pittsburgh, Pennsylvania (-64%)
2. Cleveland, Ohio (-55%)
3. Detroit, Michigan (-54%)
4. St. Louis, Missouri (-50%)
5. Cincinnati-Middletown, Ohio-Kentucky-Indiana (-49%)
6. Baltimore-Towson, Maryland (-46%)
7. Richmond, Virginia (-42%)
8. San Francisco (-38%)
9. Virginia Beach-Norfolk-Newport News, Virginia-North Carolina (-36%)
10. Cape Coral-Fort Myers, Florida (-34%)