Despite a flock of investors buying up South Florida homes for rental property profit, the market ranked lower than eight other Florida regions for the best place to purchase single-family rentals.
Nationwide, Palm Beach, Broward and Miami-Dade counties also failed to place in the top 20 best investment areas for rentals, according to a RealtyTrac report to be released today that measured estimated profit by comparing home sale prices and monthly costs with average rental rates.
Port St. Lucie, Orlando, Jacksonville, Daytona Beach, Tampa, Lakeland, Ocala and Palm Bay all earned spots in the top 20 list, which ranked New York and Northern New Jersey as the best place in the nation to earn rental income on a single-family home. Los Angeles was second, with Chicago taking third place.
But South Florida's poor showing doesn't mean the market has turned against home investors, said Jim Banford, chief executive of Real Estate Asset Disposition Corp., which has its main office in West Palm Beach.
Rising home prices and a drop in available inventory has just pushed other regions into better positions. South Florida ranks 33 on RealtyTrac's list of 180 metro regions with a population of 200,000 or more.
"The price increases we've seen have been greater than the rent increases and if that continued for a long period of time then this market would be less attractive, but we're not there yet," said Banford, whose firm sells properties in bulk to investors. "This market is as active as any."
RealtyTrac's report found the median sales price of a three-bedroom house in South Florida was $153,000 with an average monthly rental income of $1,614. A home bought with cash would have monthly costs of about $645, leaving a cash flow of $968.
Although the monthly cash flow was higher in South Florida than other areas, its capitalization rate _ a way to measure the rate of return on an investment _ was lower.
"The numbers are still good for South Florida, just not as good as the top 20 markets," said Daren Blomquist, RealtyTrac vice president. "Home prices are higher in South Florida and that makes it less palatable to investors."
Blomquist said it's getting harder nationwide to find homes that will generate a healthy cash flow, partly because of a recent trend of corporate investors crowding the market.
"Good opportunities are still available, but they're tough to find, especially for the mom and pop investor looking to finance rather than pay in cash," he said.
One measure of investor activity is cash purchases. In February, 55 percent of Palm Beach County's single-family home sales were cash deals, an increase of 16 percent from the previous year.
Also not included in RealtyTrac's report are three key measures Banford said investors use when deciding where to buy _ the desirability of the area, job opportunities and the drop in prices from the peak of the market.
"There is this sense that Florida is still undervalued," Banford said. "The prices you are seeing now are still 40 percent under peak value."
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