Every cloud has a silver lining—try telling that to property owners in Las Vegas, whose market is down 50% from its all-time high. But apparently, the property investment firm HomeVestors and real estate data firm Local Market Monitor have done just that, and found a bright side to the state of struggling housing markets such as Ft. Lauderdale and Detroit.
Their answer: rental investments. In a recent assessment released by the two firms, the best markets for rental-property investors are the markets that have seen the biggest drops in home values over the last several years. Las Vegas topped the top-ten list, followed by Florida areas Orlando, Tampa-St. Petersburg, and Ft. Lauderdale at fourth, sixth, and eighth, respectively, with Rochester, New York just making the list at number nine.
Market performance was evaluated based on home-price appreciation and gross rents. Home prices in many of these markets have fallen below their 2000 levels, creating opportunities for investors. However, these gaping opportunities also come with increased risk, such as the prospect of continued home price weakness and high vacancy percentages (the latter is already a problem in many of the markets).
But many investors seem to think it is worth the risk, as rental investors are increasingly dominating hard-hit housing markets. Because rental investments do not accrue returns as quickly as home flipping, they are more sensitive to price, requiring deeper discounts on properties to ensure that rental income can cover the costs of long-term property upkeep.
Although many markets are beginning to rebound—total Las Vegas home sales hit a five-year high in May—the hardest hit markets are still ripe for lucrative rental investments, and investors will continue to buy rental properties until that shimmering silver lining takes out the whole cloud.