Top Rental States? (Yield & Economy)

Top Rental States by Yield and Economies

While cities like techy San Francisco, fancy New York, and booming Seattle capture the hearts and headlines of real estate investing, these cities may not actually be the best cities to put money in, depending on the thesis and goals.

For example, San Francisco’s famous high prices from tech results in a very negative downside; unprofitable rent returns. The high prices would also mean that every property investment would take a significant chunk of your portfolio, and each one would have a correspondingly compressed gross-yields (rent/property price). It’s no secret that places like San Francisco and New York City, with their high prices, attract high prices and attention. One major reason is that local economy is the still lifeblood of a location; prices and rents grow where jobs grow.

If not some of the popular cities, what locations are actually good for renting? What states would you look at if you were trying to create portfolio of a high-yield rent yielding single family properties?

For me, it would be two-fold. First: high returns. Second: a strong enough economy where prices will hold stable. Below compares at state’s gross yields (income as a % of the home purchase price) to the state’s economy (as proxied by financials of public S&P companies’ headquartered there).

In the quest to maximize yields and strong, robust/well-diversified economies, I’ve identified 4 states that I would want to look with more detail:

  1. Illinois, with an est state-yield of 12.40%, 73 public S&P companies (avg 7% historical growth), and 21 different subindustires. High yields and strong indicators of strong economy.
  2. Texas, with an est state-yield of 9.5%, 134 public S&P companies (avg 12% historical growth), and 20 different sub-industries. The one caveat is that this is ver heavily focused in Energy, with 54% of these public companies in this industry sector.
  3. Ohio, with another high est state-yield of 12.40%, but a less robust economy with 48 public S&P companies (at a low 5% historical growth) and 13 sub-industries. Not ideal, but high yields like like that could make it very attractive.
  4. Georgia, with a respectable 9.6% yield, 38 public S&P companies (avg growth of 10%), and 15 sub-industries.

For fun, let’s take a look at California and New York, 2 of the “sexiest” real estate markets. The first call out is these two state’s economies are by far the largest. This should come as no surprise, as real estate prices followed these booms in tech and finance. The second is to look at how low the gross-yields are. California has a 5.30% statewide yield, and New York 6.70%. Combined with high real estate prices, it might be wise to think twice before trying to get a rent portfolio there.

And of course, macro state analysis is helpful, but all averages go out the window in lieu of specific property financial details.

If you want to look at more economies based on location, you can plot Companies on a Map, something I built that plots the market-cap of public S&P companies by headquarters.

Below is my crudely pasted table of companies. It’s way prettier if you download the Excel file (Top Rental States based on Yield & Economies) here!

 

State Real Estate #s Public S&P Companies # of Industries Final Rank
1 Yield – Higher is Better 2 Avg Home Price (Lower is Better, can buy more) 3 Economies – Higher is Better (Sign of more robust Economy) 4 Economy Growth Higher is Better 5 Industry Diversification (More is better)
30% 10% 20% 20% 10%
State State AB Gross-Yield (Rent/Price) [4] Avg Home Price [1] Market_Cap [2] # Public S&P Companies [2] Est Growth [2] Top Industry [3] Top Industry [3] # of Subindustries [3] Rank based Jason’s Top 4 Picks
Illinois IL 12.40% $157,200 $953,902,620 73 7% Industrials 27% 21 1 Winner
Louisiana LA 11.10% $144,200 $59,117,340 14 11% Telecommunication Services 32% 3 2
Texas TX 9.50% $146,100 $1,834,837,840 134 12% Energy 54% 20 3 Winner
Arkansas AR 10.20% $113,800 $286,019,070 11 14% Consumer Staples 90% 3 4
Ohio OH 12.40% $117,300 $544,266,700 48 5% Consumer Staples 41% 13 5 Winner
Oklahoma OK 11.40% $112,200 $111,035,580 13 10% Energy 82% 3 6
Mississippi MS 12.90% $112,200 $12,640,000 6 9% 7
Georgia GA 9.60% $141,900 $691,196,830 38 10% Consumer Discretionary 26% 15 8 Winner
Indiana IN 12.40% $113,300 $266,777,910 21 6% Health Care 31% 5 9
Kansas KS 10.90% $129,000 $34,540,240 6 10% 10
Montana MT 9.60% $188,200 $3,880,000 2 13% 11
Pennsylvania PA 9.30% $151,500 $602,770,280 65 9% Consumer Discretionary 24% 15 12
South Carolina SC 9.60% $135,300 $22,822,310 6 15% Utilities 33% 1 12
Missouri MO 9.90% $132,200 $318,358,970 30 7% Health Care 28% 10 14
Alabama AL 11.80% $121,800 $44,225,830 10 6% Financials 31% 2 15
Tennessee TN 10.00% $129,600 $182,164,590 26 6% Industrials 27% 7 16
Nebraska NE 9.40% $136,700 $116,450,940 7 11% Industrials 76% 2 17
New York NY 6.70% $256,300 $2,986,851,820 129 9% Financials 35% 37 18 Loser?
North Dakota ND 11.20% $190,500 $4,080,000 1 5% 19
Florida FL 8.30% $175,300 $328,977,340 51 8% Consumer Discretionary 16% 10 20
Michigan MI 9.70% $120,000 $350,700,680 26 5% Consumer Discretionary 43% 9 20
South Dakota SD 11.30% $166,900 $5,060,250 3 4% 20
Connecticut CT 7.00% $237,400 $322,224,410 34 11% Health Care 30% 8 23
Maryland MD 7.50% $254,600 $225,774,270 22 10% Consumer Discretionary 27% 8 24
Iowa IA 9.50% $130,900 $22,400,510 6 10% Financials 61% 1 25
North Carolina NC 8.80% $148,200 $552,339,490 29 7% Financials 37% 9 26
West Virginia WV 10.30% $88,900 $3,731,480 3 8% 26
Kentucky KY 9.50% $126,800 $92,743,520 10 9% Consumer Discretionary 42% 2 28
Minnesota MN 7.50% $181,700 $592,460,420 43 8% Health Care 33% 13 29
Massachusetts MA 5.40% $335,000 $608,009,890 62 15% Health Care 36% 11 30
Virginia VA 7.50% $230,200 $436,336,480 41 5% Industrials 24% 11 31
New Jersey NJ 6.50% $282,500 $1,061,234,170 45 7% Health Care 52% 15 32
Washington WA 5.40% $277,000 $794,060,160 26 11% Information Technology 49% 10 33
Colorado CO 6.50% $279,900 $157,005,630 29 9% Materials 14% 8 34
California CA 5.30% $448,000 $4,601,908,900 211 9% Information Technology 56% 33 35 Loser?
Wisconsin WI 8.10% $156,800 $161,590,680 24 2% Industrials 35% 7 36
Alaska AK 7.70% $260,900 $652,090 1 8% 37
Delaware DE 7.90% $201,200 $73,010,000 4 5% 38
Nevada NV 6.10% $204,300 $33,819,350 12 12% Consumer Discretionary 30% 1 39
New Hampshire NH 6.60% $222,600 $2,169,440 3 9% 40
Utah UT 6.60% $214,800 $21,080,030 6 8% Real Estate 39% 2 40
Idaho ID 7.70% $170,200 $35,446,600 4 5% Information Technology 85% 1 42
Wyoming WY 8.60% $184,000 $347,880 1 1% 43
Rhode Island RI 5.70% $222,400 $138,678,000 4 8% Consumer Staples 83% 3 44
Arizona AZ 6.50% $194,600 $95,727,750 15 5% Materials 21% 4 45
Oregon OR 6.00% $252,800 $140,471,540 11 4% Consumer Discretionary 62% 2 46
Hawaii HI 4.50% $547,600 $9,780,000 4 8% 47
New Mexico NM 7.50% $164,700 $2,120,000 1 -5% 47
Maine ME 5.70% $122,000 $6,350,000 1 8% Health Care 100% 1 49
Vermont VT 6.20% $218,800 n/a n/a n/a n/a n/a n/a 49
DC DC 5.70% n/a $70,830,000 3 -1% Health Care 86% 1 51
[1] There are better ways to do this, but simply pulled fromhttp://www.statisticbrain.com/home-sales-average-price/
[2] S&P public companies and their financials are pulled from Jason Kwok’s kwokbot project, updated 2015
[3] GICS industires only factor in the S&P 500 companies, based on GICS published industries
[4] Rent yields come from https://www.housecanary.com/rental-investment-index

 

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