Investors in single-family homes can still make money in the Sacramento area, but not as easily as they used to. That’s according to data shared Tuesday by San Francisco real estate analysis firm HouseCanary. Here are five key points in their analysis:
1. Average investment yield here is 6.7 percent, worse than the national average of 9.1 percent but better than Bay Area cities like San Jose (5 percent) and San Francisco (5.7).
2. In cities with worse return on investment than the national average, the general culprit is home prices appreciating faster than rents. Cities in the Midwest and South have higher average yields because home prices there haven’t recovered as quickly, leaving more distressed homes for investors to buy, said Martin Morzynski, HouseCanary’s chief marketing officer.
3. However, within Sacramento, there’s a large degree of variance. Davis, Folsom and around downtown have lower average investment yields of around 5 percent or less. But neighborhoods northeast of downtown Sacramento, or parts of Rancho Cordova, are at 7 percent or better. Morzynski said investors may look in those neighborhoods for opportunities because some residents will have to expand their search for housing to where appreciation has lagged.
4. Though housing experts believe millennials who are renting choose to do so, they may not have much of a choice. Morzynski said relatively flat wages, difficulty in getting loans and large debts will keep that demographic renting by necessity.
5. As institutional investment firms have moved into single-family rentals, they generally raise the bar on quality and performance. At the same time, Morzynski said, those groups constitute only a fraction of all rental housing ownership nationwide, with smaller investors who know markets still having an advantage.