RealtyHop Property Investment Index: February 2020
The RealtyHop Property Investment Index details residential capitalization rates and net operating income across the 100 most populous real estate markets in the United States. Gathering accurate, timely data has historically proven difficult and expensive for real estate, so we at RealtyHop decided to create this index to add greater transparency to the market. The report is released on a monthly basis and is meant to help investors researching properties from a landlord perspective.
In the below analysis, we break down acquisition price, aggregate yearly rent, operating costs, and the NOI involved in our index calculations. To research capitalization rates and other statistics for specific properties, refer to RealtyHop’s comprehensive for-sale listing search for every city across the country.
Residential Cap Rates by U.S. City
The below table details capitalization rates across the 20 largest markets by population.
February Market Trends
Averages and Statistics
This February, the average capitalization rate across the 100 cities in our index was 4.04%, in line with January’s figure. Detroit saw the highest cap rate at 14.99%, while Jersey City saw the lowest at 1.85%. The average property tax rate of all cities was 1.14%.
1. Detroit, Michigan – 14.99%
Detroit had the highest capitalization rate of any city in the U.S at 14.99%. The city commanded rental rates just north of $800 per month, alongside affordable housing at a median of $52,500. This rate came despite above average property taxes at 2.39%.
2. Cleveland, Ohio – 9.83%
Cleveland had the second highest capitalization rate of any city at 9.83%. Relatively high median rents of $831 per month, coupled with home prices at $79,900, made the city a solid investment option.
3. Cincinnati, Ohio – 8.56%
Though Cincinnati real estate prices were more expensive compared with other cities in our top three, rents at $1,450 per month helped drive the city’s desirable 8.56% cap rate.
4. New Orleans, Louisiana – 6.88%
New Orleans placed as the fourth highest capitalization rate at 6.88%. A number of factors contributed to this including favorable property taxes and high median rents at $1,500 per month.
5. Baltimore, Maryland – 6.61%
Baltimore saw capitalization rates increase slightly month over month, due to a dip in home prices to $175,000. Rent prices remained stable at a median of $1,332 per month.
1. Jersey City, NJ – 1.85%
Jersey City had the lowest capitalization rate of any city this February, displacing last month’s lowest, San Francisco. A handful of factors contributed to low returns, including a rise in home prices to $645,000, as well as higher than average property taxes.
2. San Francisco, CA – 1.95%
Though no longer the lowest cap rate in the country, San Francisco came in a close second at 1.95%. Strong rent prices of $4,150 per month did not outweigh the highest real estate prices of any major city in the U.S. at a median of $1.4 million.
3. Charlotte, NC – 2.09%
Charlotte saw a low 2.09% capitalization rate this February. Strong median rent prices of $1,413 per month were not enough to outweigh the cost of acquiring a home at $409,257.
4. Long Beach, CA – 2.10%
The Long Beach residential investment market saw a low 2.10% capitalization rate this February. Despite strong rent prices at a median of $1,907 per month, the city suffered from expensive home prices at a median of $599,000.
5. San Diego, CA – 2.18%
San Diego rounds out the top five lowest capitalization rates this February at 2.18%, a slight drop from last month’s 2.22%. This change was due to a slight increase in home prices to $695,000.
To compile the RealtyHop Property Investment Index, the following statistics were used:
1) Median Household Income: Taken from the U.S. Census ACS
2) Population: By city, taken from the U.S. Census ACS
3) Median Home Price: Drawn from RealtyHop’s database of over 300,000 properties for sale in the month prior to publication
4) Median Yearly Rent: Yearly rental income for the trailing 12 months, drawn from RentHop proprietary data (a RealtyHop affiliated company).
5) Maintenance Costs: Annual maintenance costs for a rental property, equal to 1 percent of the total property price per year
6) Tax Rate/Yearly Taxes: Effective tax rate via U.S. Census data
7) Net Operating Income (NOI): Annual net operating income. Calculated by: Aggregate Yearly Rent – Taxes – Maintenance Costs
8) Capitalization Rate: NOI over Median Home Price
While comprehensive, the RealtyHop Property Investment Index does not take into account occupancy rates and time on market statistics. In theory, markets that suffer from net negative migration, and consequently lower rental demand, may see capitalization rates skew higher.
For example, while Detroit has the highest capitalization rate of any city by a large margin, investors there may potentially see lower occupancy rates and longer times on market, thus lowering aggregate yearly rent and NOI. Conversely, popular cities such as San Francisco and Jersey City are likely to see high rental demand, and therefore stronger occupancy rates.
Financial Disclaimer: The statistics provided in the RealtyHop Property Investment Index should be used for informational purposes only. Before making any investment decision, speak with a professional advisor, property manager, or local real estate company to verify the information listed in this report.