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.
January Market Trends
Averages and Statistics
This January, the average capitalization rate across the 100 cities in our index was 4.03%, with Detroit having the highest at 14.61% and San Francisco the lowest at 1.83%. The average property tax rate of all cities was 1.14%.
1. Detroit, Michigan – 14.61%
Detroit had the highest capitalization rate of any city in the U.S. this January. The city saw strong median rental rates of $750 per month, coupled with a low median for-sale price of $50,000.
2. Cleveland, Ohio – 8.90%
Cleveland was an attractive option with a median sales price of $82,900, alongside median rents of $798 per month. Despite relatively high property taxes, the city was second in our index with a capitalization rate of 8.9%.
3. Cincinnati, Ohio – 7.85%
Cincinnati saw strong median rent prices at $1,409 per month. That rate, coupled with an affordable home acquisition median of $161,000, made the city a strong rental investment location at a cap rate of 7.85%.
4. New Orleans, Louisiana – 7.25%
Below average property taxes and strong median rents of $1,500 per month placed New Orleans as the fourth-highest cap rate city on our list.
5. Baltimore, Maryland – 6.36%
Baltimore saw affordable property acquisition prices at a median of $179,900 this January, alongside rent prices of $1,332 per month.
1. San Francisco, CA – 1.83%
Given expensive home prices in San Francisco, the city had the lowest capitalization rate in our index. Strong rents of $4,150 per month did not outweigh a median property price of $1.448 million, the highest of any major city in the country.
2. Jersey City, NJ – 2.02%
A number of factors contributed to undersized in Jersey City, including high property taxes at 1.8% and a high median property price of $627,000.
3. Long Beach, CA – 2.08%
Expensive for sale prices of $601,444, coupled with relatively low rent at $1,907 per month, contributed to Long Beach with a cap rate of 2.08%.
4. Fremont, CA – 2.18%
Similar to neighboring San Francisco, the Fremont residential investment market suffered from high property prices at a median of $930,000. Strong rent at over $3,000 per month was not enough to offset this property acquisition price.
5. San Diego, CA – 2.22%
San Diego rounds out the top five lowest capitalization rates this January at 2.22%. The city saw a median home sales price of $689,000, alongside rent of $2,263 per month.
Limitations and Future Report Additions
RealtyHop strives to provide accurate, real-time data for investors to make purchasing decisions. However, we know the importance of disclosing the limitations of our study.
Our 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 the 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. This potentially explains some of the undersized returns in these cities.
We will look to incorporate occupancy statistics in subsequent reports to create a more equal comparison between these exceptionally high and low demand markets.
Methodology
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
Full Dataset
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.
