HOUSINGNEWS REPORT
SINGLE FAMILY RENTAL INVESTING MORE COMPETITIVE & LESS PROFITABLE Number of Non-Owner Occupied Single Family Home Purchases Average Gross Rental Yield*
11.0%
1,400,000
10.9%
10.8%
1,200,000
1,204,793
10.7%
10.5%
1,000,000
997,559
942,001
10.0%
853,793
800,000
10.0%
732,375
600,000
9.5%
9.5%
400,000
9.0%
200,000
0
8.5%
2011
2012
2013
2014
2015
* Average gross rental yield is average of potential gross annual rental in 2016 across 448 counties analyzed by ATTOM.
appreciation. If I’m investing in Cleveland right now I’m not banking on appreciation, but I’m getting good yield,” he said. “There have been those handful of markets where you can have your cake and eat it too previously, but now in those markets yields have been compressed. So now you are looking for one or the other again.” Phoenix was one of the cake-and-eat-it- too markets, something that investor John Keeton spotted early on in the housing recovery. The Houston, Texas-based investor recognized the opportunity to buy up distressed single family homes at a discount and convert to rentals in 2009 — long before Warren Buffett announced that strategy to the world in 2012 — but it took
him some time to identify what markets and neighborhoods he and his partner would target.
properties mostly in Phoenix and some Florida markets. “I drove probably more of that state than most Floridians have.” For Keeton and his partner, the decision to buy in Phoenix and Florida started with a simple litmus test: population growth or decline. “All of these bigger guys, they will tell you they have some model that has 50 different inputs,” he said, referring to some of the hedge funds and private equity firms that also started buying distressed properties as single family rentals. “Our model was, let’s look at the Census and the population growth. … If Phoenix turns into tumbleweeds, we have bigger problems.”
Road Tripping for Rentals Keeton knew he wanted to generally focus on markets that were “beaten up” by the housing crash, but to narrow the list further he and his partner embarked on a nationwide distressed market road trip that included Florida, Las Vegas, Detroit, Chicago and Phoenix. “Before we started buying properties, we did some self-guided field trips,” said Keeton, who in 2010 established Morningside Funding, LLC, which eventually acquired more than 1,000 rental
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