Rental Profit Margin Decreases

As rents reach all-time highs across the U.S., landlords aren’t exactly pocketing the extra money.

Realtor.com® found that the median rent in April was $1,827, the highest in the site’s history, as rents continue to see both month to month and year over year increases. However, according to ATTOM Data Solutions, the profit margin for the average three-bedroom single-family home rental decreased in 72% of counties so far in 2022. While most profit decreases are less than 1%, it could be the start of a trend, as home price growth continues to outpace rental prices in most counties. In the majority of counties where median home prices are higher than $250,000, landlords are seeing smaller profit margins. Meanwhile in more affordable areas, landlords are still seeing decreases in profits, but on a smaller scale.

Yet, in 98% of counties in the report, yields before expenses on three-bedroom single-family rentals are at least 7%. Philadelphia was one area were the profit margin dropped significantly, falling from 9.2% to 8.1%.

Despite rental prices not rising as quickly as home prices, wages are far behind both in most counties. The average three-bedroom single-family home rent is rising faster than average local wages in 73% of counties. However, the median single-family, three-bedroom home price is rising faster than average local wages in 92% of counties.

Perhaps an addition of inventory will help both renters and landlords. Construction for single-family built-to-rent homes rose in the first quarter of 2022, the National Association of Home Builders found, with approximately 13,000 starts, a 62.5% year over year increase. Over the past year, 57,000 built-to-rent single-family homes started construction, up 32.6% from the prior four quarters.