Where to Find Real Estate Rental Returns of 30%

NEW YORK (MainStreet) — So all the buzz is that the stock market is "rigged." Meh. That's old news. Investing is more like gambling -- just without the free drinks. The house always has the advantage. The key is often to know where the smart money is and then tagging along. For example, millionaires love real estate. Nearly 77% of investors with at least $1 million in investable assets own real estate, according to a recent report by Morgan Stanley. Most of that stake is through direct ownership of residential and commercial property -- a third of the millionaires surveyed said they intended to buy even more property this year.

So where is the table where the high rollers are seated? For many, it's in the residential rental market, where cash-flowing properties can provide a monthly income on an asset that generally gains value over time. And now that the real estate market is climbing out of intensive care and getting its legs back, it might be an excellent time to jump in, before rising home prices squeeze the margins any further.

RealtyTrac has taken the median sales price of a three-bedroom home and calculated the annual gross rental yields for counties with populations of 50,000 or more. Think an 18% to 30% annual yield is a fair return? Then consider the life of a landlord in these top ten markets:

  • 1. Detroit, Mich. $1,124 (average fair market rent) 30% (annual gross yield)
  • 2. Atlanta, Ga. $1,187 28%
  • 3. Greenville, Miss. $862 25%
  • 4. Macon, Ga. $1,008 24%
  • 5. Baltimore, Md. $1,559 23%
  • 6. Kansas City, Mo.-Kan. $1,168 22%
  • 7. Palatka, Fla. $811 20%
  • 8. Pittsburgh, Pa. $991 20%
  • 9. Tampa-St. Petersburg, Fla. $1,269 20%
  • 10. Augusta, Ga. $993 19%
  • Meanwhile, the markets with the lowest returns include New York and Northern New Jersey where the average fair market rent is a high $1,852 yet with an annual gross yield of just 3%. Other markets with high average rents but low average returns --- all below 5% --- include Edwards, Colo.; San Francisco; Bozeman, Mont.; Nashville; and Washington, D.C.