Report: Why it may not be worth it for an investor to buy a San Diego single-family home
Investors may be turned off from buying a single-family house for the same reason as some buyers: They cost too much.
A new report from Attom Data Solutions found the rent yield for a three-bedroom, single-family house decreased annually in 72 percent of the 212 counties it studied — including San Diego County — as purchase prices cut into profits.
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Attom, using its own data and from other sources like the U.S. Bureau of Labor Statistics, said the yearly return a landlord can expect to earn (before expenses) nationally is about 7 percent — down 1 percent in two years. It is less in San Diego County, where the return is 5.1 percent.
This may be part of the reason why investor purchases in San Diego are lower than other parts of the nation. Institutional investors made up 3 percent of San Diego County home sales in the first quarter of 2022. Compare that to Jacksonville, Florida, with 15.6 percent of homes purchased by large investors, 14.2 percent in Atlanta and 12.1 percent in Phoenix.
Rick Sharga, a vice president of market intelligence at Attom, said Southern California is difficult for investors because even though rents are high, it still often isn’t enough to make up for the substantial cost of homes. Instead, investors can get more bang for their buck in cities or counties with lower-priced homes that still are experiencing wage growth.
“We’ve seen a lot of movement into affordably price markets,” he said, “and away from the coast.”
The annualized rent yield — an industry standard for investors — used by Attom takes total rent a buyer could expect to earn in a year and divides it by the median home price. Sharga said while returns might be down, it is probably better than a lot of other investments at the moment, such as bonds and the stock market.
Attom’s data shows the best place for annual rent return was Collier County in Florida at 16 percent. It was followed by Atlantic County (12.2 percent) and Mercer County (11.6 percent), both in New Jersey.
The worst places are mainly in California because the cost to purchase far outweighs what can be earned back in Rent. Santa Clara County investors can expect a 3.1 percent rent yield; San Mateo, 3.2; and San Francisco, 3.9 percent.
Local Attom data breaks down this way: In the first three months of this year, a San Diego County landlord could charge an average monthly rent of $3,400 against a median purchase price of $798,000. That means, on an annual basis, the investor could expect a 5.1 percent annual return. That is down from 5.6 percent last year, 6.2 percent in 2020 and 5.9 percent in 2019.
The Irvine-based company also looked at wage change in relation to possible returns and how it might affect rent returns. It said average wages in San Diego County were $1,395 weekly. That is a high wage that is still not keeping up with home prices, but it could be worse. Many areas in the South are also seeing wage growth but those wages can’t come close to accelerating home prices.
In Williamson County, Tennessee, the report said the rent yield, 3.9 percent, was tied for third-lowest in the nation because wages were up 5 percent annually, compared to a home price gain of 38 percent annually. For comparison, San Diego County’s wages were also up 5 percent, but home price gains were up 20 percent.
Attom’s short-term look at rent yields might not matter to a larger, deep-pocketed investor. For instance, an investor could buy a $798,000 home in Golden Hill, charge $3,400 a month and could potentially break even in a decade or so. If rents never change, it would take about 20 years, but San Diego rents have a tendency to keep increasing. There’s also home price appreciation to consider, with an investor likely to sell the property for more than they bought it (minus a huge housing crash).