8% and Rising!
That’s right! Not a typo. The average rental yield in the U.S. is 8%.
It is unheard of in any major country, and it is quite a shock to nearly everyone who hears this, but it’s true.
More importantly, we have a loan program specifically-created for international investors looking for an easy way to qualify for a mortgage by using the rental income and not personal financials (see below).
This article is a summary of a presentation we made to our clients.
On a LinkedIn survey last week, we also asked the following:
What is the average rental yield in America?
| Range | Responses |
| 4% – 5% | 57% |
| 5% – 6% | 20% |
| 6% – 7% | 9% |
| 7% – 8% | 14% |
You can see the mean expectation is 4-5%, but in fact, if I could put 3-4%, most would probably choose that, but we couldn’t put that many choices and still accommodate for 7-8%.
This illustrates the fact that most investors don’t realize the cash flow opportunities from investing in U.S. real estate. We want to change that perception.
Global Rental Yield Comparisons
UAE 12.3% (Ranked #1)
USA 8.1% (Ranked #12)
G7UK 4.3%
Canada 3.9%
France 2.6%
Italy 4.2%
Germany 3.4%
Japan 2.4%
As you can see, most developed countries have a rental yield lower than 4%, and half of the major Asian countries have a rental yield under 3%. Greater China countries are below 2%!
When investing in these markets, investors “hope” prices will rise for capital appreciation but there is little to no cash flow opportunities.
Why is the U.S. so high?
Severe Housing Shortage
From 2012 to 2022, 6.5 million ‘more’ households were formed compared to homes built. “Household Formation” refers to the change in the number of households (persons living under one roof or occupying a separate housing unit) from one year to the next. Let that sink in for a bit….
There is currently a 5.5M home shortage to meet existing demand.
Higher labor and raw material costs with stringent zoning laws make it difficult to build homes fast enough to meet demand.
Existing Home Sales
Existing home sales normally account for 90% of total home sales.
Of the existing homeowners with a mortgage,
99% are UNDER 6%
80% are UNDER 5%, and
40% are UNDER 3%
What this means is the supply is not moving unless sellers are willing to pay capital gains or move to a higher priced home using a 1031 Exchange – regardless, they will have to face a higher mortgage rate.
It’s no surprise that in 2023, existing home sales fell to the lowest level in nearly 30 years, while the median price hit a record high, according to a recent report by the National Association of Realtors.
Scylla and Charybdis
Similar to boats crossing the Straits of Messina in Homer’s Odyssey, homebuilders face a similar dilemma of whether to construct houses that buyers may not be able to afford with 7%+ mortgage rates or to hold back and therefore make long-term housing supply issues worse.
Institutional Buying
The current lack of supply plays right into the hands of Blackstone and its peers.
The Blackstone Playbook is well-known :
- Identify supply-demand imbalances
- Invest billions to build giant landlords
- Dictate rental pricing
January 2024, Blackstone announced the acquisition of Tricon Residential for $3.5B, making it the 3rd largest landlord (62K homes) in the U.S. behind Progress Residential (84K homes) and Invitation Homes (82K homes).
Meanwhile, just last week, Blackstone purchased private rental housing apartment firm Air Communities for $10B in cash!
Demand
COVID accelerated WFM which was growing 2.5% per year before the pandemic. It suddenly went to 100% and reversing this trend is difficult and technology has become so good that execution-based roles can be done remotely.
Meanwhile, when companies get to a certain size in expensive states such as California and New York, it becomes too expensive to live and operate a company, and many move their headquarters to a state with a lower cost of living and state taxes, like Texas. For example, Dallas has the most Fortune 500 companies in the world as their headquarters, and this is increasing every year.
U.S. Rental Yields
Here is where it gets interesting….look at some of these rental yields!
| Detroit | 32.9% | Tulsa | 13.5% | Las Vegas | 10.8% |
| Milwaukee | 20.7% | Colorado Springs | 13.2% | Anchorage | 10.4% |
| Omaha | 18.3% | Nashville | 12.7% | Atlanta | 10.3% |
| Baltimore | 17.2% | Spokane | 12.3% | Miami | 10.1% |
| Indianapolis | 17% | Madison | 11.5% | Denver | 9.5% |
| Memphis | 15.9% | Tucson | 11.4% | ||
| New Orleans | 13.6% | Ann Arbor | 11.1% |
This is an illustration of what is happening due to the reasons stated above:
- Unfixable housing shortage
- Gentrification to lower cost-of-living states
- Supply is further being squeezed by institutional buying
- Marginal homebuyer has to rent, given high mortgage rates
It’s never been a better time to be a landlord!
I always tell clients, if you can make the numbers work now, they will only get better because rental yields WILL RISE, and when mortgage rates decline, you can refinance to a lower rate. Over time, your net cash flow will only rise.
More importantly, when the value of the home rises, you can refinance 70% of the increased home value to lower the investment cost!
Mortgages for International Investors
AM Rental Coverage+
Our loan program was designed specifically for international investors looking for an easy way to qualify for a mortgage by using the rental income and not personal financials.
- Up to 75% loan-to-value
- 30-45 days closing
- If rental income > mortgage and other costs = you qualify!!
- No age restrictions
- Closing documents signed at your local U.S. embassy
If you’re interested in learning more, reach out to us at [email protected] or visit our website at www.americamortgages.com. Additionally, if you’d like to schedule a commitment-free meeting with one of our U.S. loan officers to explore your U.S. mortgage options further, you can do so using our 24/7 calendar link.
