It's getting more difficult to achieve desired returns on rental properties due to increased pricing.<@SM>The darker the circle, the higher the annual gross rental yield in that market. ***Chart courtesy of RealtyTrac.

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IRVINE, CA—Investors are challenged to achieve the rental returns of the past due to ever-increasing home prices, says RealtyTrac‘s VP Daren Blomquist. In a recent 370-county analysis, the firm found that investors buying US residential rental property in the second quarter of 2014 are getting an average annual return of 9.97%, down from an average annual return of 10.6% a year ago.

“Home prices have increased at a faster pace than fair market rents in most counties over the past year, eroding the average returns available to investors buying rental properties,” says Blomquist. “Even so, an average annual return of nearly 1% across all the counties we analyzed nationwide is still solid, and investors holding on to rental property for the long term will also typically benefit from home price appreciation on top of the annual returns from rental income.”

Median home prices in the 370 counties analyzed in the report increased more than 7% on average in the second quarter of the year, compared to a year ago, while average fair market rents for three-bedroom homes increased an average of less than 1%.

As GlobeSt.com reported last week, the best places to own residential rentals for Baby Boomers are in the Southeast and Arizona, while ideal Millennial markets are in Baltimore, Philadelphia and Jacksonville, FL, according to report from RealtyTrac. The report analyzed 370 counties nationwide to determine the best markets for buying residential properties, as well as the best markets for renting to Baby Boomers and the best for renting to Millennials.

For the report, RealtyTrac analyzed median sales prices for residential property and average fair-market rents for three bedroom properties in those counties with a combined population of 186 million people—60% of the total US population. Rental returns were calculated using annual gross rental yields: the average fair-market rent of three-bedroom homes in the county, annualized, and divided by the median sales price of residential properties in the county.

The report matches with increased property values for commercial real estate, as GlobeSt.com reported earlier this week. According to Green Street Advisors Inc., the Green Street Commercial Property Price Index increased by about .5% in June, showing that property appreciation has gained momentum over the past few months and values are now at or above 2007 highs in nearly every major property sector.

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