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IRVINE, CA—Investors are challenged to achieve the rentalreturns of the past due to ever-increasing home prices, saysRealtyTrac's VP Daren Blomquist.In a recent 370-county analysis, the firm found thatinvestors buying US residential rentalproperty in the second quarter of 2014 are getting anaverage annual return of 9.97%, down from an average annual returnof 10.6% a year ago.

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“Home prices have increased at a faster pace than fair marketrents in most counties over the past year, eroding the averagereturns available to investors buying rental properties,” saysBlomquist. “Even so, an average annual return of nearly 1% acrossall the counties we analyzed nationwide is still solid, andinvestors holding on to rental property for the long term will alsotypically benefit from home price appreciation on top of the annualreturns from rental income.”

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

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As GlobeSt.com reported last week, the best places to ownresidential rentals forBaby 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 analyzed370 counties nationwide to determine the best markets for buyingresidential properties, as well as the best markets for renting toBaby Boomers and the best for renting to Millennials.

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For the report, RealtyTrac analyzed median sales prices forresidential property and average fair-market rents for threebedroom properties in those counties with a combined population of186 million people—60% of the total US population. Rental returnswere calculated using annual gross rental yields: the averagefair-market rent of three-bedroom homes in the county, annualized,and divided by the median sales price of residential properties inthe county.

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

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Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.