Landlords seeking the highest returns for single-family homes should hit the road as rental rates weaken in Atlanta, Phoenix and Las Vegas, where institutional investors have flooded the market.

The best deals, measured by leases and the cost of becoming a landlord, are in Memphis, Tennessee, Saginaw, Michigan and Toledo, Ohio, according to a report today by RealtyTrac, a real estate data provider.

“In a lot of markets across the country, there are still some good opportunities to buy rentals,” Daren Blomquist, vice president of Irvine, California-based RealtyTrac, said in a telephone interview. “You may just have to look a little bit harder.”

Margins are shrinking fast in Phoenix, Atlanta and Las Vegas, as low mortgage rates fuel price increases and buyers from private equity firms compete for limited inventory. Blackstone Group LP, the world’s largest private equity firm, has spent $3.5 billion on 20,000 single-family homes, and Thomas Barrack’s Colony Capital LLC has raised $2.2 billion for rentals. In Memphis, a three-bedroom home generates a 10.4 percent annual return on investment compared with 8.8 percent in Phoenix, 9.7 percent in Atlanta and 9.9 percent in Las Vegas, according to the RealtyTrac report.

Prices Rise

Prices of existing homes jumped 20.8 percent in Phoenix and 12.4 percent in Atlanta in the year through February, CoreLogic Inc., a real estate information service based in Irvine, California, reported yesterday. That compares with a 10.2 percent U.S. price increase during the period, the biggest year- over-year gain since March 2006, as the Federal Reserve pushed mortgage rates to record lows, potential homebuyers improved their credit scores to better obtain loans, and the pace of foreclosures slowed.

Rents on single-family homes fell 1.9 percent in Las Vegas in the year through March, while rising just 0.3 percent in Phoenix and 0.8 percent in Atlanta, according to Trulia Inc., a San Francisco-based online real estate information service. U.S. rents rose 2.4 percent year-over-year through March, according to Trulia. The gain was just 0.1 percent for single-family home rents as apartment rates climbed 2.9 percent.

“The supply of single-family rentals has now caught up to meet demand,” Trulia Chief Economist Jed Kolko said in a telephone interview from San Francisco. “For those who’d been counting on appreciating rents to justify that investment in homes, in many markets, that’s over.”

‘Tertiary Markets’

Jon Grabowski, president of Precise Associates Inc., a single-family investor based in Detroit, said he’s been selling homes in Florida, Phoenix and Atlanta while buying in Nashville, Tennessee; Indianapolis, Indiana; and Raleigh and Charlotte, North Carolina.