The state of the U.S. real estate market may have you questioning whether or not investing in real estate is worth it. Let’s get this out of the way: every stage and season of the market carries distinct challenges and advantages. It doesn’t benefit your portfolio to wish for a bygone era.
The best we can do is play to the market’s strengths in the here and now. With that said, investing in real estate – particularly in single-family rentals (SFRs) – continues to be popular. People are drawn to this business model, particularly in tough economic times.
Here are a few reasons SFRs persist in popularity despite market challenges!
4 Motivators to Keep Investing in SFRs Despite Market Challenges
1. Rental demand is only increasing
Short supply is the most significant contributing factor to the state of the real estate market as we know it. Because we’ve been in a state of chronic undersupply, prices have resisted correction efforts. People want to buy houses. There aren’t enough houses. Those on the market get more expensive. Fewer people can afford homes. What do they do?
They rent.
The housing affordability crisis will continue to drive the growth of renter households. Homeownership rates rapidly increased throughout the 90s and hit a high of nearly 70% in the early 2000s. Rates plummeted with the Great Recession. In 2019, rates shot up, only to settle back down around 65% today.
Inflation, affordability, net worth, credit score, career stability…these and other factors contribute to one’s ability to purchase a home. During these trying economic times, it only makes sense that rental demand would grow. We’re investing in SFRs because people want to rent SFRs…period!
2. Real estate softens the blow of inflation
We all know that real estate is a hedge against inflation. If you can afford to buy real estate, doing so keeps your wealth from diminishing under inflation. Statistics show that those who own real estate have a drastically higher net worth than those who do not. This is partly because properties protect wealth as real, tangible, inflation-resistant assets.
3. SFRs ease the FOMO of homebuyer hopefuls
Why invest in SFRs instead of duplexes, apartments, or other multifamily properties? Simply put, people want homes, not units. The pandemic significantly shifted American priorities for their domiciles – emphasizing things like square footage, home offices, outdoor spaces, and the homeowning experience without the homeowning itself.
As a result, SFRs and BTRs (built-to-rent) are increasing in popularity. Investors can earn more per rental. Not only that but consider the liquidity of real estate assets. Real estate is notoriously not liquid, meaning there is a long lead time to convert an asset into cold hard cash.
You must sell or refinance the property, which can be lengthy. However, it’s much more challenging when discussing multifamily properties. The buyer pool is considerably smaller. They’re more expensive upfront. As a result, the liquidity is worse, and the exit strategy takes longer to execute. SFRs are a safer asset from that standpoint.
4. The long-term potential outweighs the short-term struggle
Ultimately, we must consider what separates the success stories from the flops. Where investing in real estate is concerned, it comes down to a willingness to play the long game. Fair-weather investors will jump on the hype or no-brainer opportunities. They bail at the first sign of trouble or difficulty. They may believe that doing this prevents them from losing anything; without risk, you can’t lose. But no risk also means you can’t win.
Any investor with a history in this business will tell you that success takes time. The long-term potential of an investment property – its ability to appreciate, build equity, and keep up with inflation – far outweighs temporary pitfalls in the market cycle.
We’re not going to lie. It’s been tougher out there lately. But we’ve also been in this business for a long time – even to see just about everything the market can throw at us.
Investors recognize that SFRs aren’t about being opportunistic or capitalizing on hype. They’re about potential. Slow, reliable growth in a world that seems increasingly unsteady. Because no matter what, people will always need a place to live…and we’ll give it to them!
Invest with the ones who have turnkey SFRs down to a fine art – REI Nation!
