4 Reasons to Bet on SFRs Despite Market Challenges

This year, you might have heard some discouraging things about the real estate market. Naysayers have debated the feasibility of SFR investing when real estate prices are at an all-time high. Various legislative efforts might change the real estate landscape. Here’s the thing – it’s not that real estate investing is a bad idea. It’s more about perspective.

After all, the pandemic saw a time of unprecedented property appreciation and rental growth. It made investing in real estate a no-brainer. And now things are a little more challenging. That scares some investors away. But at the end of the day, investors should find comfort in this: buy-and-hold real estate maintains the solid fundamentals that set investors up for success.

Encouraging SFR Statistics

Let’s look at some recent statistics from Yardi Matrix, which tracks data on institutional SFR units (communities of 50+ BTR properties):

• As of June 2023, the average SFR rent in the U.S. was up 27.9% since January 2020.
• Though rent growth has slowed, it hasn’t decreased. This is natural as rental costs approach unaffordability.
• Since January 2018, the national SFR occupancy rate ranged between 95.7% and 97.2%, indicating robust demand.

There’s a lot to unpack from this small sampling and other sources, but here’s the takeaway: SFR demand is strong, reflected by occupancy rates, BTR construction efforts, and rent prices. The decision to investing single-family rentals, though, isn’t just about current statistics. It’s about the immutable facts of the industry that keep it at the top of the list for building passive wealth.

4 Reasons SFR Investing Offers a Strong Long-Term Outlook

Reason #1 – History doesn’t lie.

The idea of renting as we know it emerged after the Great Depression and World War II. In the 1960s, legislation passed enabling REIT investments. And, in the 1980s, real estate investing as we know it surged in popularity. That’s forty years and counting – and not to mention the age-old practice of building home equity as a form of wealth-building.

Here are some numbers:

• From 1940 to 2023, the U.S. median rent increased at an annual rate of 3.15%.
• Rent changes have not experienced a negative YoY rate since 1934.
• Average rent prices have grown 8.85% per year since 1980.
• Rental rates increased 31% over the last decade.
• Median property sales prices have been trending upward since the 1930s.

Looking through the data, we see that rental rates, rent prices, and median property prices trend upward the majority – if not the entire – time. Zooming out with this long view of the market helps put things in perspective as we see short-term market fluctuations.

Reason #2 – Inflation doesn’t discriminate.

We invest in real estate over other assets? We have plenty of reasons, but one of the most notable is inflation. Inflation means the value of your dollar decreases. You need more money to buy the same goods and services this year than you did last year. When you put your money into real estate, though, your dollar keeps up with inflation and usually outpaces it. In fact, studies show that housing prices have grown at 2.4x the rate of inflation since the 1960s.

Real estate is your best bet if you want your wealth to be worth more and not less in ten years or more.

Reason #3 – Housing is always in demand.

Housing has an edge over other assets. One, it’s a physical, tangible thing. Not a stock, not an NFT, not a luxury. Real estate will always be in demand. It’s a finite resource. Housing is a basic human need. When done right, the consistent need for quality housing means a stable, predictable source of passive income.

Reason #4 – Investors benefit in more ways than one.

Finally, let’s talk about the benefits of investing in real estate. Investors build wealth in three primary ways: cash flow, property appreciation/equity growth, and tax incentives. Many investments are limited to one of these avenues. Buy-and-hold real estate investors can switch gears, focusing on different benefits as their priorities and investment markets change.

We already see that property values and rent costs trend upward over time. Buy-and-hold investors can bide their time and make strategic moves that result in the most bang for their buck.

No investment is a sure thing – real estate included. However, we’ve seen real estate stand the test of time, weather economic crises, and generate wealth for countless individuals. Don’t wait – if you’ve been considering investing in real estate, now is the time to take the next step.

Looking to start earning passive income? Connect with one of our Portfolio Advisors today!