If you’re like most people, you’re feeling the squeeze of a tight, tough economy. At the same time, SFR investments are attracting more investors than ever! Throwing your proverbial hat into the ring might seem like a bigger challenge, but SFR investing makes it well worth it.
Don’t write off the opportunities to invest during challenging times. While there will be obstacles, scores of investors find the risks well worth it. Here are the big reasons investors are flocking to SFR investments!
8 Reasons SFRs Are a Great Strategy in a Tough Economy
1. Countercyclical Appeal
Low inventory, higher interest rates, hefty price tags. During economic downturns, many people choose to rent rather than buy homes due to uncertainty or financial constraints. Even as demand for homebuying shrinks, rental demand balloons. This increased demand for rental properties creates a stable (and growing) source of income for single-family rental investors.
Now, investors still need to buy the right properties in the right places. That’s always true. However, renting is more prevalent than ever, and many would-be homebuyers would jump at the chance to rent a spacious single-family home in the right market.
2. Less Volatility
Compared to the stock market or certain investments, real estate, especially rental properties, tends to be less volatile during economic downturns. While property values may experience short-term fluctuations, rental income provides a more predictable cash flow. Because investors don’t rely on just one or the other – cash flow or equity – but multiple advantages, they enjoy increased stability in an otherwise tumultuous economy.
Real estate, including single-family rentals, can hedge against inflation. As the cost of living rises, rental income and property values can increase, allowing investors to maintain their hard-earned wealth without inflation erosion.
Hedging against inflation matters because it helps investors preserve the real (inflation-adjusted) value of their wealth and assets. Certain investments or strategies have historically demonstrated the ability to outpace or keep pace with inflation – namely, single-family real estate!
4. Diversifying Your Portfolio
Including single-family rentals in an investment portfolio provides diversification, reducing overall risk. If other investment types, like stocks, are underperforming during an economic downturn, real estate helps pick up the slack! Diversification also involves holding multiple investment properties across different investment markets. This establishes a more robust and reliable cash flow.
5. Stability for Renters
In challenging economic times, people may prefer to remain in their rental homes rather than face the costs and uncertainties of moving. Every real estate investor knows that turnover and vacancies are costly. If the economy makes people stay put, the investor won’t deal with these frustrations as often. The longer you can keep great residents, the better!
6. Long-Term Earnings
While immediate property appreciation may be slower during an economic downturn, investing in single-family rentals for the long term can still lead to significant appreciation over time as the economy recovers. Historically, long-term trends in real estate are almost always positive. Investors will reap long-term rewards if willing to hold fast through challenging times.
7. Tax Benefits
Real estate investors can benefit from various tax deductions and incentives, such as depreciation, mortgage interest deductions, and property tax deductions. These tax advantages can help mitigate the impact of investment-related expenses, which grow with inflation. The tax advantages alone aren’t the reason we invest in SFRs, but they’re a great bonus when combined with passive income and long-term appreciation.
8. Incentives & Assistance
During economic crises, governments may implement policies or programs to support the housing market, which can indirectly benefit single-family rental investors. This isn’t a sure thing, of course. Your mileage may vary. However, the government has historically supported and incentivized buy-and-hold real estate investing.
Ultimately, we must consider that economic downturns can also present challenges for single-family rental investors. There’s the potential for resident financial difficulties, increased maintenance costs, and challenges in accessing financing. Careful due diligence, solid financial planning, and an understanding of the rental market are crucial to successful single-family rental investments, especially in challenging economic conditions.
Thankfully, REI Nation is here to help!
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