Fix-and-flip investments might make for compelling programming on HGTV, but investors prefer buy-and-hold rental properties. A recent Investor Sentiment Survey from RCN Capital demonstrated that rentals were the most popular of the three types of residential real estate investments.
53% of respondents said buy-and-hold rentals are their primary investment. Only 29% said fix-and-flips were their focus, and a measly 18% claimed wholesaling.
Flips might be the real estate investment in our popular consciousness, but they’re not where most investors put their time and attention. If we look at SFR investments, we see solid fundamentals bringing in more and more motivated investors. Though higher interest rates have diminished rental profits and slowed the pace of acquisitions, the compelling demand for SFRs makes it a strong investment for the present and years to come.
5 Reasons SFRs Have Been Winning Over Fix-and-Flip Investments in 2023
1. SFRs are less prone to risk or market volatility
SFRs are generally less sensitive to short-term market fluctuations than fix-and-flip investments. Even during economic downturns, people still need housing, which can help maintain rental income. Because SFRs are, by nature, a buy-and-hold investment, investors can afford to be patient. They’re not trying to make a sale within a specific window.
Investors can afford to wait for favorable conditions to make a big move. That’s not the case with flips. This decreased volatility means better long-term stability and a reliable portfolio.
2. Millennials need to rent—but they don't want to rent apartments
Millennials, now between their late 20s and 40s, are among the greatest drivers of SFR demand. They have families and are looking to settle in long-term housing – more in line with traditional detached homes than high-rise apartments. At the same time, they’re largely unable to afford homeownership.
The natural alternative is the more affordable option of SFR rentership. SFR demand is at an all-time high and shows no signs of stopping.
3. SFR investing can be passive
SFRs can be a relatively passive investment, especially when professional property management is involved. Investors do not need to actively oversee renovations or constantly market and sell properties, as they might with fix-and-flip investments.
Here’s the thing – most investors aren’t looking for a new full-time job. They likely already have careers they’re perfectly happy with. The passive nature of rental real estate means that your success isn’t determined by how much time you have or how capable you are. While a level of owner engagement is necessary and good, you don’t need to be there and involved in every little day-to-day decision.
4. SFRs don't have to try to beat the rate of inflation
One of the complaints people have about SFRs is that they’re not a particularly liquid asset. However, the hedge against inflation makes up for a relative lack of liquidity. Real estate tends to gain value alongside inflation rather than lose it. Flips, which are supposed to have a quick cash turnaround, are affected by inflation. Think about how property prices have appreciated over the past few years.
If you bought and flipped a property but sold it right before rapid market growth, you have less money to put into a suddenly more expensive market. Not only do rental properties help you avoid the stress of timing the market, but you benefit both from cash flow and long-term property value growth.
5. Diversification and compounded revenue streams
Flippers may have multiple projects going on at once, but they never hold them for long. It’s a constant cycle of buy-flip-sell. Buy-and-hold investors, by contrast, increase the properties in their portfolio over time. This not only grows wealth through the assets – and their eventual appreciation – but also by creating multiple passive income streams.
This mitigates portfolio risk, and you never rely on a single sale or success to keep going. Passive investors, simply put, don’t have the same variables to contend with. It’s more about risk management and stability, which build reliable, lasting wealth over time.
Some investors have been feeling down about the state of SFR investing, but the market is rife with opportunity and bursting with demand. Today’s market absolutely presents unique challenges and frustrations. Median home prices are high, and interest rates aren’t helping matters. At the same time, there are plenty of reasons to invest in single-family rentals.
Ready to hang up your renovation hat? Ask us about how we help investors build wealth without the headaches.
