There’s nothing that makes investors worry like a pandemic. This makes sense as the fear, panic, and hysteria that a global pandemic (like the COVID-19 one we’re dealing with today) cause an economic slowdown which, as a result, affects investors’ profits and returns. While this is definitely bad news for the majority of businesses and stocks investors, you don’t need to worry as much if you’re a real estate investor. This is especially true if you invest in long term rental properties.
Owning long term rentals – or buy-and-hold properties as they’re sometimes called – is one of the oldest and most lucrative real estate investment strategies. These are rental properties that you buy to rent out for long term leases. Besides their ability to provide consistent positive cash flow and passive rental income, one of the main reasons why real estate investors are attracted to long term home rentals is that they have proven to be the best assets to survive pandemics and market slowdowns. So if you’re planning to get into the real estate business in 2020 despite the coronavirus pandemic, here are our top reasons why you should buy long term rental properties.
Related: The Best Real Estate Investments During the Spread of the Coronavirus
#1 There’s Still Consistent Demand for Rentals
Stock owners don’t need to keep their stocks, but people always need a place to live regardless if there is a pandemic or not. As home pieces in the US housing market grew over the past years, homeownership became an unaffordable option for many Americans. This is why there’s always been a demand for rentals. COVID-19 is unlikely to affect this demand for long term rentals in a negative way. By contrast, experts predict the demand for rental properties will keep growing in the coming years as people who still can’t afford to buy will need to rent. Meaning, the residential rental market will remain to be favorable for real estate investors in the US in 2020 and beyond.
We can also see this benefit of investing in long term rental properties when we compare them with short-term rentals. For years, many investors preferred renting out their investment properties on sites like Airbnb for short-term guests. These types of rentals usually generate higher rental income yields than traditional rentals. However, once the coronavirus reached the United States, Airbnb hosts were the first to feel its negative impact. Airbnb rentals immediately saw a significant drop in demand as travel bans were set in place and guests started canceling their bookings. As a result, Airbnb hosts started losing rental income right away.
This shows why buying an investment property to rent out on a long term basis is the most secure form of real estate investing. Right now, many hosts are even converting their vacation rentals into traditional rentals as these properties didn’t witness such a significant drop in demand. Research shows that interest is strongest in single-family homes for rent as more investors flock to that sector. Still, multi-family properties are also doing well in the US housing market now – data shows that vacancy rates for multi-family homes were at just 4.2% at the end of 2019.
To start looking for and analyzing long term rental properties for sale whether single family or multi-family homes in your city and neighborhood of choice, click here.
#2 Slow Home Buying Activity Means Motivated Sellers
As the coronavirus is causing job loss and increasing unemployment, the homeownership rate in the US is expected to decrease. As mentioned, homeownership was already slipping out of reach for many Americans before the pandemic due to growing property prices in the US housing market in the past years. Right now, the crisis is forcing more and more people who were planning to own their home to delay their purchasing decisions. The combination of high home prices, loss of income, and more people still in-debt means the trend of slow home buying activity is expected to continue in the coming years despite lower mortgage interest rates according to experts.
Some home sellers can wait this out. Others, however, can’t afford to sit on the sidelines and need to sell now – even if it means a sharply lower sales price than they had hoped. Early data from the National Association of Realtors shows that more buyers have withdrawn from the real estate market than sellers. By late March 2020, 48% of Realtors reported buyers pulling back, while only 16% of sellers said they wanted to pull their listings. This tells us that the balance between supply and demand is tilting dramatically to favor buyers. But a lot of buyers aren’t making a move now. This makes this a perfect time for real estate investors to buy long term rental properties at lower prices!
Related: Coronavirus Real Estate Update: Is a Buyer’s Market on the Way?
Data shows that there are plenty of motivated sellers out there right now. Motivated sellers have always made up the bread and butter for off-market real estate deals. And in the coming months, sellers will find themselves forced to accept lower offers, given that buying demand has basically disappeared. Meaning, real estate investors pursuing distressed properties will undoubtedly find good deals and investment opportunities. Using a tool like Mashvisor’s Property Marketplace, you can find the best off-market deals like pre-foreclosures, short sales, and auctioned homes in the US real estate market. Our tool also allows you to run rental property analysis to decide which property choose to make money out of as a long term rental in 2020.
#3 CARES Act Support for Real Estate Investors
Any real estate investor knows the importance of consistent rental income as it’s the main factor in generating positive cash flow and it makes up half of your return on investment. Landlords in many rental markets across the US are concerned about the inability of their tenants to pay rent in the coming months due to the effect of the coronavirus pandemic. To make matters worse for investors, many local authorities have issued orders preventing evictions in case of missed rent payments during this time. As a result, landlords are worries about making enough rental income to cover their rental expenses and mortgage payments.
This might discourage you from buying long term rental properties at the moment. However, you need to keep in mind that landlords are not at a disadvantage either thanks to the CARES Act. The $2 trillion coronavirus stimulus package will assure the well-being of your rental business. For one, landlords are eligible for small business loans under the CARES Act. You can use such money to cover the mortgage interest and utility costs of your traditional rentals. Moreover, if you’ve used a federally backed loan for buying a rental property, you can request a mortgage forbearance for up to 180 days. This provision of the CARES Act helps landlords avoid foreclosure even if they don’t receive rental income as a result of the COVID-19 pandemic.
To find out which mortgage reliefs apply to you as an investor, read COVID-19: Mortgage Relief Programs for Real Estate Investors
#4 High & Stable Return in the Long-Term
The final reason why long term rental properties make for the best investment even in times of a pandemic is the same reason why many have been investing in these properties for a long time. And that is the fact the real estate appreciates in value over the long term. While stocks and bonds have shorter bursts and cycles of prosperity, real estate is known to provide the highest and most stable return in the long term. Therefore, investors are less likely to sell off their properties in the event of mass-market hysteria or out of fear of losing their savings. Hence, the best way to get through an economic downturn is to invest in long term rentals.
Moreover, traditional rentals tend to perform well even during recessions. Home prices don’t always drop during an economic recession – most of the time, they just slow down. It was only during the Great Recession that home prices dropped significantly, and that recession was largely caused by a housing bubble in the first place. But overall, real estate market trends show that home price appreciation continued at an even pace during other past recessions. US housing market experts forecast the same to happen in the event of a coronavirus recession in 2020.
Experts also predict that the real estate market will bounce back after the end of the pandemic. Meaning, real estate investors who are patient can survive the recession. In short, long term rental properties make for a great asset to hold during recessions, with far less volatility and losses than stocks and other paper assets.
Final Words for Real Estate Investors
The COVID-19 pandemic is something that we’ve never experienced before in modern life. But while there is uncertainty, most market trends and data show that now might actually be a good time to invest in real estate long term rental properties. Ready to find rental properties for sale to buy and make money out of? Sign up for Mashvisor now with a 15% discount with promo code BLOG15 to start looking for and analyzing the best real estate investment opportunities in the US housing market according to predictive analytics and property data.