The current Coronavirus pandemic created an unprecedented global situation. Amid the fear of a pending financial and economic recession, many started wondering about the best investment strategy at times of crisis. While the stock market threatened to crash right away and oil prices reached historically low levels, real estate demonstrated the stability, steadiness, and firmness which investors need. Under the ongoing circumstances, real estate investment emerged once again as the top strategy for investing money, irrespective of the political, economic, financial, social, and health situation.
In this article we will highlight the main reasons why investing in real estate is the best way to invest money at times of crisis.
To learn more on this topic, watch our video available below.
Reason #1: Stable Source of Income
The first reason why rental homes are a top investment strategy during a recession is the fact that people will always need a place to live. Even with the financial hardships created by the COVID-19 spread, very few landlords have observed increased vacancy rates caused by tenants fleeing their investment properties. Indeed, most renters in the US housing market remained in place, even at the peak of the pandemic.
This means that real estate investors continued receiving rental income from their tenants despite the crisis. Meanwhile, the stock market and oil prices went plummeting at the first signs of a recession.
In March many state and other local authorities started introducing eviction moratoriums under which tenants cannot be evicted from a rental property for not being able to pay rent during the pandemic. The same measures were taken by the federal government but referred only to income properties with government-backed mortgages.
While this might have put a temporary pressure on landlords of traditional rental properties, they should not be worried that they will lose their money from missed rental income forever. To the contrary, tenants are expected to eventually make all missed rent payments, whether by the end of 2020 or later on. However, what this means for a real estate investor is that he/she will make all money that he/she was supposed to make.
So, real estate investment brings income even at times of crisis, even with a mild delay. Such a delay is nothing compared to the uncertainty and potential crash accompanying other investment strategies.
Reason #2: Real Estate Appreciation
Another reason why real estate investing is a top choice among investors even at times of crisis is the fact that they will continue to make money in the long run.
The US housing market has gone through numerous recessions and crises. In spite of any momentary slowdowns or even downturns, the real estate market always manages to go back up to its initial position and to start growing even beyond that level within a few months or a couple of years maximum.
In the medium and long term, the price of a property investment rises invariably. This phenomenon, known as real estate appreciation, is a major factor that makes rental properties one of the best investments regardless of the current situation.
To maximize long term appreciation, real estate investors should consider buying a single family home. Real estate data shows that this rental property type appreciates in value more than other property types such as townhouses, apartments, condos, and multi family homes.
So, with real estate investment, you are bound to make money in the long term as well. You just need to wait long enough (which can sometimes be just a few years) for your income property to experience sufficient appreciation to make it worth selling it. With the money from selling your investment property, you can buy two smaller rental properties in a more affordable housing market or even buy a multi family home to start receiving rental income from multiple tenants.
Reason #3: Government Support
As mentioned above, during the COVID-19 pandemic, local and federal authorities protected tenants from eviction in the vast majority of the US housing market. Rightfully, some landlords and real estate investors might have perceived this as a threat to their rental income for the time being. Some might have even worried that they will not be able to make the monthly mortgage payments during the eviction moratoriums.
However, the CARES ACT passed in response to the expected recession as a result of the Coronavirus spread has special provisions to help rental property investors as well.
In specific, the mortgage forbearance clause protects homeowners and some real estate investors from a foreclosure in case they cannot make their monthly payments during the COVID-19 pandemic. Additionally, rental property investors might qualify for small business loans which they can use to cover certain recurring expenses such as mortgage interest and utilities.
This means that the interests of those who choose the real estate investment strategy were much more protected than the interests of other investors.
Reason #4: Rental Strategy Flexibility
It is naïve to say that a crisis such as the one caused by the pandemic has zero effect on the real estate market in general and the rental market in specific. One group of rental house investors who have been particularly affected by the Coronavirus is Airbnb hosts.
Airbnb data from Mashvisor shows that the Airbnb occupancy rate went down drastically as soon as COVID-19 reached the US housing market. In response to the crisis, the Airbnb homesharing platform was quick to create a $260m Airbnb relief package. Most of the money went to a fund to offer partial compensation to the hosts whose bookings with a sign in date between 14 March and 31 May got cancelled.
Furthermore, one of the most important benefits of real estate investment in rental properties is the possibility to switch between rental strategies. Many existing Airbnb property investors adapted to the new reality of extremely low short term rental bookings by turning their income property into a traditional rental.
Indeed, demand for long term rental properties might somewhat increase in the coming months. The economic and financial uncertainty is expected to last for a while after the end of the global pandemic which means that many people who were planning to buy a home might postpone this decision. This real estate trend will create a new pool of potential tenants.
Thus, buying a house to rent on a long term basis is a lucrative investment opportunity at the moment.
Reason #5: Market Diversity
Once again, the COVID-19 pandemic showed how important location is when you invest in real estate. While buying and selling real estate activities have been impacted across the entire US housing market, the effect has been different within different locations.
The most affected real estate markets comprise of the major cities such as New York, Seattle, Chicago, and others which turned into epicenters of the pandemic in the US. Some smaller, more isolated housing markets have seen even an increase in rental demand as many sought refuge in the safety of towns and villages.
Thus, one of the first rules of real estate investing for beginners is to choose a location that is optimal for rental properties. There are a lot of factors that go into the required real estate market analysis and research. And how resilient rental demand is in a market is definitely one of the factors you need to include.
Making a profitable real estate investment which will survive the test of a crisis boils down to buying rental property in a top location.
Reason #6: Passive Investment Strategy
Unless they are looking for a replacement of their full time job, most investors prefer investment strategies which allow them to make good money in both the short and the long term but which do not require excessive engagement and effort.
Real estate investment meets all these criteria, which makes it an ideal strategy both in regular times and in times of a crisis.
If you are just getting into real estate, you might be confused how rental properties are supposed to be a source of passive income. Becoming a landlord or an Airbnb host sounds like a lot of hard work, and it is definitely not a walk in the park.
However, hiring a professional property management company turns owning a rental property into a passive investment strategy. A rental property manager will take care of all the aspects of owning and managing an income property for a reasonable fee.
So, if you are looking for a passive investing idea to be able to retain your 5-to-9 job during a crisis, real estate investment is a top option.
Each investment strategy comes with pros and cons, but few are able to pass the test of a crisis and continue providing investors with both a stable source of income and long term capital gains. Real estate investment is one of those strategies which allows investors to protect their assets and retain profitability in most situations.
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