Why Invest in Single Family Rentals?

With expectations of the Federal Reserve hiking interest rates several times in 2019, there is are speculations that housing prices will continue to rise through the year. Add to that the lower inventory levels, especially in the entry-level housing market, and we might be looking at a housing market that is very favorable for investors.

A survey by Millennium Trust Company, in December 2018, points towards increased preference for alternative investment options among people, to survive market volatility, particularly in the real-estate market. The survey revealed that 73% of high net-worth individuals are looking to invest in single-family rentals, as opposed to the stock market, to leverage on reports of a strong US housing market in 2019, according to a report on US News & World Market. Private real-estate investments have entailed the lowest volatility for some time now, while offering high yields.

So, what are the advantages of investing in single family rentals in 2019?

Huge Tax Write-Offs

Owning a single-family rental comes with tax benefits from the IRS, which allows tax deductions for repairs, property tax, interest expense deductions and deductions for other expense associated with managing the property. Cost of supplies and raw materials are also deductible. Through accelerated depreciation write-offs in property values, investors can save thousands of dollars each year in taxes.

Unemployment Rates and Changing Consumer Dynamics

Lower unemployment rates in the US have contributed significantly to the rise of the housing market. If the Federal Reserve actually increases interest rates more than twice in 2019, mortgage rates will rise. Thus, new home buyers will not be up for much activity, but rental properties will continue to flourish. Also, there has been a shift in consumer dynamics. People are increasingly preferring rentals over new homes, due to the flexibility they offer. This is particularly true of millennials, who frequently change job locations. They are already over-burdened with student loans, and do not show much appreciation for owning large homes, unlike the previous generation.

Speaking of the previous generations, even baby boomers are selling their large homes and looking for rental properties in search of a more community-driven environment, according to Mashvisor. This generation is also helping their millennial kids to buy their first homes. If you are looking to own or sell single-family rentals, such high budgets will bring greater ROI. This could account for long-term capital gains.

Stable Income Source

Rising population levels and continuous demand means that investors will continue to have a source of stable income. Unlike the stock market, the housing sector doesn’t see sudden price volatility. It will be a tangible financial asset, which one could sell off whenever the market seems favorable.

Returns from single-family rental investments do not share any correlation with the stock markets, providing opportunities to diversify one’s portfolio of investments across various assets across different geographical markets.

Operations Flexibility

Another advantage of investing in real estate is that you can employ good local property management firms to take care of the day-to-day activities, such as maintenance, repair and rent collection. Nowadays, these firms use the latest technologies to do their work efficiently, perfect for outstation clients. They also help investors to locate properties outside their geographical boundaries.

The US single-family rental sector constitutes more than 16 million properties, with 13 million additional properties expected by 2030, according to a report on Marketwatch. They can empower small investors to diversify and get greater yields (through increased rents) than other forms of investment.

However, investment decisions should always be made after careful consideration. The real-estate market is cyclical in nature, which has its own risks for investors.