Few people talk with their financial advisor about alternative investments like purchasing property, but real estate may be a good strategy this year. It’s one that more high net worth investors seem to be employing to cope with market volatility.
A December 2018 survey from Millennium Trust Co found an increase in preference for alternative investments, including real estate. Among those surveyed who held real estate, 73% favored single-family rentals.
Rental property investment is a great strategy for any investor, regardless of net worth. the market gyrations of 2018 and the outlook for real estate in the year ahead are compelling reasons to examine the benefits of owning a rental property.
The rental market is reactionary to the general direction of the stock market, meaning that daily swings in stock prices don’t effect real estate investors like equity investors. Real estate investments provide for more stability, and many markets can outperform the Dow and S&P 500.
Three reasons why now is the perfect time to consider a property investment, 1) The 2019 outlook is strong. 2) Housing is bolstered by low unemployment. 3) Renter profiles are shifting.
Demand is high and supply is still constrained, particularly for entry-level housing. Rent increases will outpace the overall commercial real estate market, landing in the 5 to 7% range. Rentals are positioned to outperform stocks in 2019, as the market reacts to a slowdown in economic growth and recession fears. Single-family rentals have not had a down year in occupancy or rental rates since the Great Recession. Two things are driving the rental market momentum: employment and interest rates. Generally speaking, a low unemployment environment translates into a stronger housing market. Right now we have both low unemployment and low interest rates. This dynamic has kept the housing market healthy. Additional rate hikes could give the single-family rental market an additional advantage.
While low interest rate and job growth are leaving a positive mark on housing, there is a larger dynamic to consider. Renting single-family homes has become a new norm, three specific renter profiles that are fueling the new normal in the housing market. First, is renters who cannot afford to buy because they lack a down payment. Second, those who don’t want to buy because they want flexibility. And the third group includes those who choose not to buy because they feel that real estate values will soften in the future.
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