People are always looking for the best way to make money, at low risk and without much hard work. However, at times of crisis such as the current COVID-19 pandemic, financial security becomes even more important.
As the stock market took a downturn, many are looking elsewhere for the best investment strategy during a crisis. Once again, long term rentals emerge as one of the top ways to invest money. In this article we highlight the top 5 reasons why traditional rental properties are the ultimate investing strategy during a crisis.
Benefiting from Constant Rental Demand
One of the most important advantages of traditional rentals is that they provide housing, and people need a place to live at all times, regardless of the economic, social, and health situation. Many real estate investors started switching from long term to short term rentals in the past decade after the unprecedented success of Airbnb.com. Nevertheless, Airbnb data analyzed by Mashvisor, a US-based real estate data analytics company, shows that the demand for vacation rentals went down significantly as soon as the WHO declared a pandemic. Between March 2019 and March 2020, the occupancy rate of Airbnb rentals dropped by at least 20-30 percentage points in major markets such as New York City, Seattle, Dallas, San Francisco, Atlanta, Los Angeles, and others.
At the same time, demand for long term rentals remained stable. Very few tenants have been forced to leave their rental because of being unable to pay rent, and even fewer renters have left in search of more safety. In the majority of US markets, the local authorities adopted legislation which prevents landlords from evicting tenants in case they can’t make the rent payments during the pandemic. This means that renters are able to remain in place until the crisis starts subsiding, so investors are not left with empty properties to market during the pandemic.
Generating Ongoing Rental Income
As a result of the constant rental demand, traditional investment properties are able to provide monthly income on an ongoing basis. Currently many Airbnb hosts are losing a significant part of their income – or even all their rental income – as guests are not making new bookings. This is a major challenge for those who rely on their short term rental properties as a predominant source of revenue.
Meanwhile, landlords of long term rentals do not face a similar problem. Even at regular times, without a crisis, income from this strategy is much more reliable than income from short term rentals. With traditional rental properties, as soon as you find good tenants, you can make money month after month, sometimes for a few years in a row. There’s no need to constantly market your property, screen renters, let people in and out, and clean between guests.
Being Paid for by Tenants
Yet another important benefit of owning long term rentals which places them as a top investment strategy is the fact that your tenants pay for your property. You can buy a rental property with as little as 20% of the sale price down if you apply for a mortgage loan. Before buying a property, you should conduct careful investment property analysis to assure that the expected rental income will exceed the monthly mortgage payments in addition to all other recurring expenses. This is the only way to end up with a positive cash flow property, which is the goal of every investor.
What this means is that the income you receive from your renters will cover your mortgage and leave you with some profit each and every month. This is particularly important at times of crisis when many investors find their finances tighter than before.
If you are worried that you won’t be able to make the mortgage payments during the Coronavirus pandemic because of your tenants’ being legally exempted from paying rent, you should not worry. Similarly, the CARES Act offers two major mortgage relief options for investors: mortgage forbearance and foreclosure moratoriums. Under these provisions, homeowners can stop or reduce mortgage payments for a limited time, while financing institutions are prohibited from foreclosing on properties if borrowers are unable to make the mortgage payments. So, investors in traditional rentals should not worry about losing their properties during the developing economic crisis.
Requiring Little Maintenance
Tenants usually perceive of the rentals in which they live like a home. Consequently, they take good care of them and keep them in good condition. Wear and tear are almost insignificant with this rental strategy compared to short term rental properties.
This fact brings two main benefits to investors who go for traditional rental properties. First of all, little repairs translate directly into less work on behalf of the landlord. This makes long term rentals a relatively passive real estate investing strategy. This benefit is even more important during a pandemic when all parties want to minimize interactions and visits as much as possible. Second, less maintenance means lower recurring expenses, which pushes the return on investment for this strategy up.
Constituting a Passive Investing Strategy
All the advantages of long term rentals listed above lead to the same conclusion: namely, that traditional rental properties are a somewhat passive investment strategy. Part-time investors with another job will be happy to hear that these rentals can be easily turned into a source of passive income by hiring a professional property manager.
There is no need to worry that this will eat into the profit of investors as they have to pay monthly property management fees. On the contrary, the majority of landlords witness an increase in return once they hire a manager. A professional knows how to minimize costs and maximize income in order to optimize your rate of return.
Long term rentals are a superior investment strategy at all times, especially during a crisis like the current pandemic. They offer many benefits that are not available with other strategies. If you are looking for the best way to start making some extra money in 2020, think about buying an investment property to rent out traditionally.