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June 17, 2020

COVID-19 could push rental property investment toward single-family homes

Real Estate Rentals

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Single Family Home 2 story foyer Curtis Adams/

The long-term ramifications of the COVID-19 crisis on real estate investment will remain murky for the foreseeable future. As our behavior adjusts under shifting circumstances, many of the steps we take may be tentative.

One area that has generated a mix of concern and excitement is the rental investment market, which could see competing influences shape its course over the next year.

From the standpoint of 2020, some experts forecast that rental properties will be unprofitable over the course of the year, at a minimum. Millions of Americans are out of work, meaning new leases and monthly rental payments will remain a worry moving forward.

The best action owners of rental properties can take is to assess how they can minimize tax losses. It’s a complex subject, but recently tackled the essential tax questions that could help property owners salvage a lost year.

In the bigger picture, there are growing questions about how COVID-19 will change appetites for rental property investment.

With interest rates still historically low, the incentive to buy and rent remains strong despite the public health crisis. An attentive buyer will realize, however, that competition is somewhat dampened by the climate of risk and uncertainty.

Real Wealth Network examined some of the important factors that will determine whether the current crisis represents a good opportunity for investors:

"Sometimes, investing in a recession can actually be the best time to buy real estate because it’s less volatile than the stock market. Plus, there isn’t as much competition from other buyers. The smartest real estate investing strategy during these times is finding properties that (offer) cash flow today but also have a great chance for appreciation over the long term." --Kathy Fettke for Real Wealth Network

Buyers are advised to seek out historically strong markets and avoid those that have clearly dipped. Some parts of Oklahoma, Pennsylvania and Texas, for example, have suffered as their oil-based economy takes a significant hit. These are places to potentially avoid.

Looking at where growing job sectors are headed and where furloughed workers are most likely to return to work is another good way to gauge whether a market is a good investment. Places such as Orlando, where Disney workers have been furloughed, remain promising areas to invest.

But when it comes to choosing a property, there may be a strong preference emerging for single-family homes, Mansion Global reported. While they are already in high demand, they could see interest accelerate in the suburbs.

"In the wake of the pandemic, urban-dwelling millennials are expected to start looking for more square footage in the suburbs but are more likely to rent than to buy, presenting opportunities for investors to earn rental income." --Alanna Schuback for Mansion Global

These properties provide space, independence and flexibility for both investors. For renters, they offer greater freedom from the confinement and rules of multi-family properties.

Housing preferences are almost certain to change as the U.S. recovers from the depths of the COVID-19 crisis. While some of these shifts may be subtle, watching closely for them will help real estate investors make informed decisions.