Why Rental Properties Remain a Strong Investment During Rising Interest Rates

When interest rates climb, many investors instinctively retreat from real estate, fearing higher borrowing costs and reduced affordability. However, rental properties continue to offer compelling advantages even in higher-rate environments. Understanding the underlying economic forces—and how to leverage them—can position savvy investors for success.

The Counterintuitive Strength of Rental Properties

Rising interest rates typically signal a strong economy with increased employment and wage growth. This economic strength translates directly into rental markets through several mechanisms:

1. Increased Rental Demand: Higher mortgage rates make homeownership less accessible, pushing more people toward renting. This increased demand often allows landlords to raise rents, improving cash flow.

2. Reduced Competition: Higher borrowing costs deter some would-be investors, reducing competition for properties and potentially creating buying opportunities.

3. Inflation Hedge: Real estate historically performs well during inflationary periods, as property values and rents tend to rise with inflation.

Practical Example: The Rate-Rise Advantage

Consider an investor who purchased a $400,000 property with 20% down when rates were at 3%. Their monthly mortgage payment would be approximately $1,350. If rates rise to 6%, that same property might see reduced competition from buyers, potentially allowing purchase at $380,000. While the monthly payment increases to about $1,820, the investor can command higher rent due to increased demand from those priced out of buying.

Over five years, the investor benefits from:

• Appreciation as housing supply remains constrained
• Increasing rental income that outpaces inflation
• Tax advantages including depreciation deductions

The DePIN Network Connection: Modernizing Rental Properties

Decentralized Physical Infrastructure Networks (DePINs) like Helium, Hivemapper, and DIMO are creating new revenue streams for property owners. These networks allow property owners to monetize their physical assets by hosting network infrastructure.

Helium: Property owners can earn HNT tokens by hosting wireless hotspots that provide IoT connectivity

Hivemapper: Landlords can install dashcams to collect mapping data, earning HONEY tokens

DIMO: Property owners with charging stations or vehicles can earn DIMO tokens by sharing vehicle data

Critical Tax Implications for DePIN Earnings

Many property owners overlook the tax consequences of DePIN participation. The IRS treats cryptocurrency earnings from these networks as ordinary income at the time of receipt, based on the fair market value of tokens when earned.

Example: A landlord earns 100 HNT tokens from a Helium hotspot installed on their rental property. If HNT is valued at $5 per token when received, they must report $500 of ordinary income. If they later sell those tokens for $10 each, they would report an additional $500 capital gain.

Key considerations:

• DePIN earnings are taxable even if tokens aren't immediately sold
• Property-related expenses (electricity, internet, equipment) may be deductible
• Different tax treatment applies to tokens held long-term versus short-term
• State tax obligations vary significantly

Strategic Implementation for Maximum Benefit

1. Focus on Cash Flow: In higher-rate environments, prioritize properties with strong current cash flow rather than speculative appreciation plays.

2. Leverage DePIN Strategically: Consider DePIN participation as a supplemental income stream, but factor in equipment costs, maintenance, and tax implications.

3. Maintain Tax Records: Meticulously document all DePIN earnings, including dates received, fair market values, and related expenses.

4. Consult Professionals: Work with tax advisors familiar with both real estate and cryptocurrency taxation to optimize your strategy.

Conclusion: Adapting to the New Investment Landscape

Rising interest rates don't spell the end of real estate investing—they simply change the rules of the game. By understanding how economic forces affect rental markets and incorporating modern revenue streams like DePIN networks, investors can build resilient portfolios that thrive across economic cycles. The key lies in strategic adaptation, thorough tax planning, and recognizing that every market condition creates both challenges and opportunities for prepared investors.

Disclaimer: This article provides general information only and does not constitute financial or tax advice. Consult with qualified professionals regarding your specific situation.