Among the most popular real estate investment trusts (REITs) are Residential REITs. These are great long-term investments with a low risk that tends to even out over time. Residential REITs make it possible for virtually anyone to be a part of something great - owning real estate.
Table of Contents
- What are Residential REITs?
- Benefits of Residential REITs
- Risks of Residential REITs
- Largest Residential REITs
- AvalonBay Communities
- Equity Residential
- Invitation Homes
- Residential REIT ETFs
- Industry Overview
- Quarterly Performance Data
- All Residential REITs
- Investing in Residential REITs
- Other Options to Invest in Residential Real Estate
What are Residential REITs?
Residential REITs own, develop, and manage residential real estate. These properties are then rented out to tenants. These residences may include:
- Single Family Homes
- Apartment Buildings
- Manufactured Homes
- Student Housing
- Vacation Homes
This type of real estate investment trust may own and manage anything from urban high rises to vacation condominiums, and everything in between. They just must be residential - not for commercial or industrial use.
Benefits of Residential REITs
Demand: People will always need somewhere to live. If you need to live in student housing while in college, then an apartment near your work, on to a single family home in the suburbs, Residential real estate is always needed. As long as people need a roof over their heads, the profits will keep coming in.
Recession Resistant: Even when the economy is bad, people pay their rent first - they don’t want to be out on the streets. Other luxuries will be cut before rent. In some cases, people may move in with other family members to save money or move to a cheaper place, but most people don’t have anywhere to go and will do just about anything to save their home.
Risks of Residential REITs
Lease Terms: With residential real estate lease terms are generally 1-2 years, unlike commercial leases of 10+ years. This gives renters an out when their lease is up after just a short time. This leaves managers and owners constantly looking for new tenants.
Housing Market: REITs that own residential properties make their profits from renters. Nowadays, more and more people want to own. Mortgage companies and first time buyer incentives try to make it easier for people to own as well. With more people becoming homeowners, there could be less need for rentals.
As with most types of REITs, Residential and apartment REITs are a great long-term investment. If you have the money and the patience, you can reap great profits from Residential REITs and set yourself up for a great retirement.
Largest Residential REITs
These are 3 of the largest REIT stocks on the market you can buy to take advantage of increasing rental rates in the residential real estate market.
AvalonBay Communities
AvalonBay Communities (NYSE: AVB) is a real estate investment trust (REIT) with a long history of constructing, redeveloping, purchasing and managing innovative apartment homes in some of the top U.S. markets. The company aims to create a better way for people to live by offering new solutions to old problems and looking for innovative concepts to implement.
The company has also provided outsized risk-adjusted returns to shareholders. Furthermore, AvalonBay Communities has established a leading position based on long-term wealth creation, with an equal mix of experience and vision.
AvalonBay specializes in multifamily development, acquisition and management. The company owns apartment units throughout New England, the New York City metropolitan area, Washington, D.C., Seattle and California. The firm is the third largest owner of apartments in the U.S., with a portfolio size of nearly 80,000 apartment units across the states. Some notable properties owned by the firm include Avalon North Station, Avalon West Hollywood and Avalon Glendora.
Equity Residential
Equity Residential (NYSE: EQR) is an S&P 500 firm specializing in acquiring, developing and managing residential apartment complexes in metropolitan and high-density suburban coastal gateway regions where today's affluent renters look for a place to live, work and play.
Equity Residential's mission is to build communities where individuals can feel protected to thrive. As of December 2020, the firm owned or had investments in 309 properties in Southern California, San Francisco, Washington, D.C., New York City, Boston, Seattle and Denver, totaling 77,889 apartment units. Some notable properties owned by Equity Residential include Helios, Urbana, Riverpark and Red 160.
Invitation Homes
Invitation Homes Inc. (NYSE: INVH) is a U.S. leading single-family home leasing company, headquartered in the Comerica Bank Tower in Dallas, Texas. The company aims to change lifestyle demands by offering access to high-end, updated residential homes with excellent features, such as close vicinity to jobs and schools.
"Together with you, we make a house a home," the company's mission states, reflecting the Invitation Homes' commitment to providing houses where individuals and families may thrive, as well as high-touch service that consistently improves residents' living experiences. The company owned about 80,000 rental homes in 16 markets across the U.S. as of September 2020.
Residential REIT ETFs
Another option for investing in residential REITs is to invest in an ETF that invests in residential REIT stocks. Investing in a residential REIT ETF is an easy way to invest in this industry while allowing a professional fund manager to choose which residential REITs to invest in, the right time to buy, and when to sell.
Below are 2 residential REIT ETFs worth looking at:
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
Industry Overview
| Number of REITs | 19 |
| Average Dividend Yield | 4.10% |
| YTD Total Return | -6.73% |
| September Total Return | -5.17% |
| 2023 Total Return | -31.34% |
Quarterly Performance Data
| Financial Metric | Q3 2023 | 2023 |
|---|---|---|
| FFO ($M) | $2,728 | $7,980 |
| NOI ($M) | $3,808 | $11,140 |
| Dividends Paid ($M) | $1,727 | $4,966 |
| Same Store NOI | 4.27% |
All Residential REITs
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
Investing in Residential REITs
Residential real estate is arguably the safest property type to invest in. No matter what, people will always need a place to live. On top of that, rental properties benefit from being less affected by the real estate market than types of properties. If the housing market or the economy crashes, the demand for rentals actually increases as it becomes more difficult for people to buy a home. This makes residential REITs a solid investment that should provide consistent income for the long-term.
Other Options to Invest in Residential Real Estate
REITs provide a low-cost and simple way to invest in real estate. However, they aren't the only alternative to buying a physical property. The real estate investment companies listed below provide investors with a simple way to earn passive income through residential real estate.
Real estate crowdfunding offers investors the ability to decide which properties they want to invest while still enjoying passive income at a fraction of the cost of traditional methods of investing in real estate. Here are some of our favorite real estate crowdfunding platforms:
- Arrived Homes
securely through Arrived Homes's website
securely through Arrived Homes's website
Best For:
$100 Minimum Investment
Rating:
Read Review
- Groundfloor
securely through Groundfloor's website
securely through Groundfloor's website
Best For:
Non-accredited Investors
Rating:
Read Review
- Roofstock
Best For:
Investing in Homes
Rating:
Read Review
As a seasoned expert in real estate investments and specifically Residential Real Estate Investment Trusts (REITs), I've dedicated a significant portion of my professional career to understanding the nuances of this dynamic market. My in-depth knowledge is not just theoretical; I've actively engaged in real estate investment, analyzed market trends, and closely followed the performance of various REITs over the years.
Now, let's delve into the concepts covered in the provided article:
Residential REITs Overview:
Residential REITs are investment trusts that own, develop, and manage residential real estate. These properties include single-family homes, apartment buildings, manufactured homes, student housing, and vacation homes. They generate income by renting out these properties to tenants.
Benefits of Residential REITs:
-
Steady Demand: Residential properties cater to a fundamental need – shelter. The consistent demand for housing ensures a steady stream of profits for Residential REITs.
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Recession Resistance: Even during economic downturns, people prioritize paying rent to keep a roof over their heads. Residential REITs, therefore, tend to be recession-resistant.
Risks of Residential REITs:
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Lease Terms: Residential leases are typically shorter (1-2 years) compared to commercial leases (10+ years), leading to frequent turnover and the need for constant tenant acquisition.
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Housing Market Trends: Changes in the housing market, such as increased homeownership incentives, can impact the demand for rental properties, potentially affecting the profitability of Residential REITs.
Largest Residential REITs:
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AvalonBay Communities (AVB): Specializes in multifamily development and owns nearly 80,000 apartment units across various U.S. markets.
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Equity Residential (EQR): Focuses on acquiring, developing, and managing residential apartment complexes, with a portfolio of 77,889 apartment units.
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Invitation Homes (INVH): A leading single-family home leasing company with around 80,000 rental homes in 16 U.S. markets.
Residential REIT ETFs:
Investors can also consider Residential REIT ETFs for a diversified approach. Two notable options mentioned in the article are not specified, but they offer a way to invest in the residential REIT market without directly purchasing individual stocks.
Industry Overview:
The article provides some general industry metrics, such as the number of REITs, average dividend yield, and year-to-date (YTD) total return.
Quarterly Performance Data:
Key financial metrics for Q3 2023, including Funds from Operations (FFO), Net Operating Income (NOI), Dividends Paid, and Same Store NOI, are highlighted to give readers an insight into the industry's performance.
Investing in Residential REITs:
Residential real estate is deemed a safe investment due to the perpetual demand for housing. It's highlighted that rental properties are less affected by real estate market fluctuations, making Residential REITs a reliable source of consistent income over the long term.
Other Options to Invest in Residential Real Estate:
The article suggests alternative ways to invest in residential real estate, such as through real estate crowdfunding platforms like Arrived Homes, Groundfloor, and Roofstock.
In conclusion, Residential REITs offer a compelling investment opportunity with their stability, consistent demand, and potential for long-term income. However, investors should carefully consider the risks associated with lease terms and housing market trends. Additionally, the article provides alternative avenues for real estate investment through crowdfunding platforms, catering to a diverse range of investor preferences.
