4 favorite apartment REITs
Trouble in the housing sector has led to a boom in rentals, benefiting some investment trusts.
The housing market may still be down for the count, but if there's one pocket of absolute strength, it has to be apartment-based real-estate investment trusts.
In the wake of the housing bubble, the rate of home ownership has taken the biggest tumble in 70 years. The end result has been a bona fide boom in apartment rentals.
Apartment vacancy rates have been steadily declining since hitting a peak of 8% in 2009. These days, vacancy rates have dropped all the way back to 5.6%, the lowest level since 2006. And that sudden decline has given landlords all the leeway they need to hike up the rent.
According to Reis, a commercial real estate outfit, effective rents have since increased in 75 of 82 markets, with rents climbing to an average of $991 a month from $967 a year earlier. And apartment owners can expect a continued flux of tenants to create even higher returns.
So how can individual investors take advantage of this bullish trend? The easiest way is through REITs that specialize in apartments -- or with mutual funds that own mostly apartment REITs.
Founded in 1978, AvalonBay Communities (AVB) is the second largest publicly-traded U.S. apartment owner with over 45,000 apartments in 10 states. The company pays a 2.70% dividend.
San Francisco-based BRE Properties (BRE) owns 75 properties in the West comprising 21,318 units. The company pays a 3.00% dividend.
With properties in the Mid-Atlantic, Home Properties (HME) has over 38,000 properties and pays a 4.20% dividend.
Equity Residential (EQR) owns or has investments in more than 450 properties in 17 states and the District of Columbia. EQR pays a 2.30% dividend.
All of these companies have consistently outperformed the S&P 500 over the course of the last two years.
And the best part for investors is that they can win both ways in this sector: first with price appreciation; second with a nice dividend. That's a winning combination.
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