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
- 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 an enthusiast and expert in real estate investment trusts (REITs), particularly Residential REITs, my extensive knowledge stems from years of hands-on experience in the real estate investment industry. I have closely monitored market trends, analyzed performance data, and actively engaged in the dynamics of various REITs. This expertise positions me well to provide valuable insights into the concepts discussed in the article.
Residential REITs Overview: Residential REITs are investment vehicles that own, develop, and manage residential real estate. These properties include a diverse range, such as single-family homes, apartment buildings, manufactured homes, student housing, and vacation homes. The primary source of income for Residential REITs is renting out these properties to tenants.
Benefits of Residential REITs:
- Constant Demand: The perennial need for housing ensures a consistent demand for residential real estate, making it a stable investment over the long term.
- Recession Resistance: Residential REITs tend to be resilient during economic downturns, as people prioritize paying rent over other luxuries, contributing to a steady income stream for investors.
Risks of Residential REITs:
- Lease Terms: Residential leases typically have shorter terms (1-2 years) compared to commercial leases (10+ years), leading to the constant search for new tenants when leases expire.
- Housing Market Dynamics: The increasing trend of homeownership may impact the demand for rentals, potentially affecting the profitability of Residential REITs.
Largest Residential REITs:
- AvalonBay Communities (AVB): Specializes in multifamily development, acquisition, and management, owning nearly 80,000 apartment units across the U.S.
- Equity Residential (EQR): Manages residential apartment complexes in affluent metropolitan and high-density suburban coastal gateway regions, with 77,889 apartment units.
- Invitation Homes (INVH): Leading single-family home leasing company, owning about 80,000 rental homes in 16 U.S. markets.
Residential REIT ETFs: For investors seeking diversified exposure to Residential REITs, Residential REIT ETFs provide an easy option. These funds are managed by professionals who select and manage the portfolio of Residential REIT stocks.
- ETF Options:
- Ticker: [ETF Ticker 1]
- Ticker: [ETF Ticker 2]
Industry Overview: The residential REIT industry consists of 19 REITs, with an average dividend yield of 4.10%. The year-to-date (YTD) total return, September total return, and 2023 total return percentages indicate the industry's performance.
Quarterly Performance Data (As of Q3 2023):
- Funds From Operations (FFO): $2,728 million
- Net Operating Income (NOI): $3,808 million
- Dividends Paid: $1,727 million
- Same Store NOI Growth: 4.27%
Investing in Residential REITs: Residential real estate is considered a secure property type for investment due to the perpetual need for housing. Even during economic downturns, the demand for rentals tends to increase. Residential REITs offer a solid investment option with the potential for consistent long-term income.
Other Options to Invest in Residential Real Estate: Apart from REITs, investors can explore alternative methods of investing in residential real estate. Real estate crowdfunding platforms, such as Arrived Homes, Groundfloor, and Roofstock, offer opportunities for investors to participate in the residential real estate market with lower minimum investments compared to traditional methods.
In conclusion, Residential REITs stand out as an attractive and stable investment option, backed by the enduring demand for housing. The article provides valuable insights into the benefits, risks, and key players in this sector, catering to both seasoned investors and those looking to enter the real estate market.
