Apartment REITs – Making Money With REITs

| December 6, 2010 | 0 Comments

Every day the news carries sad stories of homeowners and their foreclosure woes.  More and more hardworking homeowners are either being thrown out by greedy bankers… or walking away from their biggest investment all together.

Any way you look at it, the housing market’s a mess.

And it’s creating a massive shift in homeownership demographics.  I found one group of companies making money hand over fist from the shift.  I’ll tell you more about them in a moment…

First, let me give you a little data.

According to the magazine Multifamily Executive, the number of owner occupied homes is dropping from an all time high of 67.3% set back in 2006.  Right now the number is teetering at 65.9%… and it’s poised to continue falling.

Now the change doesn’t seem that big, but don’t be fooled.  Let’s consider the bigger picture.  More and more people are shying away from owning their own home.  Back in 2003, almost 80% of those surveyed thought buying a house was a safe investment… you want to bet that number is much, much lower today?

We’re seeing early stages of job recovery and growth.  Yet many rental companies are noting rental activity is up… and rents actually climbing.

What we’re witnessing is a change in ownership psychology.

So many people have been burned by the real estate meltdown, they either can’t afford to buy a home… or don’t want to.  And it’s leading to a demographic shift.

Millions of Americans are looking at renting as a viable long term option. They don’t want to take on the responsibility or risks of owning a home.

More than 33% of Americans say they will rent their next home… and 60% of current renters are more likely to continue renting instead of buying.

These are sobering statistics and they point to a golden profit opportunity.

Many of these renters won’t be buying single family homes… they’ll be looking at renting apartments.

And apartment owners are already seeing the number of interested renters move up.  It means more competition for an apartment.  And competition means rent rates will go higher.  Higher rents mean more money for apartment owners.

But that’s not all they have going for them.

Right now we’re in one of the lowest interest rate environments in history.  Big investors with lots of property are locking in super low interest rates… for as long as they can!  Why not, it makes sense.

They can lock down one of their biggest expenses, their mortgage interest rate.

That means as they raise rents, their payments are fixed… and the profits get even bigger!  It’s like finding a $20 bill on the sidewalk.

Big apartment complex owners will be making money hand over fist in the next few years… if they’re not already!  Of course I took a few minutes to look at a handful of the top residential REITs trading in the market.

These are big funds that own major apartment complexes… and one that caught my eye is Associated Estates Realty (AEC).  The company has a market cap of just over $600 million.  They own 113 apartment complexes with just over 24,000 units.

And S&P recently upgraded the company’s credit rating.  They cited recent reports of improving cash flow and efforts to pay down debt.  Music to my ears!

The company’s occupancy rating was 96% last quarter and they’re currently paying a dividend of $0.17 per quarter.  A little quick math and with a $15 stock price, the yield is a robust 4.5%.  All signs point to greater profits ahead for the company.  So, if you’re looking for a way to profit from the change in homeowner’s psychology, give AEC a closer look.

 

Tags: , , ,

Category: Real Estate

About the Author ()

The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

Leave a Reply

Your email address will not be published.