Real estate investment trusts, commonly called REITs, can be an excellent choice for investors looking for a security that provides dependable current income and has the potential for capital appreciation. REITs are specialty companies that invest their assets in income-producing commercial real estate. They trade on all major exchanges just like stocks and ETFs. To avoid double corporate taxation, REITs distribute at least 90% of their after-tax income to shareholders as dividend income.
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Most REITs will specialize in one or just a few real estate classes. Simon Property Group Inc. (ticker: SPG), for instance, invests exclusively in retail, dining and entertainment properties. American Tower Corp. (AMT), as another example, owns and operates mobile phone towers. There are self-storage REITs, health care REITs, warehouse REITs and many other kinds of REITs representing all sectors of the commercial real estate industry.
Today, one of the most popular and productive classes of REITs is residential REITs. These companies invest in residential rather than commercial rental property. They will own things like townhomes, apartment buildings, multifamily high-rises and even single-family homes. They generate a high and reoccurring income by renting and managing the properties they control and the share price will reflect changes in the value of the underlying real estate.
Residential REITs are the investment of choice for savvy income investors for several timely reasons. Most prominent right now are the stability and consistency of residential rental income and the tremendous potential for growth in property values.
America is in the midst of a housing shortage. The shortage is most pronounced in low-income and market-rate housing. In simple terms, there is more demand in the market than there is supply. As long as this imbalance continues — which some experts predict will be years if not decades — residential real estate will be a sound investment.
Here are seven of the best residential REITs income investors should buy right now:
| REIT Stock | Trailing-12-month Dividend Yield |
| Invitation Homes Inc. (INVH) | 3.1% |
| Armour Residential REIT Inc. (ARR) | 22.9% |
| Equity Residential Properties Trust (EQR) | 4.3% |
| NexPoint Residential Trust Inc. (NXRT) | 5.9% |
| AvalonBay Communities Inc. (AVB) | 3.6% |
| Essex Property Trust Inc. (ESS) | 3.9% |
| UDR Inc. (UDR) | 4.2% |
Invitation Homes Inc. (INVH)
INVH is a $21 billion REIT with a unique approach to the residential real estate market. Whereas most residential REITs will buy multifamily buildings to take advantage of economies of scale, INVH buys, owns and rents out detached single-family homes in suburban neighborhoods.
The company’s strategy is proving very timely, and it seems to have great appeal to individuals and families who want the single-family home experience but have been priced out of the market due to exploding house prices and spiking mortgage rates.
The company selects houses in and around population centers to give renters access to employment opportunities and other amenities such as schools, restaurants and cultural venues. They upgrade every home they buy and will even do major rehab projects if necessary to provide their customers with a high-quality home.
Wall Street is estimating that INVH will generate more than $2.5 billion in revenue in fiscal 2024.
Trailing-12-month (TTM) dividend yield: 3.1%
Armour Residential REIT Inc. (ARR)
ARR is a high-yielding mortgage REIT (mREIT) that should perform well as the general level of interest rates fall.
ARR primarily invests in residential mortgage-backed securities (RMBS) that are sponsored by housing agencies of the U.S. government such as the Government National Mortgage Association (Ginny Mae) and the Federal National Mortgage Association (Fannie Mae). To a lesser extent, they also invest in residential mortgages and residential mortgage bonds that are not backed by a government-sponsored entity (GSE).
The income yield of this $920 million REIT has climbed along with mortgage rates over the last several years as interest rates rose in response to post-pandemic inflation. Unfortunately, the share price has not fared as well. Most rate watchers agree that the cycle of rising rates is over and rates are poised to fall over the next several months. Mortgage REITs should appreciate nicely as the rate cycle reverses.
Dividend yield: 22.9%
Equity Residential Properties Trust (EQR)
EQR is an S&P 500 residential REIT that caters to the affluent renter. The company owns or operates over 300 properties that represent over 80,000 individual rental units. They have a strong presence in and around trendy and expensive East Coast cities like Boston, New York and Washington, D.C., as well as many upscale locations in southern California.
With a market cap of over $23 billion, EQR is a relatively large and highly liquid residential REIT. They are proud of the fact that they build and run real communities rather than just rent out apartments.
Analysts on Wall Street are estimating that the company will generate $2.9 billion in revenue this year and are looking for that number to top $3 billion in 2025. RBC Capital has an “outperform” rating on shares of EQR, which they reiterated in a research note on Feb. 1.
Dividend yield: 4.3%
NexPoint Residential Trust Inc. (NXRT)
Shares of the $1.5 billion NexPoint trade on the New York Stock Exchange with an average daily volume of over 164,000 shares. The company serves the middle-class residential renter by owning and operating market-rent, multifamily apartment buildings in and around large cities in the southern U.S.
An interesting aspect of NXRT is that the REIT is externally advised. This means that, while administrative functions are executed in-house, real estate decisions are made by an outside advisor. That advisor is NexPoint Real Estate Advisors L.P., which itself is an affiliate of the registered investment advisor NexPoint Advisors L.P. The NexPoint family of financial advisory firms has extensive knowledge and experience in the real estate sector and boasts a strong track record of success.
The company’s No. 1 goal is to provide safe, clean and affordable housing to its residents, but almost as important is to generate superior income and a good return on investment for shareholders.
Dividend yield: 5.9%
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AvalonBay Communities Inc. (AVB)
AVB is well established and well respected in the residential real estate sector. This $25 billion, 46-year-old REIT has a long history of buying, building and rehabbing top-quality apartment homes in some of the best real estate markets in the U.S.
Residents and shareholders alike have benefited from the experience and expertise AVB provides. For the period ending March 13, the REIT had a one-year total return of 14.8%. That’s an extraordinary performance for an income vehicle operating in the recent rising interest rate environment we’ve just exited.
The 25 Wall Street analysts that follow AVB have an average revenue estimate of $2.8 billion for 2024. They are predicting $3 billion in revenue for 2025.
Dividend yield: 3.6%
Essex Property Trust Inc. (ESS)
ESS has an equity ownership stake in more than 250 apartment communities. They are currently collecting monthly rental payments on about 62,000 units. Virtually all the property they own is on the West Coast of the U.S. This, of course, accounts for the $1.7 billion in revenue this $15 billion REIT is expected to generate in fiscal 2024.
ESS develops its portfolio of rental properties by buying existing multifamily buildings as well as by building apartment houses from the ground up.
The investor relations page of the company’s website reports that ESS has delivered a 14.2% compounded annual return since its 1994 IPO. That’s excellent long-term performance, but perhaps their most impressive achievement is the fact that they — along with Federal Realty Investment Trust (FRT) and Realty Income Corp. (O) — are one of only three REITs on the Dividend Aristocrats list. ESS has increased its income dividend for 29 consecutive years.
Dividend yield: 3.9%
UDR Inc. (UDR)
UDR is a multifamily REIT with a market cap of about $12 billion. It’s an S&P 500 company that was founded in 1972 and can truly be counted as a top-tier residential REIT.
The company is very active in all aspects of the apartment market. They buy, develop, rehab, build and manage multifamily investments in many U.S. markets. Including properties they manage, UDR has an interest in over 60,000 rental units.
Wall Street is expecting $1.6 billion in revenue in 2024 and over $1.7 billion next year. UDR claims that its success over the last more than 50 years is due to its unwavering commitment to producing top-quality housing for its residents and excellent long-term value for shareholders.
Dividend yield: 4.2%
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7 of the Best Residential REITs to Buy Today originally appeared on usnews.com
