It’s no secret. A wave of young adults who are living at home with their parents is about to unlock pent up demand for rental housing. As many as 2.5 million additional 18-to-34 year olds will look for housing over the next few years.
This trend will drive the housing market higher and reward investors that are smart enough to get ahead of the trend.
How does one profit from a trend like this?
Simple. Real Estate Investment Trusts – REITs.
More specifically, I have found 3 REITs to profit from housing trends. These top REITs focus on multifamily and apartment housing and are well positioned to reward investors as this section of the housing market rises.
Top REIT #1: Associated Estates Realty Corporation (NYSE: AEC)
AEC is a housing REIT focused on apartment style housing. As of the end of 2013 the company owned 13,676 apartment units in 53 different apartment complexes.
Compared to other housing REITs its price-to-equity (PE) ratio of 21.6 makes the stock seem cheap.
Take, for example, shares of well-known housing REIT AvalonBay Communities (NYSE: AVB). The company trades at a PE of 102 with a yield of 3.34%.
AEC offers a much juicier 4.27% dividend and the company has regularly paid a dividend for 20 years.
The company has a geographically diverse mix of apartment complexes. They are spread across nine states and Washington DC and include the mid-west, Texas, southeast, and mid-Atlantic regions. This includes a strong presence in the Raleigh-Durham region of North Carolina.
With its focus on apartment housing and good geographic diversification, AEC is well positioned to capture its share of the market as 18-to-34 year olds leave home in search of apartments.
Top REIT #2: Camden Property Trust (NYSE: CPT)
Camden Property Trust is considerably bigger than AEC but pretty similar. With a market capitalization of $5.96 billion, Camden is almost six times the size of AEC. As such, it has attracted more attention from REIT investors than AEC has and trades at a more premium valuation. Its PE is around 38 and a dividend yield of only 3.79%.
Still, with more than 62,000 apartment units either directly or indirectly controlled by Camden, the company is a great way to profit from a rising residential housing market.
I’d love to see the shares of Camden a bit cheaper before jumping in but this is exactly the kind of stock I’d like to buy on a pullback. After raising its dividend each year for the past five years, I consider it to be the kind of company that can reward my DRIP portfolio handsomely.
Top REIT #3: Home Properties (NYSE: HME)
Home Properties, another apartment housing REIT, is also a serial dividend payer and raiser. The company offers the highest yield of the three stocks mentioned, with a 4.77% dividend. Still, I’d prefer to be buying shares of this company at a lower valuation than its current PE of 37.5.
The company owns and operates over 42,000 apartment units. It focuses on strong markets in the Washington DC, New York, Baltimore, Philadelphia, Boston, Chicago and Ft. Lauderdale regions.
Its strategy of buying rundown apartment complexes and rehabilitating them to increase value has made Home Properties a winner amongst housing REITs.
Top REITs: The Bottom Line
With the PE ratio of the S&P 500 hovering around 19.4, all three of the housing REITs listed above appear expensive. But with even a moderate pullback in shares opening up a buying opportunity, these three REITs will help you profit from the housing trends that will drive the apartment housing market higher.
Is this happening in your neighborhood?
It feels like robbery. Local governments are broke. But instead of cutting spending, they’re forcing homeowners to pay up – raising property taxes when most of us are feeling the pinch. There used to be nothing you can do about it – until now! There’s a a special Federal program that allows you to completely pay off your real estate taxes through exclusive rebates. And they are available to any American. In fact, you can collect a Real Estate Tax Rebate this month! And every 30 DAYS after that! Click here to find out how to enroll.