Source: Hotpads.comRental prices and demand are expected to continue rising as the economy strengthens. One reason is that many children of baby boomers are living with their parents as they look for work. As the economy strengthens and they find jobs, boomer children will provide a rising source of demand for rentals.
Prices will also rise as there has not been much new building in the past three years. It takes time to build new supply, and developers have not added much. Rising rents mean larger profits for apartment REITs. As such, the average apartment REIT has risen more than 40% in the past year, but there is still room to grow. Check out these five apartment REITs that are set to grow profits as rental prices continue to increase:
5-Year Growth Estimate
|BRE Properties (NYSE: BRE)||21,600||5.1%||3.5%|
|Camden Property Trust (NYSE: CPT)||64,700||7.7%||3.3%|
|Equity Residential (NYSE: EQR)||133,00||8.9%||2.7%|
|Post Properties (NYSE: PPS)||20,200||8.4%||2.2%|
|UDR (NYSE: UDR)||58,800||6.7%||3.3%|
Sources: Yahoo! Finance and Forbes.com
The average yield of this group is 3%. While that's not as high as mortgage REITs Annaly Capital Management (NYSE: NLY) and Chimera Investments (NYSE: CIM), you have less interest-rate risk with the apartment REITs, as rising interest rates don't hurt them as much and tightening credit spreads don't have an effect on the business. Also, apartment REITs have the potential for real capital appreciation as the value of the owned properties rise in the long run. In the meantime, these apartment REITs provide steady income that will likely rise as rents continue higher.
If housing prices continue falling and rents continue rising, at some point it will be cheaper to buy than rent. At that point, apartment REITs could selectively sell homes to take advantage of rising prices.
Disclosure I am Long NLY and CIM shares.