At first glance, real estate investment trusts (REITs) seem like risky investment propositions. While the U.S.-China trade war has dominated headlines throughout the year, other geopolitical risks threaten to undermine our delicate economic recovery. Additionally, domestic turmoil via increased calls for President Trump’s impeachment has rattled the markets. Thus, discussing a list of REITs to buy seems like wasted effort.
And I’ll be the first one to admit that this investment class has substantial downside threats. For instance, a recession could quickly downgrade securities that are currently classified as REITs to buy. Moreover, a sizable slowdown in the economy could lead to a comprehensive downgrade. This includes commercial investments down to the residential variety.
At the same time, rental REITs to buy may offer a contrarian platform to park your money. First, the obvious: real estate is the king of all investments because you have to live somewhere. Therefore, even in a severe downturn, investments toward apartment rentals should enjoy sustained, consistent demand.
Second, even if recession signals ring loudly, no one knows when (or if) it will strike. Thus, a risk exists in being too bearish. Plus, no one knows the magnitude of the next downturn. But with rental REITs, you can still enjoy the consistent demand stream for which this sector is known.
Finally, the best REITs you can buy generally offer strong dividend yields. No matter what happens over the next several months, the passive income will either help mitigate your losses or give you solid returns in an otherwise sour environment.
With that, here are seven REITs to buy:
Mid-America Apartment Communities (MAA)
Dividend Yield: 2.9%
When you’re assessing rental REITs to buy, you should primarily concern yourself with one word: location. But Mid-America Apartment Communities (NYSE:MAA) has one more attribute that makes MAA stock intriguing: sheer size. With ownership of, or ownership interest in, nearly 102,000 homes across 17 states, you won’t lack coverage.
But it’s not just the sheer scope that benefits MAA stock. Many of the communities that Mid-America Apartment manages are located in some of the fastest-growing states. For instance, the company has several locations in Texas and Florida: both feature strongly rising population trends at 1.34% and 1.63% annual growth, respectively.
As you might expect, Mid-America is a popular commodity in the markets. Therefore, MAA stock has already returned 40% year-to-date: not exactly an undervalued play. But with a near-3% dividend yield, MAA is one of the REITs to buy on major dips.
Camden Property Trust (CPT)
Dividend Yield: 2.8%
Among the easiest rental REITs to buy from the perspective of its solid fundamentals, Camden Property Trust (NYSE:CPT) has many things in common with our first idea, Mid-America. As one of the largest multi-family community managers in the country, Camden owns and operates 159 communities. That translates to over 54,000 apartment homes across the U.S., making CPT stock a solid choice.
One of the key factors that separates CPT stock among other REITs to buy is their concentrated focus on key markets. For instance, many of their properties are in fast-growing states, such as aforementioned Texas and Florida. But if cowboy hats and alligators aren’t your cup of tea, Camden has properties in Colorado, Arizona and California. The former two are among the fastest-growing states, while the latter is one of the world’s biggest economies.
Similar to Mid-America shares, CPT stock has killed it this year, gaining over 28% YTD. This is a name I’d like to acquire on the dips, especially because of its 2.9% dividend yield.
Equity Residential (EQR)
Dividend Yield: 2.6%
Equity Residential (NYSE:EQR) is a name that comes up often in discussions regarding REITs to buy, and for good reason: the company focuses all its energy on high-dollar, high-density urban areas. We’re talking prime cities such as New York, Boston, Seattle, San Francisco, Los Angeles and the greatest of them all, San Diego. Logically, this augurs well for EQR stock.
Certainly, an argument exists that many of these markets are extremely overpriced and are headed for a correction. For instance, the median home price in San Francisco is $1.3 million. According to Business Insider, you’ll need to make at least $172,000 a year to even think about home ownership. That initially sounds like a minus for EQR stock.
On the flip side, San Francisco and the surrounding region is home to some of the greatest technology firms ever. Setting aside the gentrification argument, one could say that the economic machinery justifies the outrageous prices.
However, EQR stock is more than just these high-profile markets. The underlying company also owns properties in California’s Inland Empire, which features more affordable (relatively speaking) housing.
Essex Property Trust (ESS)
Dividend Yield: 2.4%
Like Equity Residential, Essex Property Trust (NYSE:ESS) focuses on high-dollar markets. The company targets the west coast, with properties in northern and southern California, as well as the Seattle metropolitan area. Essex also tilts toward luxury apartments, which is beneficial for ESS stock in a robust bull market.
But what happens in a bear market? That’s a fair question, and I concede that it’s also a difficult one. If we incur a severe recession, we could see a sharp correction. A few months ago, I sat down with real estate expert Marco Santarelli, president and founder of Norada Real Estate Investments. Santarelli warned that in areas like San Francisco, the rent-to-home-price ratio is out of whack with reality.
I don’t necessarily disagree. However, it’s also fair to point out that ESS stock isn’t entirely based on luxury apartments. For instance, in the San Diego market, Essex features a number of affordable options … at least affordable to us!
Considering the massive California economy, I think it’s worthwhile to keep ESS stock on your short list. Yes, our homes are crazily priced. However, we’re also home to some of the most highly demanded job sectors.
Independence Realty Trust (IRT)
Dividend Yield: 5%
Growing up in the Golden State, I’ll freely admit to my skewed version of reality: we have no seasons, the weather is almost always agreeable and seemingly everyone wants to come here. Therefore, when I consider REITs to buy, I find myself looking for exposure to the California coastline.
That said, plenty of viable options exist in the inner regions of America. During my conversation with Santarelli, the viability of these markets was my biggest takeaway. As such, those actively seeking REITs to buy should take a look at Independence Realty Trust (NYSE:IRT) and IRT stock.
Independence Realty focuses on what some call second-tier markets. Examples include Columbus, Louisville, Memphis and Raleigh. What makes IRT stock compelling in this context is that it’s really a contrarian play. Instead of chasing a New York or California market for what they are now, you’re banking on a market’s potential.
As an example, Columbus is one of the fastest-growing cities in the U.S. Because of the demand surge, Columbus is bigger than San Francisco. This surge in population requires housing, which drives the thesis for IRT stock.
American Campus Communities (ACC)
Dividend Yield: 3.9%
One of the most compelling REITs to buy, American Campus Communities (NYSE:ACC) almost seems like a slam dunk. Like the other investment opportunities mentioned on this list, American Campus owns rental communities. The key difference, though, is that the company specifically houses students. With everything associated with higher education rising in demand, ACC stock is well positioned.
Indeed, ACC stock has certain components that may be resistant to a recession. Unless we incur an apocalyptic crisis, education will remain a vital part of our society. Typically, college students get by on a mixture of loans and grants; thus, a recession wouldn’t necessarily crimp their style.
Furthermore, ACC stock is levered to a practical service. We all know that your average on-campus housing stinks. With American Campus Communities, students have a viable and affordable option. Finally, with a nearly 4% dividend yield, ACC will reward you for taking on the risk.
Bluerock Residential Growth REIT (BRG)
Dividend Yield: 5.5%
For those looking for strong passive income in their REITs to buy, Bluerock Residential Growth REIT (NYSEAMERICAN:BRG) is a solid choice. With a current dividend yield of 5.6%, BRG stock gives you exposure to the apartment rental sector, as well as providing a generous reward for taking on the risk.
Of course, higher yields often imply lesser stability in the target investment. However, BRG stock has the capacity to go against the grain. Bluerock specializes in high-quality rental buildings in hot second-tier markets. Their property portfolio ranges from high-demand areas such as Houston, Orlando, Las Vegas and Charlotte.
As regular folks consider moving out of high-priced markets such as southern California, they’re more likely to move to affordable second-tier regions with solid job prospects. Thus, I expect BRG stock to perform well over the long term.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.