Owning residential real estate and collecting rent from tenants is a great way to earn consistent income. However, not everyone has the startup capital for this type of investing. On the other hand, residential real estate stocks can enable just about anyone with a brokerage account to participate.
When looking for good residential real estate stocks to invest in, check for a reasonable valuation, a generous dividend yield and solid company fundamentals.
Four names that meet these criteria are:
- Equity Residential (NYSE:EQR)
- AvalonBay Communities (NYSE:AVB)
- Essex Property Trust (NYSE:ESS)
- Mid-America Apartment Communities (NYSE:MAA)
Even if you’re not directly collecting rent from tenants, these real estate stocks can still provide you with a consistent source of income.
Real Estate Stocks: Equity Residential (EQR)
If you’re in a major U.S. city, there’s a pretty good chance that there’s an apartment complex nearby that’s owned by Equity Residential. This S&P 500 company invests in and manages 306 properties comprising an astonishing 79,065 apartment units.
In terms of valuation, a trailing 12-month price-earnings ratio of 19.3 is quite attractive. At the same time, a forward annual dividend yield of 4% presents a prime opportunity for regular income.
Even during a time when the economy is devastated by the novel coronavirus, Equity Residential remains resilient. President and CEO Mark Parrell reported, “In April, we collected in our residential business about 97% of the cash that we would usually collect.”
Given the circumstances, that’s outstanding. Therefore, EQR stock is the type of investment that you can count on even during the toughest of times.
AvalonBay Communities (AVB)
If you’d like to profit from multi-family communities, take a close look at AvalonBay Communities. Throughout 11 states and the District of Columbia, the company has ownership interests in 296 apartment communities which include 86,596 apartment homes.
AVB stock offers a forward annual dividend yield of 4%, which is in line with the company’s peers. The stock’s trailing 12-month price-earnings ratio comes to 28.4, signaling a strong value proposition.
In the established-communities segment, AvalonBay Communities reported a 3% quarterly increase in total revenue during the month ending on March 31. That’s not too shabby since many businesses struggled to turn a profit during this time.
Perhaps it’s time for you to consider AVB stock as your entry point into the lucrative world of multi-family communities.
Essex Property Trust (ESS)
What’s different about Essex Property Trust is that the company’s residential properties are located along America’s West Coast. Thus, if you wish to stake a claim in Californian real estate, ESS stock may offer such an opportunity.
ESS stock’s trailing 12-month price-earnings ratio is 25.2, which is relatively low. The stock’s forward annual dividend yield of 3.3% is slightly less than its peers on this list. But, it’s still solid.
Surprisingly, Essex Property Trust managed to achieve 3.2% year-over-year revenue growth during the first quarter. Clearly, this is a sturdy company if it can withstand the coronavirus crisis and continue to provide value for its shareholders.
Mid-America Apartment Communities (MAA)
If bigger is better, then Mid-America Apartment Communities might be the best real estate company on this list. At the beginning of the year, the company owned or had ownership interest in a 301 communities and an astonishing 101,954 homes.
As for MAA stock, it provides a forward annual dividend yield of 3.4%. That’s not too different from others in this sector. The trailing 12-month price-earnings ratio of 41.1 might be a bit high, but sometimes good companies cost more.
Speaking of good things costing more, Mid-America Apartment Communities’ focus is primarily on luxury apartments. Perhaps being upscale helped during the spread of the coronavirus, as the company’s effective rents increased by 4.2% during the first quarter.
And as long as the tenants are making their rent payments in these upscale properties, MAA stock should yield outsized returns to the company’s investors.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.