Residential REITs: Should You Invest In Them In 2024?

by Anthony Zhang

Keen to expand your real estate investment portfolio without coughing up large sums on commercial property?

The easiest way to diversify your real estate assets without breaking the bank is through real estate investment trusts (REITs.) And one of the best real estate investment trusts to focus on is residential REITs.

This article will explore the best residential REITs for investment, why you should invest in them, and other high-performing REIT categories.

We’ll also reveal why an alternate investment like wine is a fantastic option and how you can invest in it.

What are Residential REITs?

Before we explore the best residential REITs, let’s quickly explore the key REIT and residential REIT characteristics.

A real estate investment trust owns, operates, and finances real estate properties that produce rental income.

A residential REIT focuses on single-family homes, student housing, senior housing, apartment buildings, and manufactured homes.

Investing in REIT shares is a more affordable option for many people compared to funding an entire property. When you invest in a REIT, you earn annual or quarterly dividends.

So, how do you buy residential real estate investment trust stocks?

You can do this through a mutual fund or Exchange Traded Fund (stocks and bonds sold on the stock exchange.)

Ultimately, everyone needs a home, so this REIT will always be a lucrative asset class even during a recession.

The 10 Best Residential REITs To Invest In Now

Ready to diversify from your stock market investments and explore the best residential REIT options out there?

Here are 10 residential real estate investment trusts to invest in today:

Camden Property Trust
Equity Residential
Armour Residential REIT Inc.
Essex Property Trust
AvalonBay Communities
NexPoint Residential Trust, Inc.
UMH Properties Inc
Mid America Apartment Communities
Invitation Homes
American Campus Communities

1. Camden Property Trust

The Camden Property Trust invests in multifamily apartments in the United States.

Earlier this year, the group reported a whopping 97.5% occupancy rate, which is expected to grow. Camden Property Trust focuses on creating communities, so its properties have mixed-use, office, and retail spaces for people to enjoy.

Vital indicators:

Dividend Yield: 2.84%
P/E Ratio: 39.94
Revenue: 318.99M

2. Equity Residential

Equity Residential focuses on acquiring, developing, and managing high-end residential property in primary markets like Washington DC, New York, Boston, and Los Angeles.

The company is listed on the New York Stock Exchange and is one of the nation's largest apartment REITs. It has invested in about 305 properties made up of 78,568 apartments.

Vital indicators:

Dividend Yield: 3.51%
P/E Ratio: 19.95
Revenue: 653.35M

3. Armour Residential REIT Inc.

Armour Residential REIT Inc invests in residential mortgage backed securities.

Residential mortgage backed securities are a type of bond secured against extensive collections of mortgage loans. Banks sell these loans to investors.

This REIT pays a dividend of $0.10 per share each month and has never missed a monthly payout since January 2011.

Vital indicators:

Dividend Yield: 17.07%
P/E Ratio: N/A
Revenue: -57.21M

4. Essex Property Trust

Essex Property Trust, listed on the New York Stock Exchange, acquires and manages multifamily residential properties in prime West Coast areas like Los Angeles, San Francisco Bay, and Santa Barbara.

For about 30 years, this REIT has consistently increased shareholder payout.

This is primarily due to the high demand in its properties' geographical locations. Young, ambitious individuals with money head to these destinations looking to rent one-bedroom and studio apartments.

Essex Property Trust also offers flexible leasing terms allowing people to move in when they want and stay as long as they like.

Vital indicators:

Dividend Yield: 3.33%
P/E Ratio: 43.76
Revenue: 403.08M

5. AvalonBay Communities

AvalonBay Communities is a large REIT with a good track record of acquiring, redeveloping, and managing multifamily apartment homes in primary US markets. It’s a lucrative investment option due to its consistent dividend return and excellent portfolio.

Over the past 3-5 years, this REIT has produced a 2.8% cash flow growth. This year, it is expected that the company will report an increase of 14.9%.

Vital indicators:

Dividend Yield: 3.32%
P/E Ratio: 23.85
Revenue: 614.24M

6. NexPoint Residential Trust, Inc.

NexPoint Residential Trust owns and operates over 14,500 multifamily properties in the southeastern areas of the US. The company offers value additions like lifestyle amenities and upgraded living spaces for lower to middle-income families.

This apartment REIT has increased its dividend steadily over the past 5 years with an average growth of 11.66%, making it a reliable investment opportunity.

Vital indicators:

Dividend Yield: 2.57%
P/E Ratio: 68.18
Revenue: 60.79M

7. UMH Properties Inc

UMH Properties is a REIT focusing on manufactured housing communities, leasing and selling single-story homes. A manufactured house is created in components in a factory and assembled on a pad.

UMH is the nation’s largest company in the manufactured homes industry, owning about 8,700 individual homes. At the end of 2021, UMH added 622 more rental units. And, going forward, this REIT expects to acquire about 900 more units yearly.

Vital indicators:

Dividend Yield: 4.27%
P/E Ratio: 88.83
Revenue: 45.75M

8. Mid America Apartment Communities

Mid America Apartment Communities owns, manages, and develops apartment building units in the Sun Belt (southwest and southeast cities) and mid-Atlantic regions of the US. It services the middle-income tier in urban and suburban areas.

Since the pandemic, more people now work from home, allowing them the freedom to choose where they live. So, many are moving to warmer climates like the Sun Belt, helping this residential REIT to thrive.

In 3 years, it renovated 21,000 apartment units and increased rental rates by 9-10%.

Vital indicators:

Dividend Yield: 2.95%
P/E Ratio: 32.96
Revenue: 476.08M

9. Invitation Homes

Invitation Homes is a residential real estate investment trust focusing on high-end, single-family homes, offering value-added features. It has 80,000 homes under its purview.

Unlike other commercial real estate leases, which go up to about 15 years, Invitation Homes real estate investment trust only has annual leases. This allows the company to increase rents to reflect inflation and rising costs every year.

Vital indicators:

Dividend Yield: 2.52%
P/E Ratio: 69.63
Revenue: 529.99M

10. American Campus Communities

American Campus Communities is the US’ biggest owner of student housing communities. It’s a self-administered and self-managed equity REIT with expertise in different student housing aspects like finance, designs, and operational and construction management.

This REIT will soon be owned by New York investment company Blackstone for a value of about $13 billion, and the per-share price is valued at $65.47. This is a timely acquisition for Blackstone as the National Multifamily Housing Council expects the demand for student housing to increase to 9.2 million beds by 2031.

Vital indicators:

Dividend Yield: 2.9%
P/E Ratio: 164.02
Revenue: 273.75M

If you’re looking to expand your portfolio beyond residential REITs, there are other excellent real estate investment trusts to consider.

Other REITs To Consider For Investment

While residential and apartment REITs make a good addition to any investment portfolio, healthcare, mortgage, and equity are a few other excellent REITs to consider for investment.

Let’s explore why these asset classes make good options:

1. Healthcare REITs

A healthcare REIT (like Medical Properties Trust) acquires real estate properties used as medical facilities (hospitals and nursing centers.)

This is a good REIT category for investors as people will always need access to healthcare and doctors. Plus, the growing aging population in the US and rising medical costs will ensure this sector will always be a lucrative investment option.

2. Mortgage REITs

Mortgage REITs offer financing for income-producing real estate properties by investing in mortgages and mortgage backed securities. They earn income from the interest of these investments.

3. Equity REITs

An equity REIT purchases and owns a commercial property and earns a fixed income from tenants. Equity REITs buy properties that include hotels, office buildings, apartments, shopping centers, and more. This REIT category usually has high dividend yields as they have to pay 90% of their taxable income to shareholders.

Should You Invest in Residential REITs?

Here are the pros and ocns of investing in residential REITs:

1. Advantages

Generally, residential REITs are a dependable option for investors. Here’s why:

Residential REITs are usually recession proof:A recession is approaching, and this REIT type performs well even during economic turmoil — people will always need a place to live.
Fewer individuals can afford to buy a house: Home prices and down payments have increased, and it’s tougher to acquire a loan. As a result, few people can afford to buy real estate. Instead, they opt to rent for long periods until they can afford their own residential property.
Demand for residential REITs is increasing: More and more households need rental options as individuals opt to live independently. That’s where a real estate investment trust comes in to provide various housing options.

2. Disadvantages

While residential REITs are a stable investment type, there are a few risks investors should be aware of:

Watch out for oversupply: When there’s a high demand for a real estate rental property, a residential REIT can be tempted to go all out and over-deliver. If an apartment building drops from 95% to 75% occupancy, it can be a result of too many competing apartment units.
Rising interest rates can lead to problems: When interest rates are low, a residential REIT can easily manage debt, continue to make upgrades and renovations, and ultimately increase rent.

But, when the Federal Reserve raises interest rates, debt becomes more costly, and the REIT may not be able to leverage upgrades. When this happens, rental property rates fall, affecting the annual or quarterly dividend return for investors.

A residential REIT and other REIT types are good investment options. But, it’s not the only one investors should consider.

Let’s explore an inflation-proof and recession-resistent investment asset class.

Why Wine Is A Great Alternate Investment Vehicle & How To Invest In It

Investing in fine wine is a fantastic alternate investment option.

Here’s why investors should consider putting their money into this delicious beverage:

Recession-proof: Fine wine investment is recession-resistant, unlike the stock market — e.g. During the Great Recession, stock prices dropped 52%. But, prices of fine wine exploded, earning a 25.51% ROI.
High return on investment: Investing in wine can provide an excellent return on investment — fine wine has experienced a compound annual growth rate of about 11% since 1988.
Portfolio diversification: Investing in wine is a good way to diversify your investment portfolio and mitigate risk.

In the past, investing in fine wine was only accessible if you were from an affluent background.

Today, thanks to wine investment platforms like Vinovest, anyone with access to the internet can easily buy, store, and sell fine wine bottles.

What’s more?

You don’t have to be a wine expert to start your wine investment journey with Vinovest.

How does it work?

You can sign up on the Vinovest website with your personal information. Once you do, a team of sommeliers and wine experts will curate a portfolio of wines to fit your investment goals.

Vinovest will take care of all aspects of procuring your wine including:

Best Prices: Your wines will be sourced from the most prestigious wineries, winemakers, and trusted wine merchants at below-retail prices.
Provenance: Worried about the authenticity of your fine wine? Vinovest will do its due diligence to verify the bottles’ origin.
Storage: Wine bottles are stored in bonded warehouses under 24/7 surveillance and optimal storage conditions.
Delivery: If you wish, Vinovest will deliver your wine right to your doorstep and will even send wines to buyers anywhere in the world.
Sell: Fine wine usually reaches its peak value after 5-20 years. Rest assured, our advisors will give you guidance on the best liquidity options and time periods to sell your wine and get maximum profits, no matter the market conditions. When you’re ready to sell, the team will research and identify the best buyer, so you make a tidy profit.
Low costs: Vinovest has lower fees compared to other wine investment companies. We charge a 2.5% annual fee (1.9% for a $50,000+ portfolio) which covers insurance, storage, fraud detection, wine purchases, selling, and portfolio management.

Ready To Begin Your Investment Journey?

When you invest in residential REITs (or any type of REITs, really), you don’t have to worry about loans, debt, building maintenance, or tenants.

You just need to buy shares at a suitable real estate investment trust and collect quarterly or annual dividends. It’s a great hassle-free way to achieve your real estate investment goals.

Meanwhile, check out fine wine investing if you’re keen on expanding your portfolio with other exciting investment vehicles. Investors can't go wrong with a platform like Vinovest doing all the work!