Renter Nation: The Incredible Housing Story Nobody Is Talking About
Tuesday, January 22, 2013
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Renter Nation: The Incredible Housing Story Nobody Is Talking About

-- By Carla Pasternak

Right now, many investors have their eyes on the single family housing sector, but I've found a much better alternative... (Full Story Below)

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Renter Nation: The Incredible Housing Story Nobody Is Talking About

Most people thought it might never happen, much less happen in five short years.

The housing sector is back in America.

After going through its darkest hour, people are buying houses again and investors are making money from dividends and capital gains.

Last month in Dividend Opportunities, I discussed investing in KKR & Co. (NYSE: KKR), writing that it was a solid play for the single family housing recovery. Since first appearing on the pages of this newsletter, the stock is up about 16%.

Today I want to talk about a different way to play the housing recovery... REITs, or real estate investment trusts.

There are all kinds of REITs... from shopping centers to housing to apartment REITs.

With even the hardest-hit markets, like Phoenix and Orlando, recovering, you might think that apartment REITs would be going gangbusters. Surprisingly, that's not the case.

Last year, U.S. housing REITs returned 19.7%. In contrast, apartment REITs were only ahead 6.9%, according to the National Association of Real Estate Investment Trusts. In fact, the apartment REIT sector was the worst performing in the entire index in 2012.

So what gives?

For starters, some investors think that since single family homes are seeing an influx, fewer people are moving into apartments. That is causing investors to focus their attention on housing REITS.

But that's a mistake.

David Lee, who manages a $3.6 billion real estate fund for T. Rowe Price, said this about REITs: "People believe it's a zero sum game, that if for-sale housing is doing well, then rentals will not do as well."

In fact, Lee says it's a "win-win situation."

Andy McCulloch, head of Research at Green Street Advisors, which specializes in U.S. real estate trends, agrees: There's a "misconception that growing momentum in the single family market will hurt the rental market."

So how could it be that if the single family housing market is booming that the apartment rental sector is also doing well? The answer comes from different projections based on how many new households will be formed between now and 2016...

In that time, some 5.5 million new households will be formed. Of these, 3.8 million, or nearly 70%, will be renters, says Jeffrey Friedman, CEO of apartment REIT Associated Estates Realty (Nasdaq: AEC).

It's that astronomical number that has me calling America the "Renter Nation." And it's why I am considering apartment REITs today.

This is just the start of the good news for apartment REITs... Those 3.8 million renters are going to be fighting with each other for less and less space.

Let me explain...

The uptick in new households is going so fast that demand is outpacing supply by 2.5 million apartments, according to a March report from the National Association of Real Estate Investment Trusts.

This supply/demand dynamic could lead to increasing income for apartments.

That, plus the 2012 underperformance of apartment REITs, makes this an opportune time to enter the sector.

You would think with numbers like these the financial media would cover more apartment REITs, but they seem focused on people buying single family homes. However, you can use that to your advantage and jump in before other investors.

If you want to use REITs as an easy way to play the surge in demand, there are several options.

The larger REITs such as Equity Residential (NYSE: EQR), Avalon Bay (NYSE: AVB) and Camden Property Trust (NYSE: CPT) offer yields of around 3%. But I just recently profiled an apartment REIT in High-Yield Investing that yields about 7%. (Out of fairness to my subscribers, I won't give away the pick.)

Of course, with investing, nothing is guaranteed. A slowdown in the economy could slow the pace of new households and rents could remain flat.

With that said... thanks to strong occupancy rates, rising rents, increasing household formation, and a supply-demand gap, apartment REITs may be a good place to put some money right now.

Good Investing!

Carla Pasternak's Dividend Opportunities

P.S. -- Have you heard of "Retirement Saving Stocks"? Some pay quarterly. Others pay monthly. All offer you a safer, more stable and reliable source of high income even if the market goes down. If you're interested in learning more, plus getting the names and ticker symbols of several companies with yields up to 15%, click here.]

Disclosure:  StreetAuthority does not own shares of securities mentioned in this article. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any "real money" model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.

Income Notes

Wells Fargo & Co. (NYSE: WFC) boosted its dividend by nearly 14% on Tuesday. It will pay out $0.25 a share this quarter versus $0.22 a share in the previous quarter.

--  Research Staff

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