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Top apartment REITs, residential REITs investment opportunities updated on 2023.

Apartment REITs has one of the highest average annual returns of all real estate investments. Learn all about the possibilities and details of apartment REITs.

last updated Tuesday, April 30, 2024
#apartment reits #best apartment reits



John Burson     Subscribe
Residential-REIT

CONTENTS

If you want to invest in residential property without the hassle of taking out a loan and other direct investment-related difficulties, apartment REITs can be a convenient, relatively safe, and low-cost option. Different apartment REIT investment options are available for private and public investors. This article will discuss these investment options along with essential details and tips to help you make an informed decision.

The most common Apartment REITs investment strategies.

Investment in apartment or residential REITs is typically focused on residential properties and mortgages tied to residential properties. Multifamily or apartments are part of residential properties, so these REITs are also known as multifamily REITs and apartment REITs.

When selecting the best apartment REIT stocks based on your investment criteria, you should carefully understand the type of strategy the REIT operates under. There are various investment strategies available; let's cover the most common ones:

  • Strategy Buy to Rent.
    Strategy overview: The apartment REIT buys apartments individually or in a whole multifamily building and then rents them to tenants. That strategy is the most common in multifamily REITs.
  • Strategy Mortgage Investment. Residential mortgage REITs.
    Strategy overview: The residential REIT invests in a mortgage paid by people who own apartments and other residential dwellings.
  • Strategy Financing of Development Projects.
    Buy a mortgage or a loan that originated to develop an unoccupied apartment or multifamily property.

Why are apartment REIT investments a good opportunity?

Investing in apartment real estate assets is an intelligent financial decision. They have a historical average annual return of 10.6%, more than one percentage point higher than commercial real estate. Additionally, residential apartment REITs have an even higher average yearly return of 11.8%, making them a lucrative investment option with a low capital commitment. By investing in residential apartment REITs, you can benefit from the potential for solid returns.

Investing in apartment REITs vs purchasing investment property directly

Direct Property Investing. Investment Overview.

  • Involvement: High
  • Diversification: Low
  • Experience required: High
  • The minimum investment required $100,000.00
  • Risk: High
  • Liquidity: Low

Investing in apartment real estate can be done in different ways, but the most straightforward method is to purchase property and manage it yourself or with friends, family, or colleagues. Social media influencers often promote this approach as a get-rich-quick scheme, suggesting leveraging bank loans to buy the property. However, unlike apartment REIT investments, direct purchasing requires a significant financial commitment and accepting full responsibility for potential risks.

One of the variations of this model is the BRRRR process, which consists of several main steps.

  • Buy.
    You can buy a property at a discounted price because of repairable problems like structural damage, poor landscaping, vacancies, or cosmetic issues. To finance the purchase, people often get a hard money loan.
  • Renovate.
    Once you purchase the property, renovate it by repairing or modernizing it.
  • Rent.
    After the renovation, you can rent the property to generate income.
  • Refinance.
    When ready, you can refinance the property by obtaining a longer-term mortgage. Note:  it is ideal to have a cash-out during refinancing. Cash can be used as a downpayment for the next project.
  • Repeat.
    Finally, you can repeat the process to expand your investment portfolio.

Risks:

Although this seems simple in practice, direct purchase real estate investing carries enormous risks, and we do not recommend it for the following reasons:

  • Competition.
    Buying, renovating, and managing properties requires extensive experience, which you may not have. Real estate is a competitive market, and there are people with much more experience than you are looking for the same opportunities. You must manage contractors, sign complicated paperwork, ask for loans, find tenants, etc.
  • Cost of time invested.
    Managing properties requires significant time commitment unless your partner is involved.
  • Low diversification.
    Investing all your capital in a single large project may not be a good idea as it does not diversify your investment. It means putting all your investment eggs in one basket and committing significant capital. You may encounter financial difficulties if the investment does not yield positive returns.
  • Leverage.
    Leverage is extremely risky. We cannot emphasize enough the risks of excessive leverage. Borrowing money can lead to loss of investment due to minor issues.
  • Risk of foreclosure.
    You may face foreclosure if you are counting on rental income to pay the mortgage and your property is temporarily vacant. The same can happen if rates increase so much that mortgage costs are higher than rental income.
  • Risk of refinancing.
    If you have to repay your hard money loan by a specific date, even if you haven't finished renovations or cannot secure a mortgage loan.
  • Risk of hard money loan.
    Hard money loans usually carry personal guarantees and recourse covenants, meaning the lender can also go after your other assets.

For these reasons, we do not recommend investing in real estate directly unless you have enough experience in direct real estate investing or you have partnered with an experienced investor.

Investing in apartment real estate private equity REITs

Private equity REITs investment profile:

  • Involvement: Low
  • Diversification: High
  • Experience required: Normal
  • The minimum investment required varies between $1,000.00 and $25,000.00.
  • Risk: Middle
  • Liquidity: Constrained

Benefits

There are several advantages to investing in real estate private equity funds compared with purchasing a property directly. For example, private funds:

  • Compliance.
    Private funds must register with the SEC (unless available to accredited investors only), providing enormous protection. The fund must report its results periodically, and its financial statements will be subject to audit.
  • Diversification.
    They usually manage hundreds of millions in assets. They offer significant diversification through the purchase of several properties in different geographies.
  • Recurrent dividend payments.
    They are generally organized as Real Estate Investment Trusts (REITs). REIT regulation requires distributing at least 90% of yearly income to shareholders. And they usually provide a recurrent dividend payment.
  • Experience.
    Have a track history from which managerial ability can be analyzed. Some funds have been in operation for decades. Fund managers are generally well-prepared professionals with significant real estate investing experience.

In the last few years, the federal government and the SEC allowed retail investors to access private equity real estate funds previously allowed only to accredited investors (an accredited investor has a net worth above $1,000,000.00 or a yearly gross income above $200,000.00).

After these regulatory changes, several platforms started offering retail investors private equity real estate funds. These platforms may or may not manage the funds themselves. Sometimes, they only filter the funds presented by fund managers/sponsors and offer them to the public.

Most private equity managers or platforms only offer funds for a limited time until each fund has reached its total funding. Therefore, the investment opportunities provided by each manager/platform change over time.

Risks

Private equity funds may leverage more than comparable public equity funds. They take on debt to increase their returns, but debt increases both returns and risks. When things go south, heavily leveraged funds will suffer more. For example, for a fund leveraged ten times (10x) the equity, a 10% negative return can lead to bankruptcy.

Also, private funds have redemption mechanisms that allow investors to recover their money if needed, but these may be restricted.

For example, in many funds, investors can only ask for redemptions once every quarter or once every year. These redemptions may be limited to $50 thousand per request, and the fund may decide not to redeem the investor's shares if liquidity conditions are not ideal.

Investment platforms feature private equity REITs

Fundrise

  • Minimum initial investment: $1,000.00
  • Commissions: 1% yearly
  • Leverage: Up to 85% of assets (5.6x)
  • Returns: 8.7% net total compounded.
  • Years in operation: 7 years

Fundrise is a platform that offers its own managed funds. This allows them to charge relatively low commissions for private equity funds generally. In addition, investment is pretty straightforward, all done through a website.

The platform allows users to choose between as many as ten funds, changing over time. When we checked their offerings, they had two apartment real estate funds: one more balanced income, the other more growth-oriented.

Their platform allows investors to watch every single project for each fund, and funds pay a monthly dividend. However, the only criticism of Fundrise is that their funds can take too much leverage (up to 85% debt financed), which increases risk severely.

Blackstone

  • Minimum initial investment: $2,500.00
  • Commissions: 3.5% on sales (upfront), 2.1% on servicing yearly, 12.5% on total returns
  • Leverage: Up to 60% of assets (1.5x)
  • Returns: 11% net and cumulative since its inception in 2017
  • Years in operation: 7 years

This gigantic asset manager offers its private REIT. As you can see, its fees are much higher than those of Fundrise, and its returns are also much higher, particularly compared with the leverage it uses. Blackstone Fund does not fully invest in residential properties because it allocates as much as 50% of its assets to different forms of commercial real estate.

One of the fund's most significant advantages is its size. For example, it owns 290,000 housing units alone. However, Blackstone REIT also has a liquidity problem. For this reason, withdrawals were limited in December 2022.

Bluerock Residential

Another currently mentioned name is Bluerock Residential, particularly Bluerock Residential Growth REIT. Since Blackstone Real Estate recently acquired Bluerock Residential Growth REIT, it won't be unusual to find a Blackstone/Bluerock Residential REIT listing shortly.

Today, Bluerock still manages private and public funds and REITs. For example, the Bluerock Total Income+ Real Estate Fund is a real estate fund of funds, meaning that it invests in other real estate funds like Blackstone or those managed by Ares, Bain Capital, and Brookfield. However, this fund is not a residential real estate fund because it invests in other real estate assets.

The company also manages a public REIT, the Bluerock Homes Trust (BHM), that invests in single-family rental homes. Single-family houses are not the same as multifamily or apartment properties, but they share several characteristics. As a result, we also include BHM's information in the list of best residential REITs below.

Paperfee can bridge the information gap in private fund REIT investments

Information scarcity is one of the primary disadvantages of private funds compared to public funds. The cause of this scarcity is the lack of analysis of information, not the lack of data availability. Plus, private funds are only available for a limited time. Consequently, it makes separating the wheat from the chaff difficult.

Fortunately, PaperFree solves this information problem with private fund REITs. We scout hundreds of private offerings from private fund managers and sponsors. Then, we evaluate them before presenting the best private fund REITs to you. On top of that, we provide you with the information you need to make your own informed decisions.

If you want more information, please feel free to reach out!

Investing in public apartment REITs

Public apartment REIT profile

  • Involvement: Low
  • Diversification: High
  • Experience required: Normal
  • The minimum investment required: no minimum required
  • Risk: Middle
  • Liquidity: High

Benefits

At least 20 public REITs operate in the residential real estate space. For most investors, public residential REITs have these attractive characteristics:

  • She regularly published financial information to the SEC, like private funds offered to non-accredited investors.
  • Like private REITs, they must regularly distribute 90% of distributable income.
  • They range in size from relatively small ($100 million market cap) to gigantic ($25 billion), leverage from low leverage (0.7x) to middle leverage (3x), and geographic diversification. Public REITs are the largest REITs
  • A lot of research on them is freely available on the web.

Risks

However, some caveats come with public residential REITS investments. Public REITs are subject to market downturns or turmoil like most real estate investments. Panic selling and a turbulent economy can depress these investments until they don't reflect their NAV per share.

Public apartment REIT Capital Arrangement

Public residential apartment REITS allow you to invest in small steps, such as adding a small amount to the investment every month. On the other hand, private funds REITs usually have investment windows and expect a one-time lump sum commitment, although some may also accept monthly investments.

List of the best apartment REITs on Nov 2023

REITs focus on investing in residential properties.

Below is a list of the best residential REITs to vest in residential properties, with some of their financial and operating data.
Returns calculated for February 2023.

Name Ticker Market Cap
($b)
Leverage Dividend Yield 1-year return 5-year return Share price P/E ratio*

AIMCo.

AIV 1.15 1.2 0 13.3 38.7 7.6 4.2

American Homes 4 Rent

AMH 12 0.7 2 -10 81 34.4 58

Apartment Income REIT

AIRC 5.8 1.8 3.5 -25 - 38 6.5

Armour Residential REIT Inc

ARR 1.1 0 21% -18 -55 5.8 71

AvalonBay Communities

AVB 25 0.7 3.5 -25 32 180 21

Bluerock Homes Trust

BHM 0.1 1.3 - - - 19.8 -

BSR

HOM.U 0.56 0.7 3.5 -13 - 15 1.7

Camden Property

CPT 13.3 0.7 3 -24 70 122 20.5

Centerspace

CSR 1 1.4 4.2 -21 57 70 -

Clipper

CLPR 0.11 60 5.5 -19 7.7 7 60

Ellington Residential Mortgage REIT

EARN 0.1 0 11.50% -10 30 8 33

Elme Communities

ELME 1.6 0.4 3.6 -15 -20 19 -

Equity Lifestyle Properties

ELS 13.5 2.4 2.3 -5.2 92 72.6 48

Equity Residential

EQR 25 0.7 3.9 -26 32 65 21.3

Essex Property Trust

ESS 15 1.1 3.8 -29 21 230 42

Independence Realty

IRT 4.3 0.7 2.8 -17 174 19 32

Invitation Homes

INVH 20 0.7 2 -20 68 33 57

Mid-America Apartment Communities

MAA 20 0.7 2.9 -17 120 172 31

Next Point Residential Trust

NXRT 1.3 3 3 -34 3 51 50

Sun Communities

SUI 20 0.8 2.2 -15 106 159 78

UDR

UDR 14 1.4 3.5 -21 45 43 87

UMH Properties

UMH 1 2.5 3.3 -19 82 18 -

*P/E ratio definition. The price-to-earnings ratio is a way to value a company by comparing the price of a stock to its earnings. 
P/E=(Share price)/(Earnings per share)
tags: list of residential REITs, best apartment REITs 2022(23)

Apartment REITs by market cap

Name Ticker Market Cap ($b)
AvalonBay Communities AVB 25
Equity Residential EQR 25
Sun Communities SUI 20
Mid-America Apartment Communities MAA 20
Invitation Homes INVH 20
Essex Property Trust ESS 15
UDR UDR 14
Equity Lifestyle Properties ELS 13.5
Camden Property CPT 13.3
American Homes 4 Rent AMH 12
Apartment Income REIT AIRC 5.8
Independence Realty IRT 4.3
Elme Communities ELME 1.6
Next Point Residential Trust NXRT 1.3
AIMCo. AIV 1.15
Armour Residential REIT Inc ARR 1.1
UMH Properties UMH 1
Centerspace CSR 1
BSR HOM.U 0.56
Clipper CLPR 0.11
Ellington Residential Mortgage REIT EARN 0.1
Bluerock Homes Trust BHM 0.1

The largest residential REITs of 2023

The following is a list of residential REITs with the largest residential property holdings.

Size Name Ticker
XXL AvalonBay Communities AVB
XXL Equity Residential EQR
XXL Invitation Homes INVH
XXL Mid-America Apartment Communities MAA
XXL Sun Communities SUI

Sun Communities, mobile home REIT

Sun Communities (SUI) owns, operates, and develops manufactured housing and recreational vehicle communities throughout the United States and Canada.

Sun Communities provides affordable housing options for retirees, working-class families, and other individuals seeking affordable housing alternatives. The company's portfolio includes over 500 properties with over 180,000 sites, making it one of North America's largest manufactured housing community owners and operators.

In addition to manufactured housing communities, Sun Communities also owns and operates other properties, such as RV resorts and marinas. The company generates revenue primarily from rental income.

Mid America Apartment Communities, the Southern REIT

Mid America Apartment Communities (MAA) owns and operates apartment communities in the Southeastern and Southwestern United States. The company's portfolio includes over 100,000 apartment units, making it one of the largest multifamily REITs in the United States.

The company generates revenue primarily from rental income and property management fees. Mid America Apartment Communities is focused on high-quality properties with strong economic fundamentals in urban and suburban markets. The company has a diversified portfolio of properties, including garden-style apartments, mid-rise and high-rise buildings, and mixed-use communities.

Invitation Homes, a high-quality single-family rental apartment REIT

Invitation Homes (INVH) focuses on owning and operating single-family homes for rent in the United States. The company's portfolio includes more than 80,000 homes in 16 markets nationwide.

Invitation Homes aims to provide high-quality rental homes to residents seeking alternative homeownership while offering flexibility and convenience. The company's portfolio includes homes of various sizes and configurations, from studios to four-bedroom houses, in suburban and urban locations.

AvalonBay Communities, the high-end metropolitan apartment REIT

AvalonBay Communities (AVB) develops, owns, and operates apartment communities in major metropolitan areas in the United States. The company's portfolio includes over 80,000 apartment homes in 11 states and the District of Columbia, making it one of the largest apartment REITs in the United States.

AvalonBay Communities is known for developing and managing high-quality apartment communities in desirable neighborhoods near employment centers, transportation hubs, and entertainment and retail districts. The company's portfolio includes a variety of property types, such as high-rise and mid-rise buildings, garden-style apartments, and mixed-use communities.

Equity Residential is an apartment community REIT on the East and West Coast.

Equity Residential (EQR) focuses on acquiring, developing, and managing multifamily residential properties in the United States urban and high-density suburban areas. The company's portfolio includes over 300 apartment communities comprising more than 77,000 apartment units.

Equity Residential's portfolio primarily focuses on high-density urban areas, particularly coastal markets such as Boston, New York, San Francisco, and Southern California. The company's apartment communities offer a variety of amenities, including fitness centers, business centers, and outdoor spaces.

The Best Real Estate ETFs by Barbara Friedberg /  March 2023

A few exchange-traded funds own shares of REITs. Investing in such ETFs is simple and passive to expose your portfolio in real estate. Barbara picked the best real estate ETFs.here

Name Type Ticker
Vanguard Real Estate ETF ETF VNQ
VanEck Mortgage REIT Income ETF ETF MORT
Goldman Sachs Future Real Estate and Infrastructure Equity ETF ETF GREI
Xtrackers International Real Estate ETF ETF HAUZ
Invesco Active U.S. Real Estate ETF ETF PSR
iShares Residential and Multisector Real Estate ETF ETF REZ
Vanguard Global ex-U.S. Real Estate ETF ETF VNQI


Paragraph source and Contributor: Forbes Advisor, Barabara Friedberg

ETFs by Barbara Friedberg

Apartment REIT ETFs for Vannila or Passive Real Estate Investing

Fewer ETFs have been exposed to a specific type of real estate - apartments. Below is a limited number of Multifamily REIT ETFs, with sizeable allocation in the residential sector.

REZ iShares Residential and Multisector Real Estate ETF.  

REZ index comprises U.S. residential, healthcare, and self-storage real estate equities.

Why invest in REZ? (from fund marketing materials)
Exposure to the U.S. residential real estate sector. Targeted access to a subset of domestic real estate stocks and real estate investment trusts, which invest in real estate directly and trade like stocks. Use it to diversify your portfolio and express a view on a specific U.S. real estate sector.

RESI Kelly Residential & Apartment Real Estate REIT ETF.

The Residential & Apartment Real Estate Index seeks total return by tracking a passively managed, concentrated portfolio of companies in the residential and apartment ("multifamily") management and operational services industries.

Why Invest in RESI? (from fund marketing materials)
Housing is short on supply and high on demand amid a historic and lingering housing shortage resulting from a decade of under-building. The RESI ETF could stand to benefit as the positive effects from the post-pandemic "housing boom" are reverberating across U.S. rental markets, with rents increasing at high rates.

What to do next?

Before you commit any money to any investment, ensure you're making the best decision by doing thorough research and seeking help from reputable and established real estate investment professionals. Paperfree fits these criteria and can be your platform for strategic and prudent investing in the best apartment REIT stocks.

 
 
 

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