In this article, we will discuss the 13 most profitable real estate stocks now.

Real Estate and the Aftermath of the Fed Rate Cut

As reported by Redfin, buying a home has gotten affordable for the first time since 2020 as homebuyers need to earn $115,000 to afford the typical home. While Senior Economist Elijah de la Campa thinks this could be a good time to buy a home with housing affordability improving for the first time in four years, he thinks the market won’t be cheaper in the near future. This is because the Fed’s recent rate cut and the following rate cut plans have already been priced into the mortgage rates since they were highly anticipated.

Another optimistic news for homebuyers on the sidelines was the housing payments witnessing the biggest decline in 4 years ahead of the Fed’s historic rate cut. These payments have gone down by almost $300 from April’s all-time high. The median housing payment was reported to be $2,534 during the four weeks ending September 15, down 2.7% year-over-year. With lower mortgage rates and less inventory, the housing market is still unaffordable for many but it is as good as it gets in the words of Orphe Divounguy, Zillow’s senior economist.

Regarding the aforementioned optimism for homebuyers, Robert Reffkin, Compass founder and CEO, stated that homebuyers are much more active than they were before. In his opinion, consumers react more to the change in mortgage rates rather than the absolute rate itself. He told CNBC that buyers now know not to take a relatively lower rate for granted after being through a period of elevated mortgage rates. Meanwhile, the major issue has been the lock-in effect during the preceding 2 years since 75% of the homeowners were locked into 4% mortgage rates or below, a percentage which is now approaching 50%. With declining mortgage rates, he expects the lock-in effect to drop and the housing inventory to grow.

With the declining mortgage rates, refinancings have surged. Mortgage applications hit the highest levels since July 2022 as the rates dropped. According to the Mortgage Bankers Association, applications to refinance or purchase a home in the week that ended September 20 increased 11% week-over-week while the refinancing applications climbed 20% during the period. This marks the 2^nd  consecutive week of double-digit gains in applications. Overall, the refinance activity is still modest with seasonally slow homebuying complemented with high home prices and a shortage of inventory.

Now that we have analyzed how the market has unfolded since the Fed rate cut, we can move to the 13 most profitable real estate stocks now.

Our Methodology:

In order to compile a list of the 13 most profitable real estate stocks, we created an initial list of 30 companies with the biggest market caps. Moving on, we screened out those companies that had a positive net income in the last twelve months and had grown their net income positively over the past 5 years. For the 5-year net income growth, we have considered the compound annual growth rates on a TTM basis. Finally, we ranked the shortlisted companies in ascending order of their hedge funds, as of Q2 2024.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

13 Most Profitable Real Estate Stocks Now

13. Realty Income Corporation (NYSE:O)

Number of Hedge Fund Holders: 19

5 Year Net Income Growth: 16.67%

Realty Income Corporation (NYSE:O) serves as a real estate partner to leading firms. The company was founded in 1969 and invests in diversified commercial real estate. As of June 30, the company owned or held interests in 15,450 properties  in all 50 US states, the U.K., and six other countries in Europe.

Realty Income Corporation (NYSE:O) is one of the largest REITs with a growing international presence. Its 55 years of operating history and 15,450 commercial real estate properties define its scale and size. Its real estate portfolio stands diversified spanning 1,551 clients and 90 industries. The growth potential of the firm is vast with a $5.4 trillion total addressable market in the US and an attractive growth avenue with limited direct competition in Europe. Furthermore, it has delivered nearly 5% AFFO growth in both higher and lower interest rate environments.

With a 5% median AFFO per share growth since 1996 and 27 of 28 years of positive earnings per share growth, the stability and growth of the firm is evident. The company is positioned for further growth with an estimated global net lease addressable market of approximately $14 trillion. The established portfolio of commercial real estate has historically provided dependable rental revenue supporting the payment of monthly dividends. The firm has a strong dividend track record with 29 consecutive years of rising dividends.

During the second quarter, the firm’s AFFO per share increased 6.0% to $1.06 as compared to the prior year period. With a portfolio of leading clients, a strong liquidity position, as well as a stable and growing cash flow, Realty Income Corporation (NYSE:O) is set to continue the business momentum through 2024.

Realty Income Corporation (NYSE:O) benefits from the structural advantage as investment spreads persist even with rising interest rates, something that is not a significant earnings headwind to the net lease business model. Thus, Realty Income Corporation is another profitable and promising real estate stock now.

12. Extra Space Storage Inc. (NYSE:EXR)

Number of Hedge Fund Holders: 25

5 Year Net Income Growth: 13.24%

Extra Space Storage Inc. (NYSE:EXR) is a fully integrated, self-administered, and self-managed real estate investment trust headquartered in Salt Lake City. The firm owns and operates more than 3,500 self-storage properties, comprising over 2.5 million units and over 275 million square feet of rentable storage space. Customers can select from a variety of conveniently located and secure storage units across the US including boat storage, RV storage, and business storage.

Extra Space Storage Inc. (NYSE:EXR) dominates by serving as the largest operator of self-storage properties in the United States. The firm managed 1,423 stores for third-party owners and 472 stores owned in unconsolidated joint ventures, for a total of 1,895 stores under management, as of June 30, 2024. It recorded one of the strongest first halves of the year by adding 86 net stores to the platform. Thus, Extra Space Storage’s track record reflects its massive scale and the consistent growth of its geographically diverse portfolio.

Despite the fiscal second quarter being plagued with a challenging demand and new customer rate environment, the firm was successful in maintaining strong occupancy levels in the Extra Space and Life Storage same-store pools. This led to positive revenue growth in both pools, with Extra Space’s same-store revenue increasing 0.6% and Life Storage’s same-store revenue climbing 1.8%, year-over-year.

The REIT had previously taken a major step towards achieving a transformative scale and synergy opportunities through its merger with Life Storage in July 2023. 2023 was a year of operational excellence for the firm with same-store revenue growth of 3.1% while the balance sheet grew through the aforementioned merger. The favorable performance resulted in a positive total shareholder return of 12.5% for the year while the firm raised the dividend by 8%.

Extra Space Storage Inc. (NYSE:EXR) remains profitable. Over the past 5 years, the firm has expanded its net income by 13.24% and its revenue by 20.59%. Among other self-storage real estate companies, the firm has a solid market cap of $40.39 billion. With a strong balance sheet, robust occupancy gains, massive scale, and disciplined growth through accretive acquisitions and strong partnerships, the REIT is in a good position in a highly fragmented sector. As of Q2, the stock is held by 25 hedge funds.