Since 2008, the U.S. government has tried nearly everything–including an $8,000 tax incentive for new buyers–to get housing going, and with good reason. The National Association of Home Builders estimates that about three jobs are created every time a new home is built. Just think of all the U.S. jobs that are created for every house; Realtors, Bankers, Construction Workers, all of them benefit when building permits are on the rise.
Now they are rising again, and not just for residential housing, all of real estate is slowly recovering. More than the broad economy will win if real estate continues rising, savvy investors will win too.
Luckily, being savvy in real estate is sometimes synonymous with being safe.
The Way of The Chicken
The media is once again writing dramatic, and impressive, stories of “house flippers” making quick gains. But that level of commitment and risk is more than most people want to dive into.
If you’re looking to invest in residential real estate, with less risk, take the chickens way out and consider a residential REIT like Equity Residential (NYSE:EQR) . For those who don’t know, REIT stands for Real Estate Investment Trust. These trusts trade like shares of stocks but, by law, they must pay shareholders 90% of their profits.
I look at Equity Residential (NYSE:EQR) as a safer way of land lording. The trust owns about 150,000 apartment units; it simply holds one of the largest multi-family real estate portfolio’s in the U.S. I like rental property, especially apartments, for real estate investing. No matter what happens to the economy people need to rent a place to live. During the past few years, as housing has struggled in the U.S., rental prices have actually increased. Buyers just couldn’t qualify for home loans so apartment demand increased.
By investing in Equity Residential (NYSE:EQR) you can be a landlord of sorts. If you hold shares you will benefit from increased rents because your dividend will go up. When property values go up and properties are sold, your shares will benefit from a rising book value.
By investing in Equity Residential (NYSE:EQR) you’ll be like a landlord, but you won’t have to deal with tenants or banks.
This REIT pays a current dividend of 2.7% and shares have been on quite the run. So you aren’t buying “cheap” right here. But if you have a truly long-term time horizon (5 years), you’re unlikely to be disappointed with your returns.
Super Chicken
Looking for an even safer way to invest in real estate? Get diversified with a real estate ETF!
SPDR Dow Jones Global Real Estate ETF is an international REIT and real estate stock ETF. The trust holds a wide range of REITs that make sense right now, from Public Storage (NYSE:PSA) to Health Care REIT, Inc. (NYSE:HCN), it covers a wide range of REITs.
There’s some safety in the diversification that ETF’s like this provide. If your primary goal is income, capital preservation and yield protection should be of utmost importance to you.
This trust also holds international real estate investments which is crucial because real estate markets don’t typically move together. One example of this is the real estate market of 2008-20012. During that time, as the U.S. and European real estate stagnated, the Chinese real estate market was on fire. Now, the U.S. real estate market is slowly ticking up and, some analysts feel, China may be slowing down.
The dividend yield for this ETF currently sits just over 4%, it swings (sometimes dramatically) from quarter to quarter, but the average annual yield is typically between 4-5%.
