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REITs As An Alternative To The Red Hot Real Estate Market

By Cristian Bustos. Originally published at ValueWalk.

Apartment Sector COVID Commercial Real Estate COVID rental properties REITs vs real estate funds: How do they differ?

Real estate ownership has been on the upswing since stringent lockdown and quarantine regulations fizzled out last summer, with potential property buyers having excess savings and cash available to purchase a new home or perhaps an investment property.

Across most nations, the real estate market has been driven by soaring demand, with real estate prices in some major metropolitans increasing two or threefold since the start of the pandemic in 2020.


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Real Estate in North America

The real estate market in North America is now different, as property buyers in the United States have found themselves in a red hot market, with property values soaring and interest rates putting more pressure on the market as well. In Canada, the scene is almost no different, as major metros such as Toronto and Vancouver see prices for the most basic purchases increase by double-digit percentages.

Looking at how these two nations performed showed that real estate in Toronto has increased by an average of 7.8% annually, making property management even more difficult for some small-time buyers and investors.

Back here in the United States, some cities such as Manhattan, NY have seen the average apartment price rise by 5.7% according to recent statistics. The 5% increase experienced in New York is almost completely overshadowed by the 32.6% for places such as Phoenix, AZ, among others.

It’s clear that buying property in the coming year will look even less possible for the low to middle-income class, yet, it’s not clear how the market will perform in the coming year, as demand remains relatively high, with interstate migration allowing people to leave the city behind to work remotely from cheaper cities and states.

While the roaring market has yet kept many investors at bay, looking at the overall performance of the market, the picture looks somewhat different concerning some real estate stocks and share prices.

As it’s now becoming more difficult for some people to step into homeownership, some are looking towards purchasing real estate shares and stocks which can perhaps offer them the same type of return as owning a real estate property or rental.

While this is not completely the same, as rental income can be a lot more lucrative than the stock market, a host of real estate companies that are publicly traded have seen to deliver some promising investment returns for those investors who have seen the real estate market push them to the side.

Now as a different measure for investment, and perhaps putting their savings to a different use other than the realty market, a combination of smart investment choices can create new meaning for those who are willing to add real estate shares with the aid of Real Estate Investment Trusts (REITs).

Why Opt For Real Estate Investment Trusts?

While it is possible to jump right into the stock or real estate market with the aid of a hedge fund manager or real estate broker, REITs have become a way for many first-time investors and buyers to gain profits from real estate shares.

REITs are designed to create meaningful profit returns for investors and shareholders and pay them in the form of dividends. Companies that are trading or operating under the REITs umbrella rent out property or real estate to tenants and share the profits among the shareholders.

Top REITs for first-time investors

Public Storage (NYSE:PSA)

One of the largest self-storage companies in the U.S. Public Storage has more than 2,000 self-storage facilities scattered across the country and has garnered more than $3 billion in revenue.

PSA currently sits at a market cap of $71.61 billion, with share prices just over $400 per share. Dividend payouts are quite generous, with yields currently standing at 2.2%. Public Storage has remained rock solid in its growth throughout the last couple of months.

Equinix (NASDAQ:EQIX)

EQIX common stock is not relatively cheap, as a recent 52-week high saw share prices surpass $839.77, but annual dividend yields are currently standing at $10.64 per share.

Equinix itself works on digital infrastructures and offers data centers and services to various markets around the world. In 2019, the company reported more than $5.5 billion in revenue. Currently, the company has more than 240 data centers scattered across five continents and available in 27 different countries.

Extra Space Storage Inc (NYSE:EXR)

Analysis has recently placed EXR as a strong buy REIT opportunity for many investors as share prices have remained relatively low zig-zagging between $200 and $220 per share. Currently, EXR offers a dividend yield of 2.81%, and the company is set to expand its storage facilities in the coming year as well.

These and other modifications to company operations could mean positive growth for share prices, as the market capitalization currently stands at more than $28.63 billion. There is a bit more positive sentiment directed towards EXR as shares have experienced well-positioned growth throughout the years.

American Tower Corporation (NYSE:AMT)

AMT has been raising its dividend each year, and currently, its investment yield is more than 2.3%. The company which owns multiple properties and structures around the world leases most of its options to telecom companies.

Share prices are generously low at the moment, trading just above the $250 mark. Trading sessions have presented some strong moves, both and down, but investors remain positive on the prospects of AMT as the company provides ample opportunity for growth as demand for telecommunications increases.

Digital Realty Trust Inc (NYSE:DLR)

For something a bit more flexible, and affordable DLR currently offers a $1.22 per share for the first quarter of 2022 after a 5% increase issued in March 2022.

Although payout earnings are relatively low, Digital Realty Trust focuses on different sectors such as Artificial Intelligence, Cloud networks for property management software, mobile, and other financial services. Although the company is not solely committed to one industry, in this case, property or real estate, it can still become a lucrative addition for a REIT to any investor’s portfolio.

Bluerock Residential Growth REIT, Inc. (NYSEAMERICAN:BRG)

Oftentimes overlooked, BRG has a market cap currently just under $1 billion, with share prices starting from as low as $26 per share. BRG is considered one of the more saver options for first-time investors, as it allows a bit more room to invest and trade with a low-priced stock

Its dividend yield currently stands at 2.45%, and the company reported net revenue in December 2021 of more than $61 million. The company has recently moved into a merger and acquisition with Black Stone Real Estate in a $3.6 billion deal that was finalized at the end of 2021. Enthusiasts and other intraday investors are hoping that this deal could increase share prices for the coming years, as this gives them better trading security.

NexPoint Residential Trust Inc (NYSE:NXRT)

Our final REIT on this list is NXRT, a common stock that trades below $100, with current share prices for April averaging around $86 per share. NexPoint is mainly known for acquiring middle-income family homes in sought-after locations and prime real estate areas.

The company manages various properties across the United States, but in recent times have become a lot more popular on the stock market as it offers lucrative investment growth for both novice and veteran investors. With a market cap of more than $2.28 billion and a dividend yield of 1.76%, NXRT offers both low and medium-tier risk.

Final Thoughts

The red hot real estate market has made it quite difficult for the average first-time buyer to get their piece of property in their local market. While it looks as if the year ahead will continue to bring more challenges, and rising real estate prices, investors are now considering new alternatives that can offer them better returns and a broader investment opportunity.

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