The only asset performing well this year is residential real estate. Stocks have entered bear market territory, bonds have had a terrible year, and crypto is also suffering. The only asset that was as safe as home was the home. While S&P 500 declining throughout the year, house prices rose in the mid-to-high double digits, depending on the housing index used. How can investors attract residential real estate?
Buying a property is the best way to get to know residential real estate
The most obvious way is to buy real estate. Although the number of homes for sale has been limited due to the lack of housing development over the past decade, there is still real estate. While mortgage rates have risen significantly over the past six months, if you look at the long term, rates are still quite low. In the early 1980s, borrowers could expect to pay 15% or more on their mortgages. If you are a renter looking to buy a home for starters, remember that real estate is one of the few assets you can actually use. You get a growing asset and housing.
Another interesting variant is the “home break-in” where an investor uses a loan from the Federal Housing Administration (FHA) to buy a two- or four-family property and lives in one apartment and rents out the others. FHA loans allow the borrower to put down as little as 3%.
Many investors are reluctant to buy property simply because owning a lease can be a headache. Maintenance costs go up, borrowers can skip rent and be evicted, and no one likes calls at 2am for a backup toilet. Fortunately, there are ways to access residential real estate through the stock market.
American Homes 4 Rent lets you sell properties through promotions
American Homes 4 Rentals (AMG 0.61%) is a real estate investment trust (REIT) that buys single-family homes and rents them out. Historically, single-family leasing has been a “mom and pop” affair and it has been difficult to really manage properties on a large scale. American Homes 4 Rent has clusters of homes in cities that have characteristics such as limited housing supply, strong job growth, and attractive prices. The company is increasingly building properties specifically for rental purposes.
The rapid rise in home prices means that the book value of American Homes 4 Rent shares is much higher than what is reflected in its balance sheet. The average home in his portfolio was purchased in 2015, and the FHFA House Price Index has risen 71% since then. Rising home prices allow the company to raise rents, which helps to increase profitability in the future.
The benefit of using a vehicle like American Homes 4 Rent is that it gives the investor exposure to home prices while maintaining a highly liquid investment. Selling real estate is always a long and often difficult process. The seller usually has to pay a 6% fee to the realtor and this process can take several months. American Homes 4 Rent owners don’t have this problem. The stock has a dividend yield of 2.2%, which is low for a REIT, but the company is putting more money into the business. Stocks also give the investor more diversification than real estate. The downside is that stock prices tend to be more volatile than house prices. However, investors looking for liquid access to residential real estate should take a look at American Homes 4 Rent.