These are REITs that own and operate multi-family rental apartment buildings, as well as manufactured housing. When looking to invest in this type of REIT, one should consider several factors before jumping in. For instance, the best apartment markets tend to be where home affordability is low relative to the rest of the country. In places like New York and Los Angeles, the high cost of single homes forces more people to rent, which drives up the price landlords can charge each month. As a result, the biggest residential REITs tend to focus on large urban centers.
Within each specific market, investors should look for population and job growth. Generally, when there is a net inflow of people to a city, it's because jobs are readily available and the economy is growing. A falling vacancy rate coupled with rising rents is a sign that demand is improving. As long as the apartment supply in a particular market remains low and demand continues to rise, residential REITs should do well. As with all companies, those with the strongest balance sheets and the most available capital normally do the best.
Healthcare REITs are an interesting subsector to watch as age and healthcare costs continue to climb. Healthcare REITs invest in the real estate of hospitals, medical centers, nursing facilities and retirement homes. The success of this real estate is directly tied to the healthcare system. A majority of the operators of these facilities rely on occupancy fees, Medicare and Medicaid reimbursements as well as private pay. As long as the funding of healthcare is a question mark, so are healthcare REITs.
Things you should look for in a healthcare REIT include a diversified group of customers as well as investments in a number of different property types. Focus is good to an extent, but so is spreading your risk. Generally, an increase in the demand for healthcare services (which should happen with an aging population) is good for healthcare real estate. Therefore, in addition to customer and property-type diversification, look for companies with significant healthcare experience, strong balance sheets and high access to low-cost capital.
Office REITs invest in office buildings. They receive rental income from tenants who have usually signed long-term leases. Four questions come to mind for anyone interested in investing in an office REIT.
- What is the state of the economy and how high is the unemployment rate?
- What are vacancy rates like?
- How is the area in which the REIT invests doing economically?
- How much capital does it have for acquisitions?
Try to find REITs that invest in economic strongholds. It's better to own a bunch of average buildings in New York than it is to own prime office space in Detroit, for example.
Analyzing REITs And REIT Performance
Personal FinanceReal estate investment trusts are a sound addition to a diversified portfolio. Learn what you need to know to invest.
Managing WealthReal estate investment trusts are historically one of the best-performing asset classes around. There are many types of REITs available.
InvestingAmid expectations of high interest rates, do REITs offer a viable investment option? Investoepdia studies the historical data to decide.
ETFs & Mutual FundsLearn about the difference in investing in a REIT for a single real estate company versus investing in a REIT ETF that tracks a larger REIT index.
InvestingAn overview of the different types of property that REITs own.
Financial AdvisorAre REITs viable investments now? Here's a look at the history of REITs' performance during rocky economic times and other factors that may impact returns.
ETFs & Mutual FundsReal estate investment trusts offer a unique way for investors to own a real estate portfolio without the risks of owning single properties.
Personal FinanceLearn the key features of three subcategories of equity REITs: industrial, multifamily and hotel REITs.
InvestingThey've been substantially outperforming both stocks and bonds for the past several months.
Managing WealthWhile REITs will face a number of challenges in 2014, one particular issue will be the focus of investors: rising interest rates.