Because I'm a value-conscience income investor, I'm skeptical
of every hot investment trend.
That's because nothing new blooms under the sun.
Residential real estate is the latest hot recyclable
investment to capture investor interest... and dollars.
Single-family residential properties are today's Justin Bieber,
even if they are still yesterday's David Cassidy.
Single-family residential rental properties are nothing new,
but today there are new players repackaging properties as new
Single-family residential properties have historically been
the domain of the individual investor and small partnership: a
few homes would be bought and rented. In a few years, or in a few
decades, they would be sold to capture capital gains. It was all
very mom-and-pop and very hands-on.
Today, there's a new twist and a new marketing ploy. Big
institutional money has moved into the single-family rental
space. Private-equity firms have spent billions of dollars to
acquire thousands of single-family residential
The numbers are staggering. Never before has
institutional money flowed into the housing market with such
Blackstone Group (
has spent $7.5 billion to buy 40,000 single-family homes.
American Homes 4 Rent (
has invested $2.5 billion. Meanwhile
American Residential Properties (
bought 4,000 homes at a cost of $500 million on 4,000
single-family homes. And the list goes on…
Now these companies are lowering the velvet rope to allow you
access to their insight and prosperity.
You can buy shares in REITs including American Homes 4 Rent,
American Residential Properties and
Silver Bay (
I imagine it's a matter of time before Blackstone forms a REIT to
unload its single-family properties. It's already drawing plans
to sell bonds backed by rental payments on these properties.
Wall Street loves to sell when the market is hot. And that's
when its best to stay away. These big investment firms aren't
charities. Their goal is to cash out at a profit, and often at
your expense. It's apropos to equate Wall
Street with the used-car salesman who spit-polishes the rust
bucket to imbue it with the illusion of permanence and quality.
A recent article from
confirmed my concerns. The article reveals Colony American Homes,
a division of Colony Capital, has found tenants for only 51% of
the 9,000 properties it owns. As for the targeted REITs, American
Homes 4 Rent, American Residential Properties and Silver Bay
Realty Trust are money-losers. Of the three, only Silver Bay has
sufficient cash to pay a dividend - one that yields a meager
I recommend sticking with a more established and conventional
way to earn income from the housing sector. I recommend buying an
individual rental property in a location that hasn't been infused
with institutional money. If you have no interest in being a
landlord, consider conservative apartment rental REITs like
Associated Estates Realty Corp (
AvalonBay Communities (AVB)
My preference, though, is to stay away from the residential
real estate market. To be sure, there are well-run REITs
and worthwhile individual properties to be found. But due to all
the hype, prices are high and yields are low.
Right now, better value can be found in commercial properties.
High Yield Wealth
, I recommend several commercial REITs that are financially
sound. These REITs are established firms that have a long
history of consistent dividend payouts.
Best of all, these REITs offer healthy yields of 6% to 9%.
That's far more than you'll ever earn from one of these