Profit From The 'Renter Nation' Phenomenon


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I remember when the housing bubble burst back in 2007. Most people thought it would never make a comeback. Some went so far as to predict it would take America 50 years or more for the housing sector to climb back to pre-recession levels.

Well, just a short five years later, I am pleased to say that housing is back.

The latest housing data from the Commerce Department from July shows that new home purchases are up 6.8% and median home prices gained 8.3% since a year ago. And a survey by Standard & Poor's found that housing in 20 of the largest U.S. cities -- from Boston to Los Angeles -- posted gains in June.

After going through what was the housing market 's darkest hour, housing is now one of the most popular investments in America.

But that's only half the story. There's a much larger force in play behind the uptrend in the housing market. And it's not what you'd expect.

Let me explain...

Something has changed over the past year. It's no longer just about individuals buying houses for their families.

It's actually quite the opposite. In fact, some are going so far as to call it the death of the American Dream.

Shocking new data reveals that of the 5.5 million new households that will be formed between now and 2016, an estimated 3.8 million, or nearly 70% , will be renters , not homeowners according to Jeffrey Friedman, CEO of apartment REIT Associated Estates Realty (Nasdaq: AEC ).

These households could include newlywed couples moving into their first home to start a family to college graduates renting their first apartments to baby boomers looking to " downsize " in retirement.

According to data from the Census Bureau and Bank of America Merrill Lynch Global Research, the share of renters in the market has reached a 16-year high. And it's only growing.

The U.S. is well on its way to becoming what I call the "Renter Nation."

So why will so many of these new households be renters?

Simply put , many are still feeling the aftereffects of the recession . And whether it's the challenges of stagnant wages, a shrinking portfolio or the burden of student loandebt , many people simply can't afford to buy their own home right now. And if the economic "recovery" we're experiencing continues at its slow pace, they may not be able to for quite some time.

That is why I think right now may be the best opportunity in a generation to become a landlord .

Some of the world's richest firms, including Goldman Sachs, private equity giant Blackstone -- even Warren Buffett 's Berkshire Hathaway -- know about the "Renter Nation" trend . They are all racing into the real estate market in one of the largest land and money grabs this country has ever seen.

Justin Berman, a former Goldman Sachs banker who runs a private wealth firm with about $550 million under management, said: "This is the biggest trade in the real estate space... they can't get their hands on enough homes."

You see, now that real estate prices have finally bottomed out, major firms and professional real estate investors are taking advantage and setting themselves up to make a fortune over the next several years.

How are they doing it?

Well, private-equity firm Blackstone (NYSE: BX ), for example, has been busy buying up scores of single-family homes at dirt-cheap prices, fixing them up, and then turning around and renting them out.

According to Blackstone, "household formation and population growth in the US are solid but new housing supply is 63% below the historical average, creating a compelling opportunity to invest."

Now I could tell you to go out and start buying single family homes like Blackstone and others are doing, but the truth is it takes a lot of money and time to really make a venture like this profitable.

So rather than go through the hassle of physically buying property and renting it out, I'm telling readers of my High-Yield Investing newsletter to become "virtual landlords ."

How do we do this?

Rather than simply buying physical property and renting it out, we can own a basket of appealing properties by investing in real estate investment trusts, or REITs.

As many of you probably know, REITs are a special type of company that own physical assets and collect rent from tenants and then pass that income along to investors (90% as required by law).

And thanks to the real estate boom, a select group of REITs are poised to crush the rest of the market.

For example, I found three companies that control roughly 6% of the off-campus market. One of the companies has been actively buying up complexes, growing its asset base from $500 million in properties in 2005 to $5 billion today. Its revenues are expected to grow 50% this year alone, which should help support its solid 6% dividend yield . Shares have shot up 162% since March of 2009.

Another company I found leases property to the government, collecting 68% of its revenues from federal agencies, 17% from state governments and 2% from the U.N. That's makes for a 6.5% yield that comes straight from Uncle Sam .

Make no mistake, a growing nation of renters is a giant trend that could benefit investors for the next several years at the very least.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

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