Comfort Zone Investing: One thriving area of real estate: Apartments
Posted by: in HousingFiled under: Comfort Zone Investing, Housing
Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he’ll offer advice to investors who are just getting started.
While the words “real estate” and “disaster” seem destined to be used together forever, there’s one segment of the real estate sector that deserves investors’ attention. It’s Apartment owners. Many are doing very well and should continue. The simple reason: people have to live somewhere.
Not all apartments are full, most notably the ones with very high prices. The ones fully booked are the ones where teachers, plumbers, mechanics, and other professionals and semi-professionals live. These apartments are built for middle income families or singles, located in their own communities or on busy streets where access to and from everything is simple. Most have pools and workout rooms.
When a family or individual loses a house to foreclosure, the next natural place to go is an apartment. It doesn’t have the same benefits of owning a home, such as the tax write-off for the mortgage. But it doesn’t have the headaches either, ones like leaky roofs, broken washing machines, or stopped up gutters.
Many of these dispossessed homeowners didn’t qualify for a mortgage but got one anyway in the days of easy money. They won’t be moving out of any apartment soon unless they’ve changed their economic status. Any new tenant to an apartment will most likely be there for several years.
There’s added supply, however, to give apartments competition. The houses and condos bought by flippers. Many of those are now on the rental market as owners try to cover their mortgage payment, or at least most of it, to avoid losing the asset. Miami is certainly an area that has lots of condos for rent. It’s an aspect of any investment that you’ll want to consider.
Some of the Real Estate Investment Trusts are a good way to invest in apartments. Ones that might be considered by investors:
Apartment Investment & Management: AIV: owns or manages about 200,000 apartment units, making it #1 in that category, even though that comprises only a small fraction of a very fragmented market. Sam Zell’s Equity Residential is the only apartment REIT that surpasses AIMCO’s sales. Through subsidiary AIMCO Properties, the company has interests in about 1,180 properties in 46 states, Puerto Rico, and the District of Columbia. The company’s apartment portfolio consists of garden style, mid-rise, and high-rise properties. Yield is 6.4%
BRE Properties: BRE: acquires, develops, and manages multifamily properties in the western US. It owns about 80 apartment communities with some 22,000 units in Arizona, California, and Washington. Most properties offer amenities including clubhouses, exercise facilities, business centers, and swimming pools. The REIT also has about 10 properties under development and owns stakes in about a dozen more. BRE Properties has eliminated its holdings in New Mexico and Nevada to focus on markets in California, where high housing costs and a stable occupancy rate make for an attractive environment. Yield is 4.7%.
Equity Residential: EQR: the nation’s #1 apartment owner in sales. Rival AIMCO owns more units, but its affordable-housing focus keeps its revenue more modest. Equity Residential wholly or partially owns around 575 apartment communities with more than 150,000 units, comprising garden units, high rises, ranch-style properties, and military housing. The company focuses on growth areas, with California leading the way with the most Equity Residential complexes. Yield: 4.6%
UDR:UDR (formerly United Dominion Realty Trust): is a real estate investment trust (REIT) that owns and operates some 230 multi-family apartment communities with more than 65,000 units primarily in the South and West, arcing from Virginia to California. The REIT also has several communities under development or redevelopment. As the residential REIT landscape has become more competitive, the highly acquisitive UDR has sold properties in noncore markets, as well as properties that do not appeal to its prime demographic target — the middle-market apartment dweller. Yield is 5.4%.
These names are only a sample of the Apartment REIT’s available. Also, these are not suggestions to buy, rather ideas for readers to investigate further.
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