The Ideal Investment For This Housing Market - InvestingChannel

The Ideal Investment For This Housing Market

Proprietary Data Insights

Financial Pros Top Residential REIT Searches This Month

#1American Campus Communities19,534
#2Avalon Bay Communities8,034
#3Mid-America Apartment Communities7,671
#4Invitation Homes7,568
#5Equity Residential6,418

Car Theft, Open Drug Use And Brunch 

Because you’ve been bombarded, no Netflix, Elon Musk or Twitter talk today. We’ll save it for tomorrow! 

Instead, we focus on housing. 

I’m a city person so I guess this quote, even though I sort of despise the whole brunch scene, could be directed at me: 

Some people are willing to put up with car thefts and open drug use so they can walk to their favorite brunch spot. 

There’s Growth In Suburbia 

That blurb comes from a Portland, Oregon newspaper story noting that housing prices are rising faster in some surrounding suburbs there than in the city itself. It implied that the only people still buying homes in the core of Portland are “rich Californians” desensitized to “urban grit.” 

It’s easy to get caught up in whatever your bias is – left or right, urban or suburban and so on. However, as an investor, it’s the worst thing you can do. Leave these arguments nobody will ever win (or lose) at the door and look for opportunity. 

Last month in The Juice, we highlighted a few real estate investment trusts (REITs) focused on apartments, primarily in expensive, urban markets. Today, we offer an apartment REIT with a more suburban focus, playing on competing trends in this crazy housing market.


The Ideal Investment For This Housing Market

Key Takeaways:

  • However you slice it, the sunbelt housing market is on fire.  
  • Despite brisk home prices and sales, there’s still a huge pool of renters. 
  • We offer an income-producing investment to take advantage of this story.

Turns out there wasn’t an investment story in the aforementioned Portland data. However, we did some digging and uncovered an even more interesting, largely suburban narrative leading to a stock – an apartment REIT in fact – worth your time. 

There’s Growth In The Sunbelt 

On Tuesday, S&P Corelogic reported that housing prices increased 19.8% nationally over the last year. The biggest year-over-year gains:

  • Phoenix (32.9%)
  • Tampa (32.6%)
  • Miami (29.7%)

Three cities all in the nation’s 15-state sunbelt. 

Home Buying Isn’t The Only Story There

Nationwide, apartment building will hit a 30-year high this year, led by, you guessed it, the sunbelt. 

Of the ten cities anticipating the largest apartment inventory growth, seven (Nashville, Austin, Phoenix, Raleigh/Durham, Jacksonville, Charlotte, and Orlando) are in the sunbelt. None are in California. 

Demand for apartments remains strong in these and similar cities. 

Young People Are Renting Apartments

People put off buying a home for all sorts of reasons. 

In the current climate, record prices alongside sky-high and rising mortgage interest rates sit large numbers of prospective homeowners on the sidelines. However, this doesn’t tell the entire story. 

As our suburban and sunbelt-slanted apartment REIT pick, Camden Property Trust (CPT), noted in a recent investor presentation, lifestyle often drives rent versus own decisions. 

Source: Camden Property Trust

These young people have a tendency towards renting, particularly in the markets where Camden does business. 

Where Camden Property Trust Operates

With Camden, you get the best of both worlds. 

Some intensely urban exposure. For example, I can walk to one of Camden’s apartment buildings in Los Angeles, right in the heart of Hollywood. A block from the corner of Hollywood and Vine. 

At the same time, I can get in my car and drive an hour south on the 405 to another Camden property in the heart of decidedly suburban Irvine, California, in Orange County. 

However, California isn’t the Camden story. The other sunbelt cities are. Particularly the places we traditionally think of as the sunbelt in the southwest and southeast. Places that make these lists ranking everything from soaring real estate prices to rising rents to strong apartment demand and construction. 

Officially, Camden says its portfolio has a 60% suburban composition with 61% of its buildings of the low-rise variety. Some areas where Camden operates get a technical urban designation, but carry many suburban characteristics. For example, it would be tough to sell a New Yorker on the urbanity of a low or even mid-rise apartment building, surrounded by parking, in, say, Phoenix. 

In any event, we love Camden’s more diverse concentration, relative to our urban apartment REIT picks. We also love the company’s 97% occupancy rate across its 171 communities. 

The Bottom Line: In addition to the suburban growth narrative, you get a nice dividend with CPT. 

A reminder – real estate investment trusts must return a minimum of 90% of their taxable income to shareholders via dividends. That’s SEC law. 

Camden’s annual dividend of $3.76 per share currently yields 2.3%. The company has increased its dividend 12 years in a row. 

The stock has been on a roughly 37% tear over the last year, however it’s down about 7% YTD. Despite the upside, CPT, like the sunbelt housing market, could have room to run. If you’re a long-term investor looking for consistent – and growing – income that makes a relatively confident play on housing, Camden Property Trust might make sense for you.

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