U.S. home prices are on a roll. And as we head into the New Year, I am expecting another record year for home prices in 2018. Today, I am going to reveal the safest, easiest and most profitable way to benefit from this trend.
Fueled by record-low interest rates and housing inventories, home prices in the United States hit another all-time high in 2017.
The S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA (SPCS20) Index measures the value of residential real estate in 20 major U.S. metropolitan areas, including New York, Los Angeles, Seattle and Chicago. The most recent update showed that the index expanded 6.1% to 203 in August, breaking the previous all-time high of 198 from July of 2007. Take a look below.
SPCS20 Index Level Since July 2007
Looking forward, I am expecting another record year. Not only will interest rates remain relatively low, but I see no short-term solution to historically low housing inventories.
However, investing in an income property can be risky, difficult or time-consuming to manage, and loaded with profit-crushing expenses. It requires a large down payment, expensive closing costs, high taxes and insurance, and unexpected maintenance costs.
When you add in all these extra expenses, you can see that investing in an income property is no walk in the park or surefire way to profit from record high home prices.
That's why I am going to reveal a better way to profit. This way is safer, easier to manage and potentially much more profitable.
A real estate investment trust (REIT) is a company that owns, and usually operates, income-producing real estate. REITs own many types of residential and commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, and hotels.
There are four reasons why investing in a REIT is a better way to profit from housing than an income property.
-- REITs are required to pay 90% of their income to shareholders as dividends. That makes them a potentially excellent source of income.
-- REITs are a great way to diversify across multiple properties, industries, and locations.
-- REITs trade on major exchanges such as the New York Stock Exchange, making them as easy to buy and sell as blue-chips like Google and Apple.
-- And finally, unlike a rental property, REITs are cost effective to buy and sell. Brokerage fees can be as little as $1 per trade, a far cry from closing costs that can cost thousands.
If you're looking for a quick, easy and affordable way to profit from record home prices, it's time to look at some REITs. To help you achieve that goal I have put together a list of seven of the largest and highest yielding REITs in the United States.
|New Residential Investment||NRZ||$5.5 B||11.3%|
|MFA Financial Inc.||MFA||$3.2 B||10.0%|
|Medical Properties Trust||MPW||$5.0 B||7.0%|
|W.P. Carey||WPC||$7.6 B||5.7%|
|Summit Hotel Properties||INN||$1.6 B||4.5%|
|Education Realty Trust||EDR||$2.8 B||4.3%|
|American Campus Communities||ACC||$5.8 B||4.1%|
From the group I have chosen to highlight New Residential Investment and Education Realty Trust because of their high dividend yields and focus on the residential real estate markets.
New Residential (NYSE: NRZ) is a U.S.-based REIT that specializes in managing investments in residential real estate. With a market cap of $5.5 billion, NRZ is one of the largest REITs in the United States, so this is no fly-by-night company. NRZ offers one of the best dividends in the industry. The trust made four dividend payments in 2017 totaling $1.94. That gives shares a current yield of 11.3%, more than a 400% premium to the S&P 500's average 2.0% yield.
Education Realty Trust (NYSE: EDR) is a U.S.-based REIT that specializes in owning and managing collegiate housing facilities near universities. With a market cap of $2.8 billion, this is also one of the larger REITs in the United States. EDR made four dividend payments in 2017 totaling $1.54. That gives shares a current yield of 4.3%, more than a 100% premium to the S&P 500's 2.0%. EDR also has an impressive history of dividend hikes. Since bottoming out at $0.15 in 2008 after the financial crisis, EDR's dividend payment has jumped 160%.
Risks To Consider: REITs are somewhat sensitive to rising interest rates, especially in the short run. The Fed is expected to raise rates at least a few times in 2018, which may have a negative impact on REIT performance.
Action To Take: Investing in a REIT is a great way to profit from rising real estate prices. Not only can investors score capital gains, but REITs pay some of the best dividends in the stock market. Buy any of the seven REITs above and look to pick up fat dividends and capital gains in 2018.
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