REIT ETFs to Play Higher Rents

June 22nd at 12:15pm by Tom Lydon

The latest real estate trend has become residential rental housing. Slow job growth and fear of another market downturn have created a spike in the number of U.S. citizens that are renting rather than purchasing a home. Rather than directly purchasing a rental property, there are exchange traded funds to track this market.

“The current market makes a strong case for rental growth. The collapse in housing prices during the three years of the Great Recession wiped out nearly 39% of U.S. households’ net worth, according to a Federal Reserve study released last week. But people still have to live somewhere  — and that usually means multifamily apartments or rented homes,” Susan J. Aluise for InvestorPlace wrote. [ETF Chart of the Day: REITs]

There are several ETFs that invest in real estate investment trusts, or REITs.

A recent Freddie Mac story illustrated the rental rush, which found that 1.5 million families or households have moved into rentals this year. This is a 4% increase in one year, and add into this that rents rose 2%-4% over the same time period, reports Aluise. [ETF Spotlight: REITs]

REITs pay out about 90% of their annual earnings to investors, which gives this investment asset class more clout. Investors are searching for yield and diversifying funds that pay out a decent dividend. [REIT ETFs Quietly Storm the Markets]

Rental real estate ETFs:

  • iShares FTSE NAREIT Residential Plus Capped Index Fund (NYSEArca: REZ) This ETF is the closest thing to a residential rental REIT pure play. The fund yields 3.7%, with an expense ratio of 0.48. REZ is up 8% year-to-date.
  • SPDR Dow Jones REIT ETF (NYSEArca: RWR) This ETF invests in residential real estate and health care property. The yield is at 2.9% with an expense ratio of 0.26. RWR is up 12% year-to-date.
  • Vanguard REIT ETF (NYSEArca: VNQ) This ETF invests in 100 different REIT ETFs in the U.S. A dividend yield of 3.3% and an expense ratio of 0.12 makes this fund affordable. VNQ is up 12% year-to-date.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.