As Real Estate Flies Through the ROOF, Consider This ETF

Low supply and high demand are pushing real estate prices and the IQ U.S. Real Estate Small Cap ETF (ROOF) through the roof.

A re-opening of the economy could bring more sellers to the market and help appease demand. In the meantime, ROOF gives investors opportunities in the small cap housing arena.

ROOF seeks investment results that correspond generally to the price and yield performance of its underlying index, the IQ U.S. Real Estate Small Cap Index. The fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its index.

The index is a rules based, modified capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of the small capitalization sector of publicly traded companies domiciled and primarily listed on an exchange in the U.S. and that invest in real estate.

ROOF investors gain exposure to:

  • Diverse Exposure: Exposure to seven core REIT sectors including the specialized, retail, and office industries.
  • Yield Potential: REITs pay out 90% or more of their annual taxable income, which results in stable cash flows that may offer attractive risk-adjusted returns.
  • Broadened Real Estate Possibilities: Small cap REITs offer diversification benefits while targeting smaller properties, making them suitable complements for large cap REIT positions.


ROOF Chart

Cash Deals Highlight Strength of the Seller’s Market

One residential real estate market observation in the post-pandemic environment is the strength of the cash deal. Cash can help entice a housing offer, since it gives sellers an option to accept a deal without the buyer having to qualify for a mortgage.

“In this wild housing market, with 21% fewer homes on the market than last year and demand pushing prices to record highs, the competition for a home is fierce,” a CNN article said. “One thing that can put a potential buyer on the top of the heap is an all-cash offer.”

“An all-cash offer doesn’t mean showing up with a suitcase full of cash. But it does mean a buyer has the means to purchase the home without taking out a mortgage,” the article added. “That may seem impossible to people struggling just to save up for a 20% down payment, but the all-cash offer is becoming increasingly common. In April, 25% of all home sales were all-cash deals, up from 15% a year ago, according to the National Association of Realtors.”

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