Quick Take: Investors researching the best residential REITs to buy for dividend income can consider companies that own and operate rental housing properties. The growing financial gap between mortgage payments and rental costs is pushing more Americans to rent long-term. With CBRE forecasting 3.1% annual multifamily rent growth, residential REITs like AvalonBay Communities (AVB), Equity Residential (EQR), and manufactured housing owner UMH Properties (UMH) offer exposure to rental income and potential dividend growth.
The Rent-vs.-Buy Gap: Why Rising Housing Costs Drive Rental Demand
More Americans are renting again.
“The difference between mortgage payments and rental costs poses a substantial challenge for individuals and families trying to transition from renting to homeownership,” said Matt Vance, Americas Head of Multifamily Research at CBRE Americas Research Publications. “Many are finding that renting not only offers financial advantages, but also provides the flexibility and lifestyle benefits they value, allowing them to adapt to changing circumstances and priorities.”
CBRE Multifamily Forecast: 3.1% Annual Rent Growth Horizon
CBRE is also forecasting annual growth of 3.1% in multifamily rents over the next five years, which is above the pre-pandemic high of 2.7%.
The best part – we can profit from the trend and collect dividends with real estate investment trusts (REITs). In fact, here are three to consider.
3 High-Yield Residential REITs Capitalizing on the Rental Boom
1. AvalonBay Communities (NYSE: AVB) — Premier Metro Apartment Communities
With a yield of 2.98%, AVB is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in leading metropolitan areas in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California.
As of September 30, 2024, the Company owned or held a direct or indirect ownership interest in 305 apartment communities containing 92,908 apartment homes in 12 states and the District of Columbia, of which 19 communities were under development.
2. Equity Residential (NYSE: EQR) — High-Barrier Urban & Suburban Portfolios
With a yield of 3.7%, EQR is focused on the acquisition, development and management of residential properties located in and around cities that attract affluent long-term renters.
It owns or has investments in 314 properties consisting of 84,584 apartment units, in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California, and an expanding presence in Denver, Atlanta, Dallas/Ft. Worth and Austin.
The company also declared quarterly dividends on the Company’s common and preferred shares. A regular common share dividend for the fourth quarter of $0.675 per share will be paid on January 17, 2025 to shareholders of record on January 2, 2025.
Apartment operators in high-barrier coastal markets possess strong economic moat stocks characteristics, allowing them to raise rents consistently during inflationary cycles.
3. UMH Properties (NYSE: UMH) — Affordable Manufactured Housing Expansion
With a yield of 4.38%, UMH owns and operates a portfolio of 139 manufactured home communities with approximately 26,200 developed homesites, of which 10,300 contain rental homes, and over 1,000 self-storage units.
These communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Maryland, Michigan, Alabama, South Carolina and Georgia.
Investors building a dividend portfolio across residential and commercial REITs can use Portfolio Payouts to schedule monthly distribution cash flow.
Frequently Asked Questions About Residential REIT Investing
Q1: Why are residential REITs considered strong dividend investments during inflation?
A: Unlike commercial properties with 10-year commercial leases, residential REITs typically reset lease agreements annually. This short lease duration allows operators to raise rents in line with inflation, protecting cash flow and dividend coverage.
Q2: What is the difference between multifamily apartment REITs and manufactured housing REITs?
A: Multifamily REITs (like AVB and EQR) own high-density apartment buildings in urban and suburban centers. Manufactured housing REITs (like UMH) own land communities and leased homesites, offering lower development costs and catering to affordable housing demand.
Q3: How does interest rate volatility affect residential REIT performance?
A: Higher interest rates increase borrowing costs for REIT balance sheets, but they can also make home buying less affordable for millions of families. This may increase demand for rental housing, supporting occupancy rates and rent pricing power. These factors are worth considering when evaluating the best residential REITs to buy for dividend income.
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Written by Ian Cooper